Air Freight Incoterms 2020: Complete Guide for Exporters and Importers (With Real Examples)

© 2025 Kazi Suhel Tanvir Mahmud | AI-generated infographic

Air Freight Incoterms 2020: Complete Guide for Exporters and Importers (With Real Examples)

In international trade, the shipping terms you choose determine far more than just who pays the freight bill. They define control, costs, and — most critically — risk at every stage of transport. While many professionals associate Incoterms® with sea freight, several terms are equally applicable to air cargo transactions, and misusing them can lead to costly disputes.

This guide explains which Incoterms apply to air freight, which do not, and how exporters and importers can make the right choice to balance efficiency, cost, and risk.

What Are Incoterms®?

Incoterms® (International Commercial Terms) are standardized rules published by the International Chamber of Commerce (ICC). They are recognized globally and remove ambiguity in cross-border trade by defining:

• Transport & Insurance: Who arranges and pays.

• Risk Transfer: When responsibility shifts from seller to buyer.

• Customs & Documentation: Who handles export and import clearance.

For exporters and importers, knowing the right Incoterm is not optional — it is a strategic necessity that ensures clarity, reduces disputes, and protects margins.

Air Freight vs. Sea Freight: Why It Matters

Air cargo differs fundamentally from ocean shipping:

• Speed vs. Cost: Air is faster but significantly more expensive.

• Handling Points: Airports, not seaports, dictate logistics.

• Insurance Needs: Higher per-unit value often makes coverage essential.

Because of these differences, not all Incoterms are suitable. For example, terms like FOB or CIF — rooted in maritime practices — have no place in air freight.

Incoterms® Suitable for Air Freight

When negotiating air freight shipments, choosing the right Incoterm is crucial. Below is a breakdown of the most commonly used terms, highlighting responsibilities, risk points, and benefits for both parties.

1. EXW (Ex Works)

• Seller’s role: Makes goods available at their premises (factory/warehouse).

• Buyer’s role: Arranges all transport, export clearance, insurance, and import formalities.

• Risk transfer: At the seller’s premises, once goods are made available.

• Customs formalities: Buyer is responsible for both export and import clearance.

• Seller’s benefit: Minimal responsibility and cost.

• Buyer’s benefit: Maximum control over transport, forwarder selection, and costs.

• Best for: Experienced buyers with a strong local presence in seller’s country.

  2. FCA (Free Carrier)

• Seller’s role: Delivers goods, cleared for export, to the carrier at the named airport or forwarder’s facility.

• Buyer’s role: Arranges main carriage, insurance, and import clearance.

• Risk transfer: At handover to the carrier.

• Customs formalities: Seller handles export clearance; buyer handles import clearance.

• Seller’s benefit: Control over export process without bearing international transport risk.

• Buyer’s benefit: Lower cost than EXW (since seller manages export clearance) and more practical for air freight.

• Why it works for air freight: The most flexible and widely recommended Incoterm when using freight forwarders.

• 3. CPT (Carriage Paid To)

  • Seller’s role: Pays freight up to the destination airport.

  • Buyer’s role: Handles insurance (optional), import clearance, and onward delivery.

  • Risk transfer: At delivery to the first carrier in the origin country.

  • Customs formalities: Seller handles export clearance; buyer handles import clearance.

  • Seller’s benefit: Competitive offer since international freight is prepaid.

  • Buyer’s benefit: Predictable freight cost, while retaining flexibility on insurance.

    4. CIP (Carriage and Insurance Paid To)

    • Seller’s role: Same as CPT but must also provide cargo insurance (under Incoterms® 2020, minimum = Institute Cargo Clauses A).

    • Buyer’s role: Handles import clearance and delivery after arrival.

    • Risk transfer: At delivery to the first carrier.

    • Customs formalities: Seller handles export clearance; buyer handles import clearance.

    • Seller’s benefit: Attractive to buyers as it includes insurance, making offers more competitive.

    • Buyer’s benefit: Maximum security with freight and insurance prepaid.

      5. DAP (Delivered At Place)

      • Seller’s role: Bears transport cost and risk until goods arrive at buyer’s named place (airport or warehouse).

      • Buyer’s role: Handles import clearance, duties, and taxes.

      • Risk transfer: At the agreed place of destination (before customs clearance).

      • Customs formalities: Seller manages export clearance; buyer manages import clearance.

      • Seller’s benefit: Strong selling point — smooth logistics up to buyer’s door/airport.

      • Buyer’s benefit: Hassle-free receipt of goods with reduced operational burden.

