3. International Sales Contracts and Incoterms

Introduction and Context

International trade logistics is governed not only by transport arrangements and customs procedures but also by the legal and commercial architecture of the sales contract. A shipment may move through several countries, involve multiple service providers, and be exposed to currency, regulatory, political, and physical risks. Unless the parties clearly agree who must perform each task, pay each cost, obtain each document, and bear loss or damage at each stage, operational disputes are likely to arise.

An international sales contract connects the commercial transaction with the logistics system. It identifies the goods, price, quantity, quality standards, delivery obligations, payment arrangements, transfer of risk, and remedies for breach. Incoterms® 2020, issued by the International Chamber of Commerce (ICC), provide standardized rules for defining selected delivery obligations between sellers and buyers. They do not replace the sales contract. Rather, they operate within it and must be interpreted alongside applicable law, payment terms, insurance arrangements, transport contracts, and regulatory requirements.

For logistics managers, Incoterms are therefore more than abbreviations placed on a purchase order. They are instruments for allocating operational responsibility and commercial risk. A choice between FCA, CPT, CIP, DAP, or DDP can affect freight procurement, inventory visibility, insurance, customs compliance, landed cost, working capital, and customer service. Effective use requires an understanding of both the rules and their managerial consequences.

Learning Objectives

After studying this chapter, students should be able to:

1. Explain the legal and operational role of an international sales contract.

2. Interpret the structure and purpose of Incoterms® 2020.

3. Distinguish the transfer of cost, risk, delivery, and ownership.

4. Select an appropriate Incoterm for different modes of transport and commercial situations.

5. Draft or evaluate important contractual clauses concerning logistics, payment, law, and dispute resolution.

6. Analyse the managerial, regulatory, ethical, and technological implications of allocating international trade obligations.

7. Identify common mistakes and develop a disciplined process for contract and Incoterm selection.

The International Sales Contract as a Logistics Governance Instrument

A sales contract is an agreement under which a seller undertakes to deliver specified goods and a buyer undertakes to accept and pay for them. In international trade, the contract commonly includes parties located in different legal jurisdictions. Its interpretation may therefore be influenced by domestic law, the United Nations Convention on Contracts for the International Sale of Goods (CISG), established commercial practice, and the wording selected by the parties.

The contract should be sufficiently precise to answer five practical questions:

• What exactly is being sold?
• What must each party do, and by when?
• Who pays for each activity?
• When does the risk of loss or damage pass from seller to buyer?
• What happens if performance is late, defective, impossible, or disputed?

A sound contract separates matters that are frequently confused. Price is not the same as total landed cost. Risk is not the same as ownership. Delivery is not necessarily the same as arrival. An Incoterm generally addresses delivery, transport-related obligations, export and import formalities, cost allocation, and risk transfer; it does not normally determine title, payment, product conformity, or remedies for breach.

Essential contractual content

An international sales contract normally addresses the following matters:

Identification of the parties. Legal names, registered addresses, registration numbers, authorized representatives, and contact details should be confirmed. The contracting entity must be distinguished from its parent company, agent, distributor, or logistics provider.

Description of goods. Product specifications, grade, model, technical standards, packaging, labelling, quantity, tolerances, and inspection criteria should be stated. Harmonized System codes may be included for operational purposes, but classification responsibility should not be assumed merely because a code appears on an invoice.

Price and currency. The contract should state the unit price, total price, currency, taxes, duties, surcharges, permitted adjustments, and the Incoterm with a named place. For example, “CIP Singapore Airport, Incoterms® 2020” is more useful than simply stating “CIP.”

Delivery and shipment. The parties should specify the delivery point, shipment window, required transport documents, notice procedures, partial shipment rules, transshipment permissions, and consequences of delay.

Payment. Payment may be made by advance payment, open account, documentary collection, documentary credit, or another method. The payment mechanism should be coordinated with document requirements and the selected Incoterm.

