What Does the Incoterm on a Ball Valve Quote Actually Decide?
Key Takeaway
An Incoterm does not change the valve. It sets where delivery happens, who pays for carriage, customs and insurance up to that point, and where the risk of loss or damage passes from seller to buyer. Under FOB and CIF that point is the vessel, so a CIF price that includes ocean freight still leaves the goods at the buyer’s risk once they are loaded. Quotes written on different terms cannot be compared until they sit on the same one. The term also says nothing about material certificates, test reports or what happens to a lot that fails inspection, and those have to be written into the order.
What does an Incoterm decide on a ball valve order?
An Incoterms rule fixes who does what, and who pays, between the seller’s door and the buyer’s. The rules are published by the International Chamber of Commerce. Incoterms 2020 is a set of eleven three-letter terms and entered into force on 1 January 2020. The U.S. International Trade Administration summarises what every rule specifies: when the seller has delivered and when the risk of loss or damage passes to the buyer, who obtains export and import licences and carries out the customs formalities, who contracts for carriage and who provides cargo insurance, and which party packs the goods and bears the cost of pre-shipment inspection.
Seven of the eleven rules suit any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are for sea and inland waterway transport only: FAS, FOB, CFR and CIF. A ball valve quote names one of them, and the choice changes more than the freight line. It decides which side owns the lot when something goes wrong between the factory and the buyer’s warehouse.
How do EXW, FCA, FOB and CIF compare?
They differ in where the seller’s job ends. The table follows the ICC and U.S. trade summaries and two published guides; the rule text itself is a licensed ICC publication and should be checked before a contract is drafted.
| Term | Delivery, and where risk passes to the buyer | Export clearance | Main carriage | Insurance |
|---|---|---|---|---|
| EXW | Goods are made available at the named place, usually the seller’s premises | Buyer | Buyer | None required of either side |
| FCA | Goods are handed to the buyer’s carrier at the named place | Seller | Buyer | None required of either side |
| FOB | Goods are loaded on board the vessel at the named port of loading | Seller | Buyer | None required of either side |
| CIF | Goods are loaded on board the vessel at the port of loading | Seller | Seller pays freight to the named port of destination | Seller buys minimum cover, Institute Cargo Clauses (C), at 110% of the contract value |
FOB and CIF are sea terms. EXW and FCA work for any transport. One guide recommends FCA over EXW whenever possible, because under EXW the buyer has to handle export formalities in a country it may not know, and delays, fines or seizure of cargo are possible if that goes wrong.
Where does the risk actually pass?
On a CIF quote the seller pays for the sea freight, but the risk passes when the goods are on board at the port of loading. The two points are different places. A buyer who reads “cost, insurance and freight” as “the seller is responsible until my port” has misread the term. After loading, damage or loss at sea is the buyer’s risk. The seller has paid for the freight and bought the minimum insurance, and that insurance is there to answer such a claim, so the buyer should know the cover it is relying on.
The same logic explains why FOB and CIF are awkward for containers. Containers are normally handed over at a terminal days before the ship is loaded, so under a term that moves risk at the ship’s deck, the days in between sit in a gap. Incoterms 2020 states that FAS, FOB, CFR and CIF are not meant for container shipments, and recommends FCA in place of FOB, and CPT or CIP in place of CFR and CIF. CIP raises the insurance level to at least 110% of the value of the goods under Clause A of the Institute Cargo Clauses, while the CIF requirement did not change. FCA also allows the buyer to instruct its carrier to issue an on-board bill of lading to the seller, which matters when a letter of credit asks for one.
Who owns a damaged carton under each term?
It depends on where the damage happens, and the same carton can belong to different parties under different terms. Take a carton of valves that is crushed on the truck between the factory and the port, and a second one that arrives wet at the port of arrival.
- Crushed on the truck. Under EXW and FCA with a handover at the factory, the goods were already the buyer’s risk when the truck left, so the claim runs through the buyer’s carrier or cargo insurer. Under FOB and CIF the goods were still the seller’s risk until loaded on board, so the seller bears it.
- Wet at the port of arrival. Under all four terms the risk had passed to the buyer by then. Under CIF the seller has bought the minimum insurance, and whether that cover responds to the loss depends on its terms. One guide notes that Clause C may not cover theft, pilferage or damage from improper stowage.
Packing therefore matters on every term, and so does the written record of the lot’s condition at the point where risk passes. A packing list, photographs of the loaded cartons and the inspection report give both sides something to point to when a claim is made, and none of them is created by the Incoterm itself.
What does an Incoterm not decide on a valve order?
The documents, the quality and the money. The things an Incoterm specifies are delivery, risk, customs, carriage, insurance, packing and the cost of pre-shipment inspection. The list does not include payment, transfer of title, or what happens when a delivered lot is rejected. Those belong in the contract. Nothing in it asks the seller to provide a material certificate or a valve test report either.
- Certificates and test reports. A buyer who needs an EN 10204 3.1 certificate, a heat number record or a leakage test report has to name each one in the order. What the certificate does and does not prove is covered in What Does an EN 10204 3.1 Certificate Prove on a Ball Valve?
- Acceptance and rejection. If the lot is found short of the specification after risk has passed, the Incoterm does not say what the buyer may do. The sample and the inspection criteria agreed beforehand do; see How Do You Approve a Stainless Steel Ball Valve Sample From a New Supplier?
