EXW, FCA, FOB, CIF or DAP. Three letters that decide who carries the cost and the risk on each leg.
When you ask for a price on a machine in Europe, the figure you are given means nothing until you know how far it reaches. Forty thousand euros sitting in the seller's plant in Germany and forty thousand euros landed at the port of Callao are two different deals, and the gap between them can be wider than your margin.
That boundary is set by three letters: the Incoterm. It is not a logistics technicality. It is the part of the contract that decides who pays for each leg and, more importantly, who loses the money if the machine is damaged on the way.
Incoterms® are published by the International Chamber of Commerce and the edition in force is 2020. There are eleven rules, and each one allocates three things between seller and buyer: who bears the cost of each leg, the exact point at which risk of loss or damage passes, and who handles customs formalities at origin and at destination.
It is worth being clear about what they do not do. An Incoterm does not set the price, does not say when payment is due, does not transfer ownership of the machine and does not resolve what happens if the equipment does not work on arrival. All of that belongs in the sale contract, separately. Writing “CIF Cartagena” on an invoice is not the same as having a contract.
EXW (Ex Works). The seller places the machine at your disposal at their premises and their part ends there. Everything else is yours: loading, export clearance, inland transport, freight, insurance and import. It is the most favourable split for the seller and the most demanding for you. It has a practical problem: as a foreign buyer you normally cannot carry out export clearance in Europe yourself. The ICC itself recommends FCA rather than EXW when the goods leave the country.
FCA (Free Carrier). The seller hands the machine over, already cleared for export, to the carrier you nominate, at the agreed place. It is the sensible equivalent of EXW for an international deal: you still control freight and insurance, but the EU exit paperwork is done by someone who can actually do it. It is the rule to prefer if you are shipping in a container.
FOB (Free On Board). The seller delivers the machine on board the vessel at the agreed port of shipment. Risk passes to you once the cargo is on the ship. It is the classic rule for loose cargo and for machinery moving as breakbulk or ro-ro, and it is the best fit for a large machine that will not go into a container.
CIF (Cost, Insurance and Freight). As FOB, but the seller pays freight to the destination port and takes out insurance. Watch that last part: under CIF the seller is only obliged to provide minimum cover, Institute Cargo Clauses (C), which covers rather less than people assume. And risk still passes to you at the port of shipment, not on arrival. In other words: if the machine arrives damaged, the problem is yours even though he paid for the insurance.
DAP (Delivered at Place). The seller brings the machine to the point you agree in your country — port, warehouse or your own plant — ready for unloading. Unloading and, above all, import clearance, duties and taxes remain yours. It is convenient, but do not confuse DAP with “delivered to my workshop with nothing further to pay”.
There is also DDP, where the seller additionally takes on import and taxes in your country. It sounds ideal and almost never is: it forces a European seller to register with and answer to a customs authority they do not know. If someone offers you DDP into Latin America, ask calmly how they intend to do it.
Some items fall outside every Incoterm and always turn up on a used machine:
If they are not written down, they are not included. It makes no difference which three letters appear on the invoice.
It is so widespread that it is worth pausing on. FOB, CFR and CIF were designed for cargo placed on board the vessel. When the machine travels in a container, you hand it over at a terminal days before the ship sails, and in that interval the cargo is no longer in your hands while, under the rule, the risk is still the seller's. The ICC says it plainly: for containerised goods the right rules are FCA, CPT or CIP, not FOB or CIF.
In practice half the world keeps writing FOB on container shipments and nothing happens… until something does. If the container is damaged at the terminal, the argument over who answers for it becomes long and expensive.
Two recommendations that save trouble. First: always ask for the price in two forms, EXW or FCA on one side and CIF or DAP to your port on the other. The difference between them tells you exactly what the international leg is worth, and lets you compare it with what your own freight forwarder quotes. Sometimes it pays to arrange it yourself; sometimes it does not.
Second: write the full place next to the rule. “FCA” on its own means nothing. “FCA Bilbao, container terminal, Incoterms® 2020” does. Most Incoterms disputes are not about the rule but about the exact point nobody bothered to write down.
When a machine from our inventory goes to Latin America, the usual position is to agree the Incoterm in writing before discussing a final price, and to put the items listed above in writing too: who dismantles, who packs, who provides the crane and how far each side goes. We coordinate with the seller and with your forwarder so the two halves of the operation fit together.
We do not act as exporter, importer or customs agent, and we do not contract the freight on your behalf. That part belongs to your logistics operator, which is where it should be.
For the sea leg, shipping a machine from Europe to Latin America. For what each country asks on arrival, importing used machinery into Latin America. For the paperwork at origin, customs and export. And for the full picture, buying European machinery from Latin America.
This page summarises the Incoterms® 2020 rules of the International Chamber of Commerce for information only and does not replace the official text or the advice of a foreign trade professional. Incoterms® is a registered trademark of the ICC.