Incoterms in Sea Freight: Who Pays What and Who Bears the Risk
Incoterms (International Commercial Terms) are standardised delivery terms developed by the International Chamber of Commerce. They answer three key questions in every international transaction: who arranges transport, who pays for freight and insurance, and at what point the risk of loss or damage transfers from seller to buyer. The current edition is Incoterms 2020, published by the International Chamber of Commerce (ICC).
For a Ukrainian importer, Incoterms are not a contract formality — they have a direct impact on the shipment budget. Under FOB, the seller delivers goods on board the vessel and everything beyond that is your cost and your risk. Under DDP, the seller pays for everything through to your warehouse. The difference in total landed cost can be 15–40% of the goods value. How these terms affect port charges (THC, demurrage, storage) is covered below.
The Six Incoterms Most Commonly Used for Sea Shipments to Ukraine
EXW — Ex Works
The seller's minimum obligation: goods are simply made available at their premises or factory. Everything else — arranging export from the seller's country, export customs clearance, freight, import customs clearance, delivery to warehouse — falls on the buyer. In practice, EXW from China means you must independently hire an agent in China for cargo collection and export formalities. For most Ukrainian importers EXW creates unnecessary complexity — FOB or FCA is a better choice.
FOB — Free On Board
The most widely used delivery term for shipments from China and Asia. The seller delivers goods to the port of loading and loads them on board the vessel. Once on board, risk and costs pass to the buyer: freight, THC at the discharge port, customs clearance in Ukraine, delivery to warehouse. Under FOB the buyer selects the shipping line and freight forwarder, retaining control over the route and freight cost.
CFR — Cost and Freight
The seller pays freight to the destination port, but risk transfers to the buyer at the moment of loading — not at the destination port. This is an important nuance: if cargo is damaged in transit, the buyer was the party responsible for insurance (there is none under CFR). If you want the seller to pay freight but prefer to control insurance yourself, choose CFR and arrange your own policy. For more on insurance, see our article «Marine Cargo Insurance».
CIF — Cost, Insurance and Freight
The seller pays freight and insurance, but takes out the policy at minimum coverage — ICC (C) — which covers only a limited list of risks (sinking, fire, grounding). Cargo is protected under CIF, but only barely. The buyer may additionally insure against «all risks» (ICC A) at their own expense. Under CIF, as under CFR, risk transfers at loading, not at the destination port.
DAP — Delivered at Place
The seller assumes all costs and risks through to delivery at the agreed location in the destination country (for example, your warehouse in Kyiv). Import customs clearance in Ukraine remains the buyer's responsibility. DAP is convenient when the seller has established logistics into Ukraine and you trust their freight forwarder. The downside: you lose control over the route and may overpay for freight that the seller has built into the goods price.
DDP — Delivered Duty Paid
Maximum seller responsibility: the seller pays everything, including Ukrainian import duty and VAT. In practice, DDP from China is rare — Chinese suppliers generally avoid dealing with Ukrainian customs. If DDP is offered, ask who actually files the declaration (most likely a Ukrainian customs broker hired by the seller, whose fee is included in the price).
Which Delivery Term to Choose: Recommendations for Ukrainian Importers
- From China, first shipments → FOB. You control the freight forwarder and route, can choose a trusted shipping line, and insure the cargo for the right amount.
- From China, large regular volumes → FOB or EXW with your own agent in China. Savings on freight through consolidation of multiple consignments.
- From Europe, standard goods → DAP is often more convenient: the European supplier knows the logistics well, and you only handle Ukrainian customs.
- High-value or fragile cargo → under FOB or CFR, always take out your own ICC (A) insurance policy. The seller's CIF coverage is not sufficient.
Trans-Hope helps agree delivery terms during supplier negotiations and calculates the total landed cost under different Incoterms — so you can see the real difference in numbers. More on arranging multimodal transportation and port forwarding services.
What is the difference between FOB and CIF?
Who pays customs duties under DAP?
Which version applies — Incoterms 2020 or 2010?
Can the parties agree on delivery terms that differ from the standard?
Not sure which delivery term gives you the best deal? Trans-Hope will calculate the full landed cost under different Incoterms and help you negotiate with your supplier.
