Contracts · Incoterms
Incoterms 2020 for Korea trade: choosing FOB, FCA, CIF or DAP
The three letters after the price on a Korean supplier's quote decide who books the freight, who pays for each leg, where the risk of loss moves from seller to buyer, and who files which customs declaration. Here is how the Incoterms 2020 rules work on the Korea–US and Korea–EU lanes, and how to pick one deliberately.
Which edition? Incoterms 2020, published by the International Chamber of Commerce (ICC), is the current edition. The ICC has not announced a date for a later edition. Always name the edition in the contract, for example "FCA Busan CY, Incoterms 2020", because older editions are still quoted.
What Incoterms do, and what they do not
An Incoterms rule is a three-letter trade term that the buyer and seller write into their sales contract. It answers three questions: where the seller delivers the goods, who pays which transport and handling costs, and who handles export and import clearance. It also fixes the point at which the risk of loss or damage passes to the buyer.
Incoterms rules do not transfer ownership of the goods, set the price or the payment terms, or decide what happens if a party breaches the contract. Those belong in the rest of the sales contract, and in the letter of credit if one is used. A common mistake is to assume that "FOB" means the buyer owns the goods once they are on the ship. It does not. It means the buyer carries the risk from that point.
The 11 rules at a glance
| Rule | Mode | Seller delivers when | Main freight paid by | Import clearance |
|---|---|---|---|---|
| EXW Ex Works | Any | Goods are made available at the seller's premises | Buyer | Buyer |
| FCA Free Carrier | Any | Goods are handed to the buyer's carrier at a named place | Buyer | Buyer |
| CPT Carriage Paid To | Any | Goods are handed to the first carrier | Seller | Buyer |
| CIP Carriage and Insurance Paid To | Any | Goods are handed to the first carrier | Seller, plus insurance | Buyer |
| DAP Delivered at Place | Any | Goods arrive at the named place, ready for unloading | Seller | Buyer |
| DPU Delivered at Place Unloaded | Any | Goods are unloaded at the named place | Seller | Buyer |
| DDP Delivered Duty Paid | Any | Goods arrive at the named place, cleared for import | Seller | Seller |
| FAS Free Alongside Ship | Sea and inland waterway | Goods are alongside the vessel at the port of shipment | Buyer | Buyer |
| FOB Free on Board | Sea and inland waterway | Goods are on board the vessel at the port of shipment | Buyer | Buyer |
| CFR Cost and Freight | Sea and inland waterway | Goods are on board the vessel | Seller | Buyer |
| CIF Cost, Insurance and Freight | Sea and inland waterway | Goods are on board the vessel | Seller, plus insurance | Buyer |
With the "C" rules (CPT, CIP, CFR, CIF), the seller pays the main freight but the risk still passes to the buyer at the origin end. That split between cost and risk is where most misunderstandings start.
What changed from Incoterms 2010
- DAT became DPU. Delivery can now be at any place where goods are unloaded, not only a terminal.
- CIP requires broader insurance. Under CIP the seller must now buy cover at the level of Institute Cargo Clauses (A), the broad "all risks" style cover. CIF still requires only the minimum, Clauses (C), unless the contract says otherwise.
- FCA and on-board bills of lading. The parties can agree that the buyer instructs its carrier to issue an on-board bill of lading to the seller, which helps when a letter of credit calls for one.
- Own means of transport. Under FCA, DAP, DPU and DDP a party may move the goods with its own vehicles rather than hiring a carrier.
- Security costs are now allocated explicitly in each rule.
Container shipments: why FCA often fits better than FOB
FOB, CFR and CIF were written for goods that the seller loads onto a vessel. A Korean exporter shipping a full container does not do that. The factory loads the box, a trucker takes it to the container yard (CY) in Busan or Incheon, and the terminal loads it days later. Under FOB, the seller keeps the risk while the box sits in a terminal it does not control. The ICC's guidance is that for containerized goods handed to a carrier before loading, the "any mode" rules fit better: FCA instead of FOB, CPT instead of CFR, and CIP instead of CIF.
In practice FOB Busan is still widely quoted, and many shipments move on it without trouble. The gap only matters when something goes wrong in the terminal. If you keep FOB, agree in writing what happens to loss or damage between the CY gate and loading.
Choosing a rule: a checklist
- Decide who controls the freight. Large US and EU importers often have their own forwarder and contract rates, which points to FCA or FOB. A Korean seller with good rates may prefer CPT, CIP or DAP.
- Match the rule to the mode. Use FAS, FOB, CFR or CIF only when the seller delivers at the ship's side or on board. For containers and air freight, use FCA, CPT, CIP or a "D" rule.
- Name the place precisely. "FCA Busan" is vague. "FCA Busan New Port, [terminal name] CY" is not. The named place decides where risk passes and who pays the terminal charges.
- Be careful with EXW. Under EXW the buyer handles export clearance, but a Korean export declaration is normally filed by the exporter or its customs broker (관세사) through UNI-PASS. The seller also needs the accepted declaration for VAT zero-rating. Many sellers quote FCA at their own premises instead, which keeps export clearance with them.
- Think twice before DDP to the US. DDP makes the seller responsible for import clearance and duties, which in practice means acting as or appointing the importer of record. That includes the Importer Security Filing, the customs bond and every duty due at entry, including additional tariffs that changed several times in 2025 and 2026. See customs and documents and ISF 10+2 filing before agreeing to it.
- Settle insurance. Under CIF or CIP, check which clauses the seller buys and whether that cover is enough for the goods. Under other rules, the party carrying the risk should insure it.
- Align the documents. The rule on the commercial invoice, the letter of credit and the freight booking must match. See the export shipping documents checklist.
Incoterms and customs value
The rule affects the numbers on the customs declaration. US customs generally values imports on the transaction value without the international freight and insurance, so a CIF price often needs those costs deducted. EU customs values goods including the cost of transport to the EU border. Korean export declarations record the Incoterms rule and the value on that basis. Your customs broker will ask for the freight and insurance amounts, so keep them available rather than folded into one price.
Who needs to see the shipment
The rule also decides who needs visibility at each stage. Under FCA the buyer's forwarder takes over at the CY. Under DAP the seller answers for the shipment until it reaches the buyer's door. Either way, a clear record of each handover makes a damage claim much easier to settle; see tracking Korea shipments and custody.
Common questions
Is FOB still allowed for container shipments?
Yes. Incoterms rules are contract terms the parties choose, and nothing prevents using FOB for containers. The ICC recommends FCA for goods handed to a carrier before loading because the risk point then matches where the seller actually gives up control.
Does CIF mean the seller covers everything until the goods arrive?
No. The seller pays freight and minimum insurance to the destination port, but the risk passes to the buyer once the goods are on board in Korea. If the goods are damaged at sea, the buyer claims on the insurance.
Which rule should a first-time Korean exporter use for US sales?
There is no single answer, but FCA at the exporter's premises or at the Korean CY keeps export clearance with the seller and leaves US import duties with the buyer. Discuss it with your buyer and forwarder.
Do Incoterms affect FTA origin claims?
No. Origin under KORUS or the EU–Korea FTA depends on where and how the goods were made, not on the delivery rule. See the KORUS certificate of origin guide.
Where can I read the official rules?
The ICC publishes the rules and an overview on its Incoterms page, and the US International Trade Administration has a summary at Know Your Incoterms.
Last reviewed 2026-09-17