Inspection and acceptance. The contract should identify inspection timing, testing authority, sampling procedures, rejection rights, warranty periods, and treatment of concealed defects.

Compliance. Export controls, sanctions, anti-bribery rules, product safety, environmental requirements, data protection, and customs obligations may need express treatment.

Force majeure and hardship. These clauses allocate consequences where events outside a party’s reasonable control prevent or seriously disrupt performance. They should define notice, mitigation, suspension, termination, and payment consequences.

Applicable law and dispute resolution. The contract should identify governing law, courts or arbitration, seat and language of arbitration, institutional rules, and interim-relief arrangements.

Confidentiality and intellectual property. These provisions are especially important where goods incorporate designs, software, trademarks, technical drawings, or proprietary processes.

Incoterms® 2020: Scope and Structure

Incoterms® 2020 contains eleven trade terms. They are divided into terms usable with any mode or combination of modes of transport and terms intended for sea and inland waterway transport.

The terms for any mode of transport are EXW, FCA, CPT, CIP, DAP, DPU, and DDP. The terms for sea and inland waterway transport are FAS, FOB, CFR, and CIF.

Each rule explains the obligations of the seller and buyer under ten corresponding headings. These include general obligations, delivery, transfer of risk, transport, insurance, delivery or transport documents, export and import clearance, packaging and marking, allocation of costs, and notices. This structure makes the rules useful as a common communication framework, but it does not eliminate the need for a complete contract.

The central distinction: delivery, cost, and risk

“Delivery” in Incoterms has a technical meaning. It identifies the point at which the seller has performed the delivery obligation and risk transfers to the buyer. Cost allocation may extend beyond that point. Under CPT and CIP, for example, the seller pays for carriage to the named destination, but risk transfers when the goods are handed to the first carrier. Under DAP and DPU, the seller bears risk during transport until the goods reach the named destination.

This distinction explains why the named place must be precise. “FCA Seller’s Factory” may mean that delivery occurs at the seller’s premises, whereas “FCA Port of Rotterdam, nominated terminal” identifies a different operational point. A vague place can produce uncertainty about loading, terminal handling, documentation, and risk.

Ownership, or title, is usually governed by the sales contract and applicable law, not by the Incoterm. Parties should therefore include a separate retention-of-title or title-transfer provision if ownership timing matters.

Reading the Eleven Incoterms as Commercial Choices

EXW—Ex Works

Under EXW, the seller makes the goods available at a named place, usually the seller’s premises. The buyer generally bears the costs and risks of loading, transport, export clearance, import clearance, and onward delivery. EXW gives the seller the least logistical responsibility.

EXW can be convenient for domestic transactions or buyers with strong logistics capability in the seller’s country. In cross-border trade, however, it may create practical problems. A foreign buyer may be unable to complete export formalities or may lack local authority to arrange loading and documentation. FCA is often more suitable where the seller should clear the goods for export or load them onto the buyer’s collecting vehicle.

FCA—Free Carrier

Under FCA, the seller delivers the goods to the carrier or another person nominated by the buyer at the named place. If the place is the seller’s premises, the seller loads the goods onto the collecting vehicle. If the place is another location, the seller delivers the goods ready for unloading.

FCA is a versatile term for containerized and multimodal shipments. The seller handles export clearance, while the buyer normally arranges main carriage and import clearance. Incoterms® 2020 includes an option under FCA for the buyer to instruct its carrier to issue an on-board bill of lading to the seller after loading, a practical response to documentary-credit requirements.

CPT—Carriage Paid To

Under CPT, the seller delivers the goods to a carrier and pays carriage to the named destination. Risk transfers at delivery to the first carrier, not at arrival at the destination. The buyer normally manages import clearance and bears risk during the main transport despite the seller’s payment of freight.

CPT is appropriate where the seller can negotiate transport but the buyer is prepared to bear transit risk or arrange separate insurance. The contract should make the delivery point and destination explicit.

