This guide covers: what Incoterms define and the five responsibility areas they govern (CONTEXT), the seven Incoterms most relevant to electronics and PCB procurement — with pro/con analysis for each (POINT 01 and POINT 02), a responsibility matrix showing all seven terms side by side (POINT 03), selection criteria by buyer situation (POINT 04), and four practical notes on insurance scope, EXW's hidden complexity, customs procedure details, and correct contract specification (POINT 05).
Incoterms® (International Commercial Terms) are a set of international trade rules published by the International Chamber of Commerce (ICC). The current version is Incoterms® 2020, which defines 11 terms covering the division of responsibilities between seller and buyer. They are not a substitute for a complete sales contract — they define logistics and risk responsibilities only, not payment terms, ownership transfer timing, or dispute resolution procedures.
For electronics and PCB procurement from overseas manufacturers, Incoterms govern five areas that generate the most common disputes in international transactions:
DELIVERY POINT
Where the seller's delivery obligation ends
The named place in the Incoterm defines the point at which the seller has fulfilled their delivery obligation. Everything up to that point is the seller's responsibility; everything after is the buyer's.
TRANSPORT
Who arranges and pays for carriage
Some Incoterms require the seller to arrange and pay for main carriage (CIF, CIP, DAP, DDP); others leave it to the buyer (EXW, FOB, FCA). This directly determines who negotiates freight rates and who benefits from volume discounts.
RISK TRANSFER
Where loss or damage risk passes to the buyer
This is the most critical and often most misunderstood element. Risk transfers at the named place — not at the destination. Under FOB, risk transfers when goods are loaded on the vessel at the origin port, even though the buyer does not physically receive the goods until weeks later.
INSURANCE
Who arranges cargo insurance and to what scope
Only CIF and CIP require the seller to arrange insurance. Under all other Incoterms, the party bearing risk is responsible for insuring against it. Under CIF, the minimum required insurance scope (ICC C) is limited — this is a critical practical point covered in POINT 05.
CUSTOMS
Who handles export and import clearance
Export customs clearance (in the seller's country) is the seller's responsibility under all Incoterms except EXW. Import customs clearance (in the buyer's country) is the buyer's responsibility under all Incoterms except DDP. This distinction matters practically — a buyer purchasing under EXW from China cannot perform Chinese export customs without a Chinese legal entity.
SCOPE LIMITATION
What Incoterms do NOT cover
Incoterms do not define: payment method or timing, title (ownership) transfer, consequences of contract breach, intellectual property, or the governing law of the contract. These must be addressed separately in the sales contract.
Incoterms® 2020 vs earlier versions: Two changes in Incoterms® 2020 are particularly relevant to electronics procurement. First, CIP now requires the seller to provide maximum ICC (A) insurance (up from minimum ICC (C) under Incoterms 2010) — a significant improvement in coverage. Second, DAT was renamed DAP/DPU (Delivered at Place Unloaded) to clarify unloading responsibilities. Always specify "Incoterms® 2020" in contracts — using a prior version without specifying creates ambiguity about which insurance and responsibility rules apply.
Under these terms, the buyer arranges and pays for main carriage and insurance from the origin point. This gives the buyer maximum control over freight costs and carrier selection — and maximum responsibility for logistics management. These terms are preferred by buyers with established freight forwarding relationships and significant import volume.
EXW
Ex Works — named place (seller's premises)
Any mode — but rarely practical
The seller makes goods available at their premises. The buyer bears all costs and risks from that point — including loading at the seller's facility, export customs in the seller's country, all transport, insurance, import customs, and duties.
Risk →Passes at seller's premises
ExportBuyer's responsibility (problem in practice)
Lowest stated price — seller costs minimised
Buyer must handle Chinese/overseas export customs — requires local legal entity
Often not genuinely usable — defaults to FCA in practice
FOB
Free on Board — named port of shipment
Ocean freight only
The seller delivers goods on board the vessel at the named port. Risk transfers on loading. The buyer arranges and pays for ocean freight from the origin port, insurance, import customs, and all onward costs.