        6. DDP (Delivered Duty Paid)

        • Seller’s role: Handles everything — freight, insurance, export & import customs clearance, duties, and delivery to buyer’s premises.

        • Buyer’s role: Simply receives the goods.

        • Risk transfer: At final place of delivery (buyer’s warehouse).

        • Customs formalities: Seller manages both export and import formalities.

        • Seller’s benefit: Strongest competitive edge, offering a fully managed solution.

        • Buyer’s benefit: Maximum convenience and no hidden costs.

        • Caution: Risky for sellers if unfamiliar with foreign customs regimes, local duties, or tax systems.

Key Takeaway

After 20 years in the Trade Finance Department, working closely with exporters, importers, and freight forwarders, I’ve learned one thing: Incoterms may look neat on paper, but in real air freight operations, some terms just work better than others.

• FCA (Free Carrier): Hands down, the most practical and widely used term for air freight. The seller handles export clearance, while the buyer takes over the main carriage. Forwarders like it because responsibilities are clear at the airport handover. It keeps things simple and avoids confusion.

• CPT and CIP (Carriage Paid To / Carriage and Insurance Paid To): These work best when sellers want to offer a complete freight package. With CPT, the seller pays for transport to the destination airport, while risk transfers to the buyer once goods are handed over to the first carrier. CIP adds cargo insurance, giving buyers extra peace of mind. Sellers can make their offer more attractive without holding international risk, and buyers enjoy hassle-free freight (and insurance in CIP).

• DAP and DDP (Delivered At Place / Delivered Duty Paid): These are very buyer-friendly, often helping close deals with less experienced buyers. But here’s the catch: sellers take on much more operational responsibility. With DDP, they even handle foreign customs and duties — which can get tricky if they don’t have local support.

Practical Advice:
If I were advising an exporter who’s new to air freight, I’d say this: start with FCA. It keeps responsibilities clear, limits risk, and helps you learn the ropes without getting overwhelmed. Once you’ve built solid logistics support — both in your country and abroad — you can consider DAP or DDP to offer buyers a more seamless, fully managed solution. Think of it as stepping stones: start simple, gain experience, and then take on more operational responsibility confidently.

FOB for air freight: However, FOB (Free on Board) terms apply exclusively to shipments transported by sea or inland waterways and are not suitable for air freight, rail, or road freight. Under FOB, the seller is responsible for loading the goods onto the vessel and completing all export formalities according to the regulations of the exporting country. The allocation of risk and responsibilities is divided between the buyer and seller, based on the shipment’s point of origin and destination. Among all Incoterms, FOB remains the most commonly used.

Discover why the Bill of Lading is the backbone of global trade—learn all about essential transport documents here.

Airfreight Incoterms: 

Best Incoterms for air freight:

FCA Incoterms: 

FCA (Free Carrier) – Trade Finance Perspective

Definition:
FCA (Free Carrier) is an Incoterm under Incoterms® 2020 that obliges the seller to deliver the goods, cleared for export, to a carrier or another party nominated by the buyer at a specified place. This place can be the seller’s premises, a warehouse, or a transport hub. Once delivery occurs, risk transfers from the seller to the buyer.

Key Responsibilities:

1. Seller Responsibilities:

   • Prepare and pack the goods appropriately for transport.

   • Arrange export clearance, including licenses, customs documentation, and duties.

   • Deliver the goods to the agreed location, which could be the seller’s premises or a named carrier.

   • Provide the buyer with proof of delivery (e.g., transport receipt, waybill) that can be used for trade finance purposes.

2. Buyer Responsibilities:

   • Nominate the carrier and bear all transportation costs from the delivery point onwards.

   • Assume risk once the goods are delivered to the carrier.

   • Arrange import clearance, including duties, taxes, and customs documentation.

Trade Finance Implications:

• Documentary Credits (LCs): In a letter of credit transaction, FCA requires careful specification of the delivery point. Banks examine transport documents such as the carrier’s receipt or airway bill to ensure compliance. Incorrect or vague terms can lead to discrepancies and delayed payments.

• Risk Mitigation: FCA is favored when the seller can manage export procedures but the buyer wants control over international transport. The risk passes at the point of delivery, reducing the seller’s liability for sea, air, or multimodal carriage beyond the delivery location.

• Multimodal Flexibility: Unlike FOB, which is sea-specific, FCA applies to all transport modes, making it ideal for air freight, rail, or road shipments in addition to maritime transport.