CIP—Carriage and Insurance Paid To

CIP operates like CPT regarding delivery and risk, but the seller must also procure cargo insurance for the buyer’s risk during carriage. Under Incoterms® 2020, CIP generally requires a higher level of insurance cover than CIF, subject to the rule’s terms and permitted exceptions. The parties should examine the policy, exclusions, deductibles, claims procedure, and insured value rather than assuming that the word “insurance” guarantees full commercial protection.

CIP is often suitable for manufactured or high-value goods moving by container, air, road, rail, or multimodal transport. Risk still transfers at delivery to the first carrier, even though insurance is arranged by the seller to the destination.

DAP—Delivered at Place

Under DAP, the seller bears costs and risks of transporting the goods to the named destination, where the goods are placed at the buyer’s disposal on the arriving vehicle, ready for unloading. The buyer generally unloads the goods and completes import clearance, paying import duties and taxes.

DAP is useful when the seller wants to offer delivered service but does not wish to assume import clearance obligations. The named destination should identify a location that can receive the vehicle and where unloading responsibilities are operationally clear.

DPU—Delivered at Place Unloaded

DPU requires the seller to deliver the goods at the named destination after unloading them. It is the only Incoterm that expressly places unloading at the destination on the seller. The buyer generally undertakes import clearance and related duties and taxes.

DPU should be selected only where the seller can control or reliably arrange unloading equipment, labour, safety procedures, and access. It replaced DAT in the 2020 edition, broadening the possible destination beyond a terminal.

DDP—Delivered Duty Paid

DDP imposes the greatest responsibility on the seller. The seller transports the goods to the named destination, handles export and import formalities, and pays duties and taxes, while delivering the goods ready for unloading. The buyer normally unloads.

DDP can provide a simple customer experience, but it creates substantial compliance exposure. A seller may not be legally able to act as importer of record, recover import taxes, obtain local licences, or comply with product regulations in the buyer’s country. DAP may be preferable where local import responsibility must remain with the buyer.

FAS—Free Alongside Ship

Under FAS, the seller delivers the goods alongside the vessel at the named port of shipment. Risk transfers when the goods are placed alongside the vessel. The buyer arranges loading, main carriage, and import formalities. FAS is designed for sea or inland waterway shipments and may be suitable for bulk or project cargo delivered directly to a quay.

FOB—Free on Board

Under FOB, the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment. Risk transfers once the goods are on board. The seller handles export clearance, while the buyer arranges the main carriage and import clearance.

FOB is frequently misapplied to container shipments. Containers are often handed to a terminal well before loading on the vessel, making FCA more consistent with the physical delivery process. FOB remains relevant for certain conventional or bulk cargo operations where the seller’s delivery truly occurs on board.

CFR—Cost and Freight

Under CFR, the seller delivers the goods on board the vessel and pays freight to the named port of destination. Risk transfers on board at the port of shipment, not at destination. The buyer bears transit risk and normally arranges insurance, import clearance, and destination costs not allocated to the seller.

CIF—Cost, Insurance and Freight

CIF is similar to CFR, but the seller also arranges minimum cargo insurance for the buyer’s risk during carriage. Delivery and risk transfer on board at the port of shipment, while freight and insurance are paid by the seller to the destination port.

CIF is limited to sea and inland waterway transport. Its insurance requirement is generally narrower than that under CIP, so buyers of sensitive, high-value, or damage-prone cargo should assess whether additional cover is required.

A Decision Framework for Selecting an Incoterm

Incoterm selection should follow the physical and commercial realities of the transaction rather than habit. A logistics manager can use the following sequence.

First, identify the transport mode and cargo characteristics. Containerized, air, rail, and multimodal movements normally point toward FCA, CPT, CIP, DAP, DPU, or DDP. Conventional bulk or break-bulk cargo may justify FAS, FOB, CFR, or CIF.