Risk →Passes on vessel loading at named port
ExportSeller handles export customs
Widely used — practical and well understood
Buyer controls freight costs and carrier choice
Ocean freight only — do not use for air shipments
Buyer arranges freight, insurance, import customs, inland delivery
FCA
Free Carrier — named place
Any transport mode
The seller delivers goods to the buyer's named carrier at the named place. Works for ocean, air, truck, or rail. For air freight electronics procurement, FCA replaces FOB as the correct term. The named place can be seller's premises, an airport, or a freight terminal.
Risk →Passes at named place to buyer's carrier
ExportSeller handles export customs
Mode-neutral — correct for air freight (unlike FOB)
Flexible named place — can be factory, airport, or terminal
Buyer arranges main carriage, insurance, import customs
⚠ FOB does not apply to air freight: Using FOB terms for air freight shipments is technically incorrect under Incoterms® 2020 and creates a responsibility gap — there is no "vessel" at which risk transfers for an air shipment. The correct term for air freight is FCA (Free Carrier), with the airport or freight terminal as the named place. In practice, many buyers and sellers continue to write "FOB" for air shipments by convention — but if a loss occurs, the ambiguity about where risk transferred can create an uninsured gap. Specify FCA for all air freight shipments.
Under these terms, the seller arranges and pays for main carriage — and in most cases insurance — to a named destination. This reduces the buyer's logistics burden but reduces their control over freight costs and carrier quality. These terms are appropriate for buyers with limited import infrastructure, first-time overseas purchases, or shipments with special handling requirements that the seller is better positioned to manage.
CIF
Cost, Insurance and Freight — named destination port
Ocean freight only
The seller pays freight and minimum insurance to the named destination port. Risk transfers at origin on vessel loading — not at destination. The buyer handles import customs and onward inland delivery from the port.
Risk →Passes at origin on vessel loading
InsuranceSeller — minimum ICC (C) scope only
Seller handles ocean freight and basic insurance
Simpler for buyer — fewer logistics decisions
ICC (C) insurance scope is limited — may not cover electronics damage
Ocean only — use CIP for air freight
Buyer still handles import customs and inland delivery
CIP
Carriage and Insurance Paid To — named destination
Any transport mode
The mode-neutral equivalent of CIF — works for air, ocean, road, and rail. Under Incoterms® 2020, CIP requires the seller to provide maximum ICC (A) insurance (all-risks), a significant upgrade from CIF's minimum ICC (C). Preferred over CIF for air freight and for better insurance coverage.
Risk →Passes at origin point of handoff to carrier
InsuranceSeller — maximum ICC (A) scope (Incoterms® 2020)
Mode-neutral — correct for air freight (unlike CIF)
ICC (A) insurance covers all-risks including theft and water damage
Buyer still handles import customs and duties
DAP
Delivered at Place — named destination
Any transport mode
The seller delivers goods to the named destination (buyer's warehouse or nominated address), bearing all transport costs and risks. Import customs and import duties remain the buyer's responsibility. Practical when the buyer wants the seller to manage all transport but already has an established customs broker.
Risk →Passes at named destination — seller bears transit risk
ImportBuyer handles customs clearance and duties
Seller manages all transport — buyer receives at door
Useful for special handling or temperature-controlled shipments
Buyer must have customs broker and import capability
DDP
Delivered Duty Paid — named destination
Any transport mode
The seller delivers goods to the named destination with all costs paid — including import customs clearance and import duties. The buyer simply receives the goods. Maximum convenience for the buyer; maximum obligation for the seller.