Practical Tips for Exporters:

• Always specify the exact delivery point (e.g., “FCA, Dhaka Warehouse” or “FCA, Chittagong Port Terminal”) to avoid disputes.

• Ensure export customs clearance is completed properly; banks and buyers often insist on documentation confirming this.

• For LC transactions, request that the issuing bank accepts the carrier’s receipt as proof of delivery to satisfy compliance.

Summary:
FCA (Free Carrier), an Incoterm defined by the International Chamber of Commerce (ICC), is a highly flexible Incoterm  that balances risk and responsibility between seller and buyer. From a trade finance standpoint, its key advantage is clarity in document handling and risk transfer at a defined location, making it compatible with letters of credit, bank guarantees, and modern multimodal logistics.

CFR air freight: CFR (Cost and Freight) is an Incoterm specifically for sea and inland waterway transport and cannot be used for air freight. For air freight, the International Chamber of Commerce (ICC) suggests using Incoterms like CPT (Carriage Paid To) instead.

Here are the three most common and appropriate Incoterms® 2020 rules for air shipments, presented clearly and concisely.

1. FCA (Free Carrier)

Definition: The seller fulfills their obligation by delivering the goods, cleared for export, to the carrier nominated by the buyer at a named place.

Risk Transfer: From seller to buyer at the moment the goods are handed over to the carrier at the named place (e.g., the origin airport).

Why for Air: Efficiently splits responsibilities. The seller handles export formalities and gets the goods to the air carrier. The buyer is responsible for the main air freight cost and all import processes.

2. CIP (Carriage and Insurance Paid To)

Definition: The seller pays for carriage and insurance to the named destination. The seller clears the goods for export.

Risk Transfer: From seller to buyer when the goods are handed over to the first carrier (e.g., at the origin airport), not at the destination.

Why for Air: The seller arranges and pays for the air freight and provides insurance (with broad coverage) to the destination airport. The buyer handles all import clearance and costs.

3. DAP (Delivered at Place)

Definition: The seller delivers the goods to the named destination, ready for unloading by the buyer. The seller bears all risks and costs involved in bringing the goods to that place.

Risk Transfer: From seller to buyer when the goods are available for unloading at the named destination (e.g., the buyer's warehouse).

Why for Air: Provides a "door-to-door" service where the seller manages the entire air freight journey to the final location. The buyer is only responsible for unloading and import clearance.

Key Consideration:

Always specify the exact location (e.g., FCA [Address of Origin Airport Warehouse], CIP [Destination Airport], DAP [Buyer's Warehouse Address]). Vague terms lead to disputes.

The Critical Role of Air Imports in Bangladesh’s Economy

Air import means bringing goods into a country by air cargo, a fast and reliable mode of transport. For Bangladesh, air imports are not just convenient — they are vital to sustaining its fast-growing economy.

In 2023, Bangladesh’s airports handled 83.7 million tons of cargo, reflecting the sector’s central role in trade. Businesses rely on air freight when time and reliability outweigh cost. Perishables, medical supplies, critical spare parts, and product samples all depend on timely delivery by air. High-value shipments such as electronics, luxury goods, and machinery also move faster and safer through air imports.

The rise of e-commerce adds to this demand, as online retailers need rapid inventory replenishment from global suppliers. Key industries like RMG, pharmaceuticals, and electronics also depend heavily on air cargo, where even minor delays can disrupt production and competitiveness.

 Frequently Asked Questions (FAQ)

Q1: What are Incoterms, and why are they important in air freight?
A: Incoterms (International Commercial Terms) are standardized shipping terms published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international transactions, clarifying who is responsible for shipping costs, insurance, and risk during transportation. In air freight, Incoterms help streamline logistics and ensure both parties understand their obligations.

Q2: Which Incoterms are commonly used in air freight?
A: Common Incoterms for air freight include:

• EXW (Ex Works): The seller makes the goods available at their premises; the buyer bears all costs and risks.

• FCA (Free Carrier): The seller delivers goods to a carrier or another party nominated by the buyer.

• CPT (Carriage Paid To): The seller pays for transportation to a specified destination.

• DAP (Delivered at Place): The seller delivers goods ready for unloading at the named place.

• DDP (Delivered Duty Paid): The seller bears all costs and risks, including import duties and taxes.

Q3: How do I choose the right Incoterm for my air shipment?
A: Selecting the appropriate Incoterm depends on factors like:

• Control over shipment: Do you want to manage the shipping process or delegate it?

• Cost considerations: Who will bear the shipping, insurance, and customs costs?

• Risk tolerance: At what point do you want the risk to transfer from seller to buyer?