Second, identify the party with the stronger ability to arrange each activity. The party with carrier relationships, customs expertise, insurance access, and local infrastructure may perform more efficiently, but operational capability does not automatically justify transferring legal risk.

Third, determine the desired risk-transfer point. A buyer seeking control after collection may prefer FCA. A seller offering an arrival service may prefer DAP or DPU. The parties should distinguish a freight-price decision from a risk-management decision.

Fourth, test customs and tax feasibility. Can the seller legally export or import? Can the buyer act as importer of record? Are licences, registrations, VAT recovery, or product approvals required?

Fifth, calculate total landed cost. The analysis should include freight, terminal charges, security fees, insurance, duties, taxes, brokerage, inland transport, demurrage, detention, inspection, financing, and expected disruption costs.

Finally, confirm the term in a written contract using the exact named place and the phrase “Incoterms® 2020.” Internal departments, suppliers, carriers, banks, and customs brokers should receive the same instruction.

Cost and Risk Mapping

A useful managerial tool is a responsibility matrix. For each shipment, the organization should map responsibility for packing, loading, export clearance, origin handling, main carriage, insurance, destination handling, import clearance, duties, inland delivery, unloading, and claims. The matrix should also show the point of risk transfer and the documents required.

Consider a seller quoting “CIP Toronto Airport, Incoterms® 2020.” The seller pays for transport and insurance to the named destination but transfers risk when the goods are handed to the first carrier. If the goods are damaged during the flight, the buyer may bear the risk but claim under the insurance arranged by the seller. If the buyer mistakenly assumes that the seller bears risk until Toronto, the parties may dispute both responsibility and evidence.

The commercial price should be reconciled with the allocation. A low EXW price may conceal significant buyer-side costs. A DDP price may appear attractive but include a risk premium for customs and tax uncertainty. Procurement comparisons should therefore convert quotations to a common landed-cost basis rather than comparing invoice prices alone.

Governing Law, Dispute Resolution, and Contractual Coherence

Incoterms do not provide a complete legal regime. The contract should identify governing law. Parties may choose the law of a particular country, the CISG where applicable, or another legally permissible framework. The choice should be deliberate, because rules on formation, conformity, limitation periods, damages, title, agency, and mandatory regulation may differ.

A dispute-resolution clause should state whether disputes will be heard by national courts or resolved through arbitration. Arbitration clauses should identify the institution or rules, seat, language, number of arbitrators, and method of appointment. Court clauses should identify jurisdiction and, where relevant, exclusive or non-exclusive jurisdiction. The parties should consider enforceability in the jurisdictions where assets are located.

Contract documents must be consistent. A purchase order stating FCA, a letter of credit requiring a CIF bill of lading, and a logistics instruction assigning freight to the seller can create conflicting obligations. A hierarchy clause can state which document prevails. Standard terms should be reviewed so that they do not silently introduce a different delivery term, law, or forum.

Documentation, Customs, and Compliance

International logistics depends on accurate documentation. Commercial invoices, packing lists, transport documents, certificates of origin, export declarations, import entries, insurance certificates, inspection reports, and licences may each influence clearance and payment. Responsibility for obtaining a document should be allocated expressly, even where an Incoterm suggests a general obligation.

Customs valuation and classification deserve special attention. The transaction value used for customs may not correspond directly to the commercial price under the selected Incoterm. Freight, insurance, assists, royalties, commissions, and other elements may be treated differently under national customs rules. Parties must not use Incoterms to evade duties, taxes, sanctions, export controls, or origin requirements.

Ethically, managers must resist pressure to misdescribe goods, understate value, manipulate origin, or select a delivery term merely to obscure responsibility. Compliance failures can lead to penalties, seizure, reputational damage, loss of licences, and interruption of supply.