Risk →Passes at named destination
ImportSeller handles customs and pays duties
Minimum buyer burden — no logistics or customs involvement required
Best for first-time imports or small-volume purchases
Highest stated price — all costs included in seller's quote
Seller must be capable of import procedures in buyer's country
Import VAT/consumption tax handling can be ambiguous — confirm explicitly
The table below summarises which party — seller (S) or buyer (B) — bears each responsibility under the seven Incoterms most commonly used in electronics and PCB procurement. Use this as a quick reference when evaluating quotes or drafting purchase orders.
| Term |
Export customs |
Origin transport |
Main carriage |
Insurance |
Import customs |
Import duties |
Inland delivery |
| EXW |
B |
B |
B |
B |
B |
B |
B |
| FOB |
S |
S |
B |
B |
B |
B |
B |
| FCA |
S |
S |
B |
B |
B |
B |
B |
| CIF |
S |
S |
S |
S (min) |
B |
B |
B |
| CIP |
S |
S |
S |
S (ICC A) |
B |
B |
B |
| DAP |
S |
S |
S |
S |
B |
B |
S |
| DDP |
S |
S |
S |
S |
S |
S |
S |
S = Seller's responsibility · B = Buyer's responsibility · S (min) = Seller provides minimum ICC (C) insurance · S (ICC A) = Seller provides maximum all-risks ICC (A) insurance under Incoterms® 2020
The right Incoterm depends on the buyer's logistics capability, procurement volume, and the specific transaction context. The four scenarios below cover the most common situations in PCB and electronics procurement.
First-time importer
CIF or DDP
No established freight or customs infrastructure
CIF means the seller handles ocean freight and basic insurance — the buyer only needs to arrange import customs clearance and inland delivery, typically through a freight forwarder. DDP removes even the import customs step. For first overseas PCB purchases, DDP is the simplest starting point even at a higher unit price. Once import processes are established, shift to CIF or FCA for better freight cost control.
Multiple suppliers
FOB or FCA
Consolidating shipments from multiple sources
When purchasing from multiple suppliers in the same country, FOB (ocean) or FCA (air) allows consolidation through a single freight forwarder — combining multiple suppliers' goods into a single shipment to reduce per-unit freight costs. With CIF or DDP, each supplier arranges their own transport, preventing consolidation. Standardising on FOB or FCA across suppliers also makes freight costs directly comparable between quotes.
High volume / cost optimisation
FOB or FCA
Maximising freight cost control
At sufficient import volume, a direct contract with a freight forwarder or carrier provides significantly better rates than paying for transport embedded in the supplier's CIF price. The supplier's CIF freight margin adds cost without adding service value. FOB or FCA gives the buyer direct negotiating leverage over freight rates and allows carrier selection based on transit time, reliability, and cost — not the supplier's preferred freight partner.
Special requirements
DAP or DDP
Temperature, hazmat, or complex compliance requirements
For PCBs or components requiring temperature-controlled transport, specialised packaging, or complex export compliance documentation (dual-use components, ECCN classification), assigning transport responsibility to the seller via DAP or DDP leverages their existing expertise and infrastructure. The seller who knows the product is better positioned to specify correct transport conditions than a buyer's freight forwarder who may not. DAP is preferred over DDP when the buyer already has a customs broker and wants to control import procedures independently.
Note 1 — CIF Insurance Scope: ICC (C) Is Not Adequate for Electronics
Under CIF, the seller is required to provide minimum marine insurance to the ICC (C) clause. ICC (C) is a named-perils policy covering a limited list of catastrophic events: fire, explosion, vessel sinking, stranding, collision, jettison, and general average sacrifice. It explicitly excludes theft, pilferage, water damage from rain or condensation, breakage, leakage, and electrical damage — all of which are real risks for electronics shipments. If you are receiving shipments under CIF and the goods are damaged by moisture exposure or package mishandling during transit, ICC (C) will not cover the loss.
Options when CIF insurance scope is insufficient: (1) Negotiate with the seller to upgrade to ICC (A) insurance (all-risks) — some sellers will do this at no or minimal additional cost. (2) Specify CIP instead of CIF — under Incoterms® 2020, CIP requires ICC (A) as the minimum seller-provided insurance scope. (3) Arrange your own additional marine insurance as the buyer — this is always an option regardless of Incoterm and gives you direct control over coverage scope and claims handling. For high-value electronics shipments, buyer-arranged all-risks coverage is the most reliable approach even when CIP is specified, because it keeps you in direct control of the claims process.
