Incoterms in the used clothing trade - FOB, CIF, CFR, and DAP explained and who carries the risk

Incoterms are international trade rules that define the point at which risk and transport costs pass from the seller to the buyer. In the used clothing trade, FOB, CIF, CFR, and DAP are the most commonly used - each one splits responsibility for sea freight, insurance, and customs clearance differently. Below, we explain how these variants differ and which one to choose depending on the importer's logistics experience.

Key takeaways

• Incoterms define the point at which risk transfers and how transport costs are split between seller and buyer - they do not regulate the price of the goods.
• FOB transfers risk to the buyer as soon as the goods are loaded onto the vessel at the port of departure - the buyer arranges and pays for sea freight.
• CIF and CFR differ in that CIF additionally includes basic cargo insurance paid for by the seller.
• DAP shifts responsibility for delivery to a named place in the importer's country onto the seller, excluding import clearance.
• A&E Clothing delivers under CIF and EXW terms; the choice depends on the importer's logistics experience.

What are Incoterms and what are they for?

Incoterms (International Commercial Terms) are a set of standardized trade rules developed by the International Chamber of Commerce (ICC) that define how duties, costs, and risk are split between the seller and the buyer in an international transaction. The currently applicable version is Incoterms 2020.

These rules answer three basic questions in every import transaction:

• Who arranges and pays for transport at each stage of the route.
• At what point the risk of loss or damage to the goods passes from the seller to the buyer.
• Who is responsible for export and import customs clearance and the related documents.

Incoterms do not regulate the price of the goods, the form of payment, or ownership rights - these are separate matters agreed in the sales contract. In the used clothing trade, the most commonly encountered rules are FOB, CIF, CFR, and DAP; each one splits responsibility differently.

What's the difference between FOB and CIF?

FOB (Free On Board) means the seller delivers the goods onto the vessel at the port of departure, and risk and costs pass to the buyer from that point on; the buyer independently arranges and pays for sea freight, insurance, and import clearance.

CIF (Cost, Insurance, Freight) extends the seller's obligations: the seller pays for sea freight and basic cargo insurance to the destination port. Even so, the risk of loss or damage to the goods passes to the buyer as soon as the goods are loaded onto the vessel at the port of departure - exactly as under FOB. The difference lies in who pays for transport and insurance, not in who carries the risk during the voyage.

For an importer without an existing network of contacts in the sea freight industry, CIF is a more convenient starting point - they don't need to negotiate transport rates with carriers themselves. FOB works well for an ongoing partnership, once the importer has already negotiated favorable freight rates and wants full control over the choice of carrier.

What is CFR and when is it used?

CFR (Cost and Freight) is a rule that sits between FOB and CIF; the seller pays for sea freight to the destination port, just as under CIF, but does not provide cargo insurance. Risk passes to the buyer at the point of loading onto the vessel, exactly as under FOB and CIF.

CFR is typically used when the buyer already has their own, more favorable insurance policy covering the import of goods and does not want to pay for insurance built into the seller's offer. This solution suits importers with some experience in international logistics who manage transport insurance themselves.

What does the DAP rule cover?

DAP (Delivered At Place) shifts responsibility for delivering the goods to a named place in the importer's country - for example, the buyer's warehouse - onto the seller, excluding import clearance and the related charges (duty, import VAT), which remain the buyer's responsibility.

The key difference compared with FOB, CIF, and CFR: under DAP, risk passes to the buyer only at the point of delivery to the named place, not at loading onto the vessel. The seller is responsible for the entire transport chain - sea and inland - to the agreed destination point.

DAP is convenient for an importer who wants to limit their logistics responsibility to a minimum, but it usually comes with a higher price in the seller's offer, since the seller factors in the cost of the entire transport route and the risk associated with it.

What is EXW and why does it demand the most from the buyer?

EXW (Ex Works) is a rule under which the seller's obligations end the moment the goods are made available to the buyer at the seller's warehouse or sorting facility. Risk and costs pass to the buyer already at that point, not at loading onto the vessel as under FOB, CIF, and CFR.

In practice, this means the buyer independently arranges:

• Transport of the goods from the seller's warehouse to the port of departure.
• Export customs clearance in the seller's country.
• Sea freight, insurance, and import clearance in the destination country.
• Inland transport from the destination port to their own warehouse.

EXW gives the buyer the greatest control over the entire transport chain, but it also requires the most logistics experience and network of contacts - with carriers, customs agents on both ends of the route, and insurance companies. This rule is typical for ongoing partnerships and is rarely chosen for a first order.

Example: how does responsibility change along a transoceanic route?