Digital Trade and Emerging Practice

Transport management systems and enterprise resource-planning platforms can embed Incoterms into purchase orders, sales orders, freight-rating engines, and landed-cost models. Automated workflows can trigger export documentation, assign tasks to brokers, calculate estimated duties, and monitor milestones. Analytics can compare supplier performance under FCA against DDP or identify recurring detention costs caused by unclear destination responsibilities.

Digital tools do not remove the need for legal judgement. A system may accept an incomplete place name, apply an outdated rule, or assign a term inconsistent with the actual transport mode. Master-data governance should therefore include a controlled list of Incoterms, named-place standards, approval rules for high-risk terms such as DDP, and audit trails for changes.

Electronic bills of lading and digital trade documents can improve speed and visibility, but their legal recognition differs by jurisdiction. Contracts should address electronic records, cybersecurity, data access, system failure, and evidence preservation. Artificial intelligence may assist in reviewing clauses or detecting inconsistent terms, but final decisions concerning liability, sanctions, and regulatory interpretation require accountable professional oversight.

Illustrative Case Study: Choosing Between DDP and DAP

Background

A German manufacturer of laboratory equipment plans to sell instruments to a hospital group in a country where the manufacturer has no subsidiary. The equipment is high value, requires calibration, and may be subject to import licensing and local product registration. The hospital requests a DDP quotation because it wants a single delivered price.

Situation and problem

The manufacturer’s sales team proposes DDP to win the contract. The logistics manager identifies three problems: the manufacturer may not be permitted to act as importer of record, import tax recovery is uncertain, and local regulations require a registered entity to obtain the product licence. The sales quotation also fails to state who will unload and install the equipment.

Analysis

DDP would place extensive obligations on the manufacturer, including import clearance, payment of duties and taxes, and compliance with local import requirements. The manufacturer has no local customs infrastructure and cannot guarantee that its carrier can complete delivery to the hospital’s restricted loading area. The buyer, by contrast, is a domestic hospital group with an established broker and existing product registrations.

A DAP quotation to the hospital’s receiving dock would allow the manufacturer to arrange and control international carriage while leaving import clearance, duties, taxes, and regulatory entry with the buyer. The contract would separately address calibration, unloading, installation, acceptance testing, and responsibility for damage after delivery.

Approach and solution

The parties select “DAP Hospital Receiving Dock, [city], Incoterms® 2020.” The contract defines the dock, delivery hours, unloading responsibility, required notices, insurance expectations, customs documents, and a deadline for the buyer to complete import formalities. The seller provides technical documents and certificates needed for clearance; the buyer acts as importer of record and secures local approvals. A separate service schedule covers installation and commissioning.

Outcome

The transaction proceeds without requiring the seller to undertake an activity it cannot legally or operationally perform. The buyer receives a delivered transport service but retains control of import compliance. The parties also avoid treating delivery as equivalent to installation, thereby reducing the risk of an acceptance dispute.

Learning points

The case illustrates that customer preference for DDP does not make DDP feasible. Incoterms must reflect legal capability, customs reality, and operational control. A carefully defined DAP arrangement can provide commercial convenience while allocating import obligations to the party best positioned to perform them.

Common Errors, Risks, and Limitations

Several recurring errors weaken international contracts. The first is using an Incoterm without a named place. The second is using FOB for a container shipment merely because the transaction involves a seaport. The third is assuming that the seller bears risk until the goods reach the destination under CPT or CIP. The fourth is treating insurance arranged by the seller as equivalent to comprehensive coverage. The fifth is using DDP without examining importer-of-record, tax, licensing, or product-compliance issues.

Other risks arise when parties confuse transport contracts with sales contracts, fail to reconcile the Incoterm with a letter of credit, allocate unloading ambiguously, or rely on informal email instructions that contradict the signed agreement. A further limitation is that Incoterms do not regulate every event in the supply chain. They do not determine quality, payment security, title, breach remedies, sanctions compliance, or the legal effect of force majeure unless the contract addresses those matters.

