Incoterms 2020, Applied to Real Cargo
Three letters decide who pays, who insures, and where risk changes hands. Here is how the terms that dominate commodity trade actually allocate them.
Overview
Why the term matters as much as the price
An offer of "$X per metric ton" means nothing until you know the Incoterm behind it. The same cargo priced FOB Santos and CIF Lagos differs by the entire cost of ocean freight and insurance — and by who carries the exposure if the market or the voyage goes wrong.
Incoterms® 2020, published by the International Chamber of Commerce, are the current edition governing delivery terms in international trade. Sugar and bulk commodity business concentrates in three of them: FOB, CFR, and CIF.
Capabilities
The three terms that move commodities
FOB — Free on Board
Seller delivers when goods are loaded on board the vessel at the named loading port. From that moment, risk and cost belong to the buyer, who arranges and pays freight and insurance. Preferred by buyers who control their own shipping and want freight-market flexibility.
CFR — Cost and Freight
Seller contracts and pays freight to the named destination port, but risk still transfers at loading. The buyer insures. Common when sellers have freight-buying advantage but buyers prefer their own cover.
CIF — Cost, Insurance & Freight
As CFR, plus the seller provides marine insurance to destination — conventionally all-risks cover at 110% of invoice value. The most common term for documentary-credit sugar business, because the LC can call for the insurance certificate in the document set.
The risk/cost split people miss
Under both CFR and CIF, the seller pays costs to destination — but risk transfers at the loading port. If the cargo is lost mid-ocean under CIF, the buyer claims on the insurance; the seller has still performed.
Terms you'll see less often
FAS (alongside ship), DAP (delivered at place), and DDP (delivered duty paid) appear in niche structures. DDP in particular imports the seller into destination customs obligations most sellers should not accept.
Choosing the right term
Control follows cost: pay for the freight leg you want to control. Buyers with destination-terminal leverage buy FOB; buyers who want one landed price buy CIF. Aerisus structures either — and models both before you choose.
FAQ
Common Questions
Which Incoterm does Aerisus usually trade on?
Most sugar business concludes FOB Santos or CIF/CFR destination under Incoterms 2020. We quote both where useful, with the freight and insurance components broken out.
Do Incoterms decide when payment happens?
No — payment timing lives in the contract and the letter of credit. Incoterms allocate delivery obligations, costs, and risk transfer. The two work together but are separate instruments.
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