The example below shows how the same transoceanic transport route - for example, from a US port to an importer's warehouse in Europe, or from the sorting facility in Poland to a buyer outside the European Union - looks different depending on the Incoterms rule chosen. The stages below (export clearance, sea freight, import clearance) apply to a route crossing the EU customs border; for intra-EU transport, for example from the sorting facility in Poland to a buyer in Germany, these stages do not apply, since the goods already circulate as EU goods.

Same goods, same route - but a completely different split of duties and risk depending on the rule chosen. That's why agreeing on Incoterms at the offer negotiation stage has a direct effect on how much logistics work and how much risk the importer takes on.

Which variant should you choose for a first import, and which for an ongoing partnership?

The choice of Incoterms rule depends mainly on the importer's logistics experience and the scale of the partnership, not on one universally best variant.

• For a first import - CIF or DAP limit the number of logistics decisions on the importer's side, who doesn't yet need their own contacts with carriers or insurance brokers.
• For an ongoing, repeat partnership - FOB or CFR give the importer greater control over transport cost, if they've managed to negotiate competitive freight rates on their own.
• For large order volumes - the difference in transport cost between the rules becomes increasingly noticeable, which favors rules that give the importer more control (FOB, CFR), provided they have the right logistics backing.

There's no universally safer rule - each transfers risk at a different point, and the decision should take into account the importer's actual ability to manage transport at that stage.

Hidden costs worth remembering regardless of which rule you choose

Regardless of the Incoterms rule chosen, the importer should factor in costs that aren't always explicitly stated in the seller's offer.

• Port and terminal fees. Charged at the destination port, regardless of whether sea freight was paid by the seller or the buyer.
• Demurrage and detention. Charges for holding a container at the port or off-terminal longer than the allotted time - these can significantly burden the importer's budget in the event of clearance delays.
• Customs clearance and customs agent costs. Under rules where import clearance falls to the buyer (FOB, CIF, CFR), the importer should factor this line item into their calculation, independent of the cost of the goods themselves.
• Inland transport from the port to the warehouse. Under FOB, CIF, and CFR, the seller's responsibility ends at the destination port - the importer arranges further transport to the warehouse independently.

Consciously factoring these items into the order profitability calculation helps avoid unpleasant financial surprises after signing the contract with a supplier.

The most common mistakes when applying Incoterms in the used clothing trade

Used clothing importers, especially on their first orders, tend to make a few recurring mistakes related to Incoterms that are easy to eliminate with proper preparation.

• Confusing the point risk transfers with the point transport is paid for. Under CIF and CFR, the seller pays for freight, but risk passes to the buyer already at loading - this is a common misunderstanding that leads to disputes if goods are damaged during the voyage.
• Not factoring in the buyer's costs under FOB/CIF/CFR rules. Import clearance, transport from the port to the warehouse, and port fees remain the buyer's responsibility regardless of who pays for sea freight.
• Choosing a rule that doesn't match your own logistics experience. EXW on a first import without support from an experienced broker can be risky - the importer takes on the entire complexity of the transport chain from day one.
• Treating Incoterms as a price negotiation tool rather than a risk split. The choice of rule should follow from the importer's actual logistics capability, not solely from a desire to lower the offer price by the transport cost the seller has built in.
• No written confirmation of the chosen rule in trade documentation. Incoterms should be clearly stated on the invoice and in the contract - their absence or an ambiguous statement leads to disputed interpretations if problems arise with the shipment.

How do Incoterms affect inventory planning and delivery timelines?

The choice of Incoterms rule has a direct effect on how precisely an importer can plan delivery timing and restock a shop or wholesale warehouse.

• Rules with transport arranged by the seller (CIF, CFR, DAP) give the importer a single point of contact in case of delays - it's easier to get a current shipment status from one trading partner.
• Rules with transport arranged by the buyer (FOB, EXW) require coordination with several parties (carrier, customs agent, insurer) - they give more control, but also require more operational work when planning delivery timing.
• Seasonal assortment planning (for example, ahead of the fall-winter season) should account not only for sea transport time, but also for a buffer for customs clearance and possible port delays - regardless of the rule chosen.

Importers planning regular, repeat orders gain more predictable timelines over time, regardless of the Incoterms rule chosen - the key is an ongoing partnership with one supplier and clearly agreed delivery terms.

Which delivery terms does A&E Clothing use?

A&E Clothing delivers under CIF and EXW terms - the choice of variant depends on the importer's experience with international logistics and on the scale and frequency of orders.

• CIF - the seller pays for sea freight and basic insurance to the destination port. A good starting point for importers without their own network of contacts in the freight industry.
• EXW (Ex Works) - the buyer arranges transport from the point of loading at our used clothing sorting facility, covering the entire route, including sea freight. This works well for an ongoing partnership, once the importer has already built relationships with carriers.

The specific rule is agreed individually at the offer preparation stage - depending on whether the importer prefers simplified logistics (CIF) or full control over transport cost (EXW).