Incoterms: Where “Cheap” Quotes Get Very Expensive
Two shipments can have the same price and the same destination, yet deliver radically different outcomes. That’s because E/F/C terms decide three things:
Control: who books the carrier and sets the routing/insurance.
Risk: the exact point at which loss/damage risk transfers from seller to buyer.
Hidden costs: where surprise charges emerge (destination documentation, storage, demurrage, detention).
In the previous article, we explained how Incoterms shape these three elements and why understanding the structure matters before choosing a rule. In this second part, we go deeper, breaking down EXW, FOB, FCA, and CIF one by one to show where costs actually arise, how risk and control become misaligned, and how to choose the rule that protects you.
If your responsibility is higher than your control, you’re set up for a bad outcome. The cure is selecting the right rule and naming the place precisely.
How Each Rule Actually Works
EXW (Ex Works): Seller makes goods available at their premises; not loaded.
Risk transfer: When goods are placed at seller’s premises, not loaded.
Buyer responsibilities: Pickup, export clearance, inland haulage, booking, documentation, freight, insurance.
Common traps: Buyers often cannot legally clear export in China; EXW “cheap” quotes lead to high origin costs.
Control: Buyer controls the carrier/insurance but with limited leverage at origin.
FOB (Free On Board - sea freight): Seller delivers once goods are on board the vessel.
Risk transfer: When the goods physically cross the ship’s rail at origin port.
Seller responsibilities: Export clearance and origin operations up to loading.
Common traps: Container sits in the yard for days before loading, incidents here fall into a grey zone.
Control: Split, seller handles origin handoff; buyer controls main carriage and insurance.
FCA (Free Carrier): Seller delivers to the buyer’s nominated carrier at the named place.
Risk transfer: Upon delivery to the buyer’s carrier (terminal, warehouse, CY).
Seller responsibilities: Export clearance; buyer arranges freight and insurance.
Common traps: Poorly defined named place or unclear handover instructions → disputes.
Control: Buyer-controlled booking and insurance; risk and control align better for container shipments.
CIF (Cost, Insurance & Freight - sea freight): Seller pays freight and minimum insurance to destination port.
Risk transfer: At origin, once goods are on board; risk passes early despite seller paying freight.
Seller responsibilities: Freight booking and minimal insurance.
Common traps: Insurance is narrow; limited control over carrier choice; hidden destination fees remain buyer’s risk.
Control: Seller pays freight/insurance; buyer bears transit risk after shipment.
Keep in mind that contract terms can significantly change how responsibilities and documents are handled. If the rule, version, and named place aren’t defined precisely (e.g., “FCA [Origin CY/terminal], Incoterms® 2020”), misunderstandings and unexpected costs become very likely.
FOB vs FCA: the Terminal Risk Gap
Scenario A : Container Yard Damage Before Loading
FOB: Risk remains with the seller until the container is physically on board. If damage occurs after terminal gate‑in but before loading, the seller is on the hook in principle but because the buyer controls the booking/carrier, recovering from the terminal can be messy and contested.
FCA: Risk transfers the moment the terminal (acting for the buyer’s nominated carrier) accepts the unit (gate‑in/receipt). Damage after that point is the buyer’s risk; the buyer also controls the carrier and insurance, so liability and claims handling line up.
Scenario B: Missed Vessel due to Yard Delay
FOB: Delays prior to loading can trigger storage/handling charges with ambiguous fault lines.
FCA: Once the carrier accepts the unit, your team controls rebooking and mitigations, aligning costs with control.
Scenario C: Small Shipments Combined Before Sailing
When you ship only a few pallets or cartons, your goods are dropped at a warehouse where they’re combined with other buyers’ goods days before the ship loads. The real hand‑over happens when that warehouse signs for your cargo.
FOB: Pretends delivery happens only once the ship is loading, ignoring this earlier period when loss or damage can happen.
FCA: Sets the delivery point at the moment the warehouse accepts the goods, so responsibility, insurance, and claims match what actually happens.
Hidden Costs Decoded
Hidden charges are where “cheap” quotes become expensive. Three fees matter most.
Demurrage is a daily fee from the shipping line when a full container stays inside the port or terminal beyond the free‑time window. It is essentially rent for the container’s use of the terminal after your included days expire, and it starts the moment the “last free day” passes.
Detention is a daily fee from the shipping line when you keep the container outside the terminal longer than allowed. Think of it as a late‑return charge for the box while it sits at your site or with a trucker; slow unloading, weekend closures, or a missed return slot can trigger it.
Port storage is a separate fee charged by the terminal/port for the ground space your container occupies. Storage is billed by the terminal, not the shipping line, and it can run at the same time as demurrage, one reason totals sometimes climb faster than expected.
Most of these costs appear for the same practical reasons: documents aren’t ready in time, a customs exam or valuation check holds the box, a vessel rolls to a later departure, or trucking and unloading slots aren’t secured. Free time varies by carrier and port (commonly a few days at the terminal and a few days for container return), so always verify the exact allowance before booking. A simple way to estimate exposure is to multiply the posted daily rate by the number of days you expect to exceed free time and by the number of containers.
To prevent or cap these charges:
Handle the basics early and agree the approach in advance
Ask for the free‑time allowance up front and extend it in the quote when the timetable looks tight
Pre‑clear the commercial invoice, packing list, HS codes and any permits before arrival
Pre‑book trucking and unloading appointments to avoid weekend and holiday pile‑ups
Set an internal alert for the “last free day.”
Decide who can authorize fast fixes (split deliveries, overtime labor, or off‑hour pick‑ups) so you can stop the clock when plans change.
Questions You Must Clarify Before Booking
Who owns the booking and chooses the carrier/service, and what exact service string will be used?
What is the exact Incoterm and named place (e.g., “FCA [Origin terminal], Incoterms® 2020”)?
Who clears export in China, and who pays the local origin charges?
What insurance level is required (ICC A/B/C), what add-ons apply, and can the seller provide the policy/COI?
How many days of terminal free time and container return are included, and what are the demurrage/detention/storage tariffs?
What destination document fees will apply (D/O, handling, any agency fees), and can they be itemized?
If a bank is involved, which document will be issued (carrier B/L or forwarder B/L), and when will the on-board notation be available?
What is the rollover/delay plan if the ship is missed or customs holds occur, and who decides and pays for rebooking and extra days?
Why Your Shipment is Safer with Us
Most problems in international shipping come from a simple mismatch: you carry the risk but don’t control the move. Our job is to align those two.
What we do differently:
Control with accountability: We help you pick terms that match modern container reality and lock the named place precisely.
Transparent cost architecture: Before you commit, we map “origin → main carriage → destination” costs, including free‑time and tariff sheets, so you don’t get ambushed at the port.
Proactive delay management: We monitor cut‑offs and last free day, pre‑clear documents, and line up trucking so demurrage/detention don’t snowball.
Compliance first, global scope: China‑origin expertise with destination‑agnostic compliance; no shortcuts that create audit risk later.
The result is a shipment where total cost is predictable, documents move smoothly, and risk is placed with the party who actually controls each step. That is the standard we uphold at FortuneSix.
If you want the same clarity and control in your China sourcing, contact us to discuss your shipment.