Note 2 — EXW's Hidden Problem: Export Customs in the Seller's Country
EXW is sometimes quoted by Chinese PCB suppliers as the lowest-price option. The practical problem is that Chinese export customs clearance requires a Chinese-registered legal entity — which the foreign buyer does not have. In most actual EXW transactions from China, the seller still handles export customs as a practical matter, making the transaction operationally identical to FCA but with ambiguous contract terms. Using EXW for Chinese PCB procurement creates a documented responsibility gap that only becomes a problem when something goes wrong. Use FCA instead — it accurately reflects what actually happens and eliminates the responsibility ambiguity.
Note 3 — DDP and Import VAT: Confirm Handling Before Committing
Under DDP, the seller is responsible for paying import duties and — technically — import VAT (consumption tax). In practice, import VAT handling under DDP is the most common source of confusion and dispute in this Incoterm. In Japan, import consumption tax must be accounted for by the importer of record, which under DDP is the seller — creating complex tax filing obligations for a foreign entity. Many sellers who offer DDP do not have a clear understanding of how import consumption tax is handled in the buyer's jurisdiction, leading to either: the tax being embedded in the DDP price without transparency, the tax being invoiced separately after delivery (contradicting DDP terms), or the seller incorrectly representing DDP when they actually mean DAP. Before accepting DDP terms, explicitly confirm how import consumption tax will be handled, what documentation will be provided for customs, and whether the seller has experience with DDP into your specific import country.
Note 4 — Correct Incoterm Specification in Contracts and Purchase Orders
Required elements for a complete, unambiguous Incoterm specification:
1. The term abbreviation: FOB, FCA, CIF, CIP, DAP, or DDP
2. The Incoterms version: always "Incoterms® 2020"
3. The named place or port — as specific as possible
Correct examples:
"FOB Shanghai Incoterms® 2020"
"FCA Seller's Premises, Foshan, Guangdong Incoterms® 2020"
"CIP Tokyo Narita Airport (NRT) Incoterms® 2020"
"DDP Buyer's Warehouse, Tsukuba, Ibaraki, Japan Incoterms® 2020"
Common errors to avoid: Writing only "FOB" without a named port or version. Writing "FOB" for an air shipment (use FCA). Copying Incoterms from a previous contract for a different shipment mode or destination without updating the named place. Using "CIF" without confirming the insurance scope is adequate for the goods being shipped.
⚠ Risk transfers before delivery under CIF and CIP: A frequently misunderstood aspect of CIF and CIP is that risk transfers to the buyer at the origin point — not at the destination. Under CIF, the seller pays for freight and insurance to the destination port, but risk passes to the buyer when the goods are loaded on the vessel at the origin port. If goods are damaged in transit between the origin port and the destination, it is the buyer's claim to make against the seller-arranged insurance — not the seller's problem. This is why the scope of CIF insurance matters so much: the buyer bears the risk while the seller arranges the insurance, and minimum ICC (C) scope means the buyer may have inadequate coverage for a loss they are technically responsible for.
Summary
Incoterms define five areas of responsibility that determine who pays for transport, who arranges insurance, who handles customs, and where risk transfers — all of which generate expensive disputes when misunderstood or omitted from contracts. For air freight, always use FCA or CIP — never FOB or CIF. For first imports or small volumes, start with CIF or DDP to minimise logistics burden. For multi-supplier consolidation or volume optimisation, standardise on FOB (ocean) or FCA (air) to control freight costs. Check CIF insurance scope — ICC (C) is often inadequate for electronics; consider CIP (ICC A) or buyer-arranged all-risks cover. Confirm DDP import VAT handling explicitly before accepting those terms. Always specify term + Incoterms® 2020 + named place in every contract, PO, and commercial invoice.