- Payment. A letter of credit or a deposit is a separate agreement. The Incoterm only interacts with it through the documents the bank asks for, such as the on-board bill of lading.
How does inspection timing fit the risk line?
The lot should be inspected before the point where risk passes, because that is the last point where the seller still owns the problem. Under EXW or FCA at the factory, the risk line sits at the factory gate, so a pre-shipment inspection after the handover happens on goods that are already the buyer’s risk. Under FOB, the goods travel from factory to port at the seller’s risk, and loading is the line. This is the practical reason to put the inspection date in the order next to the shipping date. How to inspect a lot, and what an acceptance quality limit means, is covered in How Do You Inspect a Lot of Stainless Steel Ball Valves Before It Ships?
The ITA summary says each rule states which party bears the cost of pre-shipment inspection. In practice a buyer who sends its own inspector pays for that inspector, so the order should say who arranges the inspection, who pays, when it takes place and what the report must contain.
What should a buyer write in the RFQ?
The term, the named place and the version of the rules, then everything the term leaves open. An example reads “FCA [named place], Incoterms 2020”. The named place matters as much as the three letters, because delivery and risk are tied to it. The same applies when comparing quotes. A price has no meaning without its Incoterm, and a quote on EXW leaves out costs that a CIF quote includes, so the quotes must be put on the same term before they are compared. The full list of what an RFQ should contain is in What Should an RFQ for OEM Stainless Steel Ball Valves Contain?
- The term, the named place and “Incoterms 2020”.
- What the price covers up to that place: inland haulage, export clearance, loading and packing.
- Who packs, to what specification, and who pays.
- Who arranges the pre-shipment inspection, who pays, and that it takes place before the risk passes.
- The document set, each by name, with the date originals are sent.
- For CIF or CIP, the insurance level, and for container loads whether FCA, CPT or CIP is used in place of FOB, CFR or CIF.
Which term suits which buyer?
The buyer with its own forwarder usually wants FCA or FOB; the buyer without one wants the seller to arrange more. A buyer’s guide from a project-materials supplier says FOB is often a good fit for buyers who want to control the freight, and that a seller quoting CIF can inflate the freight cost, so a CIF quote is worth checking against a forwarder’s own rate. The same guide notes that container cargo is better handled on CIP than on CIF. Terms where the seller carries the goods to a named place in the buyer’s country, such as DAP and DDP, move the risk toward the seller, and under DDP the seller also handles import clearance, duties and taxes. The price moves with them. None of these is better in general. Each fits a buyer’s freight set-up, and what matters is that the quote, the order and the documents all name the same one.
Frequently asked questions
What is an Incoterm on a quote?
It is one of eleven three-letter trade terms published by the International Chamber of Commerce. It states where the seller has delivered, where risk of loss or damage passes to the buyer, who pays for carriage and insurance, and who handles export and import formalities.
What is the difference between FOB and CIF?
Under both, risk passes to the buyer when the goods are loaded on board at the port of loading. Under CIF the seller also pays the freight to the port of destination and buys minimum insurance. The risk line does not move, only who pays for the voyage.
Is a quote on EXW comparable with one on CIF?
No. EXW leaves export clearance, loading, carriage and insurance to the buyer, and CIF includes freight and minimum insurance. Quotes should be put on the same term before they are compared.
Which Incoterm should be used for container shipments?
Incoterms 2020 states that FAS, FOB, CFR and CIF are not meant for containers and recommends FCA instead of FOB, and CPT or CIP instead of CFR and CIF.
Does the Incoterm decide who pays for pre-shipment inspection?
The U.S. International Trade Administration summary says each rule states which party bears the cost of pre-shipment inspection. A buyer who sends its own inspector should still write down who arranges it, who pays and when it takes place.
Does an Incoterm require the seller to provide a material certificate?
No. The things an Incoterm specifies are delivery, risk, customs, carriage, insurance, packing and inspection costs. Certificates and test reports have to be named in the order.
Which version of Incoterms should an RFQ name?
The edition published by ICC is Incoterms 2020. Naming the version, the term and the named place avoids ambiguity, for example “FCA [named place], Incoterms 2020”.
Related Articles
- What Should an RFQ for OEM Stainless Steel Ball Valves Contain?
- How Do You Inspect a Lot of Stainless Steel Ball Valves Before It Ships?
- What Does an EN 10204 3.1 Certificate Prove on a Ball Valve?
- How Do You Approve a Stainless Steel Ball Valve Sample From a New Supplier?
- Why Does an OEM Ball Valve Carry a Minimum Order Quantity?
- What Should You Check When You Audit a Ball Valve Factory?
- What Does Made in Taiwan Mean on a Stainless Steel Ball Valve?
- What Does a Valve Manufacturer's Certification Actually Prove?
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Referenced sources: ICC, Incoterms rules, U.S. International Trade Administration, Know Your Incoterms, Projectmaterials, What are Incoterms?, Redstone, Incoterms 2020: what are they and what’s new.
The Incoterms 2020 rules text is a licensed ICC publication and was not read for this article. The rule descriptions above follow the ICC and U.S. International Trade Administration summaries and two published guides, and the wording of any clause should be checked against the ICC publication before a contract is drafted. This article is general information and not legal advice.