Managers should establish approval controls for unusual terms, require legal and customs review for DDP and complex project cargo, maintain documented responsibility matrices, and conduct post-shipment reviews of claims, delays, demurrage, and customs findings.

Best-Practice Checklist

Before finalizing an international sales contract, the parties should:

• describe the goods, packaging, quantity, and specifications precisely;
• select a term suitable for the actual transport mode;
• state the exact named place and edition: “Incoterms® 2020”;
• identify the delivery point and risk-transfer event;
• separate freight payment from risk allocation;
• specify insurance level, policy evidence, exclusions, and claims procedure;
• confirm export, import, tax, licensing, and sanctions responsibilities;
• reconcile the contract with purchase orders, letters of credit, and transport instructions;
• state governing law and an enforceable dispute-resolution mechanism;
• define title, inspection, acceptance, warranty, force majeure, and remedies separately;
• use digital systems with controlled Incoterm master data; and
• review actual performance against the agreed allocation.

Chapter Summary

An international sales contract provides the legal and commercial framework within which logistics activities are performed. Incoterms® 2020 standardize selected obligations concerning delivery, transport, insurance, customs formalities, costs, and transfer of risk, but they do not determine ownership, payment, quality, governing law, or dispute remedies. The most important analytical distinction is between the point at which risk transfers and the point to which the seller pays carriage. CPT and CIP illustrate this distinction clearly: the seller pays to destination, while risk generally transfers when goods are delivered to the first carrier.

Selection should be based on transport mode, operational capability, customs feasibility, desired risk allocation, insurance needs, and total landed cost. Precise named places and coherent contractual clauses are essential. DDP can be commercially attractive but may be legally or operationally impractical, while DAP often provides a workable alternative when the buyer should manage import obligations. Digital systems can improve control and visibility, but they must be governed by accurate master data and professional review. Effective managers treat Incoterms as part of an integrated contract and supply-chain governance system rather than as isolated trade abbreviations.

Key Terms

International sales contract: Agreement governing the sale of goods between parties in different jurisdictions.

Incoterms® 2020: ICC rules allocating selected delivery, transport, cost, risk, insurance, and customs obligations.

Named place: The precisely identified location stated after an Incoterm where a delivery or cost obligation applies.

Delivery: The Incoterms event at which the seller performs the delivery obligation and risk may transfer.

Risk transfer: The point at which the buyer bears the risk of loss or damage to the goods.

Landed cost: Total cost of obtaining goods at the intended destination, including transport, duties, taxes, insurance, and related charges.

Importer of record: Party legally responsible for import entry, compliance, and payment of applicable duties and taxes.

FCA: Term under which the seller delivers goods to a carrier or nominated person and clears them for export.

CIP: Term under which the seller pays carriage and obtains specified insurance while risk transfers at delivery to the first carrier.

CIF: Sea or inland-waterway term under which the seller pays cost, freight, and specified insurance, with risk transferring on board.

DAP: Term requiring the seller to deliver goods at the named destination ready for unloading.

DPU: Term requiring the seller to deliver goods at the named destination after unloading.

DDP: Term placing delivery, export and import clearance, duties, and taxes generally on the seller.

Governing law: Legal system selected to interpret and regulate the contract.

Force majeure: Contractual treatment of specified events beyond a party’s reasonable control.

Documentary credit: Bank-based payment arrangement requiring presentation of specified compliant documents.

Title: Legal ownership of goods, which is generally governed separately from Incoterms.

Customs valuation: Method used by customs authorities to determine the value relevant to duty and tax assessment.

