Incoterms for machinery: EXW, FCA, FOB, CIF or DAP?

The Incoterms rule on a machinery quote decides who arranges and pays for each leg of the journey and, more importantly, the point at which the risk of loss or damage passes from the factory to you. Two quotes with the same machine price can lead to very different landed costs and very different exposure if the container is dropped, so compare the rule before you compare the number.

What do Incoterms decide, and what do they leave out?

Incoterms are standard trade terms published by the International Chamber of Commerce; the current edition is Incoterms 2020, with eleven rules. They define three things: where the seller's delivery obligation ends, where risk transfers to the buyer, and who is responsible for transport, insurance and export and import clearance.

They do not decide who owns the machine, when payment is due, what the warranty covers, or what remedy you have if the machine is faulty. Those belong in the sales contract. Always write the rule with the named place and the edition, for example "FOB Shenzhen, Incoterms 2020", because a rule without a place is incomplete.

Which rules are most common for machinery, and how do they differ?

One point surprises many first-time buyers: under CFR and CIF the seller pays the ocean freight, but the risk still passes to you once the machine is on board at the origin port. You carry the transit risk even though the seller arranged the shipping.

Why is EXW usually a poor fit for exports from China?

Under EXW the buyer must load the goods and clear them for export. A foreign buyer usually cannot file the export declaration directly, so the forwarder needs the factory's cooperation anyway, which defeats the point of the rule. Loading is also the step where heavy machinery is most often damaged, and under EXW that risk sits with you. For most orders, FCA or FOB gives a cleaner split: the factory handles loading and export clearance, and you take over from the port or terminal.

FOB, FCA or CIF: which one should you choose?

If you have a forwarder you trust, FOB or FCA gives you transparency: you choose the carrier, see the real freight cost and buy the insurance you want. CIF is convenient for a first order because one party books everything, but the seller picks the forwarder and the insurance is only the minimum required.

For containerized machinery, the ICC itself recommends FCA over FOB. Under FOB the risk passes only when the goods are on board the ship, yet a container is normally handed over to the carrier at a terminal days earlier, so the seller keeps risk for a stage it no longer controls. FCA moves the handover to the terminal and matches reality. Use FOB for cargo loaded directly onto a vessel, such as oversize machinery on a flat rack or breakbulk shipments.

Which costs does each rule include?

This table shows the default allocation. Confirm in writing that the origin terminal charges are included in an FOB or CIF price, because they are a frequent source of disputes. For the other items that quotes commonly leave out, see our guide to reading a machinery quote line by line.

What does the same machine cost under different rules?

The figures below are illustrative only, to show how totals converge when every quote is priced honestly.

The lesson is that a CIF quote that looks higher than an FOB quote is not necessarily more expensive; it already contains the freight and insurance. Compare quotes only after adding the missing items to each. The real differences are who controls the costs and how good the insurance is.

What is the CIF insurance trap?

Under Incoterms 2020, CIF requires only the minimum cover, Institute Cargo Clauses (C), which protects against major casualties such as fire, sinking or collision. It generally does not cover handling damage, water ingress or theft, the problems machinery most often suffers. If you buy on CIF, ask for Institute Cargo Clauses (A), the "all risks" cover, at 110% of the contract value, and ask for the policy or certificate naming you as the beneficiary. Under CIP the all-risks cover is the default. Also check that the policy covers the whole journey to your site and not only the port. Our article on packing, shipping and receiving machinery explains how to document damage so a claim succeeds.

What should you write on the purchase order?

Under FOB and FCA the buyer must nominate the vessel or carrier and give notice. If you fail to do so on time, the seller can charge storage and risk may pass early, so agree the cargo-ready date and shipping window in the contract. For the paperwork around export, see export compliance requirements, and for protecting the payment side, payment security in B2B machinery trade.

What mistakes do buyers make most often?

If your supplier cannot explain the rule they quoted, take that as a signal; see how to check who actually makes your machine. Ready to compare? Browse all machinery categories or send your target rule and destination through our quote form.