Review Questions

Short Answer Questions

1. Why should risk transfer be distinguished from payment of freight?

2. What is the principal operational difference between DAP and DPU?

3. Why may FCA be preferable to FOB for containerized cargo?

4. What matters are normally outside the scope of Incoterms?

5. Why must an Incoterm be accompanied by a precise named place?

Long Answer Questions

1. Explain the role of an international sales contract as a logistics governance instrument.

2. Compare EXW, FCA, CPT, CIP, DAP, and DDP in terms of seller obligations, buyer obligations, and risk transfer.

3. Discuss the legal and operational risks of selecting DDP when the seller lacks a local subsidiary.

4. Explain how governing law and dispute-resolution clauses complement Incoterms.

5. Develop a structured managerial process for selecting an Incoterm for a multimodal international shipment.

Analytical / Application Questions

1. A seller agrees to “CIP Mumbai, Incoterms® 2020,” but the goods are damaged during ocean transport. Analyse who bears the risk, what insurance role exists, and what additional contractual facts must be examined.

2. A buyer requests FOB for goods shipped in containers from an inland factory to a seaport. Recommend a more appropriate term and justify the allocation of loading, export clearance, transport, and risk.

3. A supplier’s purchase order states DDP, while the buyer’s letter of credit requires documents consistent with FCA. Identify the risks created by the inconsistency and propose a corrective process.

22. Multiple Choice Questions with Answers

Question 1

Under CPT, when does risk generally transfer from the seller to the buyer?

A. When the goods arrive at the named destination

B. When the goods are handed to the first carrier

C. When the buyer completes import clearance

D. When the buyer pays the invoice

Correct Answer: B. When the goods are handed to the first carrier

Question 2

Which Incoterm places unloading at the named destination on the seller?

A. DAP

B. DPU

C. DDP

D. CIP

Correct Answer: B. DPU

Question 3

Why is FCA often more appropriate than FOB for containerized shipments?

A. FCA eliminates the need for export clearance

B. FOB always requires seller-paid insurance

C. Containers are commonly delivered to a terminal before vessel loading

D. FCA transfers risk only after arrival at destination

Correct Answer: C. Containers are commonly delivered to a terminal before vessel loading

Question 4

Which statement best describes the relationship between Incoterms and ownership?

A. Incoterms automatically transfer title at the delivery point

B. Incoterms prohibit retention-of-title clauses

C. Ownership is generally governed separately by contract and applicable law

D. Ownership always transfers when freight is paid

Correct Answer: C. Ownership is generally governed separately by contract and applicable law

Question 5

A seller has no legal ability to act as importer in the buyer’s country. Which term is generally more feasible than DDP if the seller will arrange delivery to destination?

A. DAP

B. EXW

C. FAS

D. FOB

Correct Answer: A. DAP

Question 6

Under CIP, what is the seller’s additional obligation compared with CPT?

A. To pay import duties

B. To unload at destination

C. To arrange cargo insurance for the buyer’s risk

D. To transfer risk only at destination

Correct Answer: C. To arrange cargo insurance for the buyer’s risk

Question 7

Which item is normally outside the direct scope of Incoterms?

A. Allocation of certain transport costs

B. Transfer of delivery risk

C. Product warranty remedies

D. Export and import formalities

Correct Answer: C. Product warranty remedies

Question 8

Why should an Incoterm include an exact named place?

A. To determine the applicable exchange rate automatically

B. To identify where delivery and related obligations occur

C. To replace the governing-law clause

D. To guarantee that customs duties are zero

Correct Answer: B. To identify where delivery and related obligations occur

Question 9

A buyer wants control of the main carriage and is capable of arranging transport after the seller clears and hands over the goods. Which term is most consistent with this preference?

A. FCA

B. DDP

C. DPU

D. CIF

Correct Answer: A. FCA

Question 10

Which managerial practice best reduces the risk of conflicting logistics obligations?

A. Using different Incoterms in the purchase order and transport instruction

B. Leaving the named place to be decided by the carrier

C. Reconciling the sales contract, payment documents, and logistics instructions

D. Treating the invoice price as the landed cost

Correct Answer: C. Reconciling the sales contract, payment documents, and logistics instructions