• Destination requirements: Are there specific delivery conditions or locations to consider?

Q4: Can Incoterms be customized for specific agreements?
A: While Incoterms provide a standardized framework, parties can agree on additional terms or modifications to suit their specific needs. However, any changes should be clearly documented in the contract to avoid misunderstandings.

Q5: Where can I find more information about Incoterms and their application in air freight?
A: For detailed explanations and updates on Incoterms, visit the Incoterms Blog. You can also consult the official ICC website or seek advice from logistics professionals.

You may also like: Complying Presentation under Letters of Credit

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Incoterms MCQs for CDCS Exam

 by Kazi Suhel Tanvir Mahmud | AVP & Senior Trade Finance Manager, AB Bank plc. 

Incoterms MCQs for CDCS Exam

Test your understanding of Incoterms 2020 rules, delivery obligations, cost allocation, and risk transfer scenarios for the CDCS examination.

CDCS Exam Focus Mastering Incoterms 2020 & LC Document Scrutiny? Test your knowledge on delivery points, insurance coverages (CIP vs. CIF), and transfer of risk.

Access 500+ MCQs →

Section 1: General Knowledge of Incoterms (20 MCQs)

Q1: What is the primary purpose of Incoterms?

A) To determine currency exchange rates
B) To define seller and buyer responsibilities for delivery, cost, and risk
C) To regulate tariffs
D) To standardize insurance policies

Answer: B
Explanation: Incoterms clarify who is responsible for delivery, risk, and cost, reducing disputes in international trade.

Q2: Which organization publishes Incoterms?
A) WTO
B) ICC (International Chamber of Commerce)
C) UNCTAD
D) IMF

Answer: B
Explanation: ICC sets global standards; Incoterms 2020 is the latest edition.

Q3: Which Incoterm places minimum responsibility on the seller?
A) EXW
B) DDP
C) CIF
D) DAP

Answer: A
Explanation: EXW (“Ex Works”) requires the seller only to make goods available at their premises.

Q4: Which Incoterm is only suitable for sea and inland waterway transport?
A) FOB
B) DAP
C) DDP
D) CIP

Answer: A
Explanation: Sea-specific terms include FOB, CFR, and CIF; DAP/DDP are multimodal.

Q5: Which Incoterm requires the seller to pay for transport, insurance, and duties at the destination?
A) CIF
B) DDP
C) EXW
D) FOB

Answer: B
Explanation: DDP (“Delivered Duty Paid”) maximizes seller responsibility.

Q6: Which Incoterm is suitable for any mode of transport?
A) FOB
B) FAS
C) DAP
D) CFR

Answer: C

Q7: EXW is commonly used when the buyer wants:
A) Minimal responsibility
B) Maximum control of logistics
C) Seller to arrange freight
D) Seller to clear customs

Answer: B

Q8: CIF stands for:
A) Cost, Insurance, Freight
B) Customs, Import, Freight
C) Cost, Import, Forwarding
D) Cargo, Insurance, Freight

Answer: A

Q9: In CIF, who arranges insurance?
A) Buyer
B) Seller
C) Freight Forwarder
D) Bank

Answer: B

Q10: Which Incoterm requires the seller to deliver goods alongside the ship at the port?
A) FOB
B) FAS
C) CFR
D) DAP

Answer: B
Explanation: FAS (“Free Alongside Ship”) places goods at the quay; buyer assumes risk once alongside.

Q11: Which Incoterm transfers risk at the seller’s warehouse?
A) EXW
B) FOB
C) CIF
D) DAP

Answer: A

Q12: Which Incoterm allows the buyer to control export documentation?
A) EXW
B) DDP
C) CIF
D) FOB

Answer: A

Q13: Which Incoterm is most suitable for heavy machinery shipped by sea with insurance handled by the seller?
A) FOB
B) CIF
C) EXW
D) DAP

Answer: B

 

Q14: In DAP, the seller delivers goods:
A) On board the ship
B) At a named place in the buyer’s country
C) At the seller’s warehouse
D) At the port of loading

Answer: B

 

Q15: The latest Incoterms edition is:
A) 2010
B) 2015
C) 2020
D) 2022

Answer: C

Q16: Incoterms are legally binding only if:
A) Automatically applied in all contracts
B) Referenced explicitly in the contract of sale
C) Used in banking documents
D) Published in local law

Answer: B

Q17: Which Incoterm is often used with Letters of Credit to simplify banking compliance?
A) EXW
B) CIF
C) DDP
D) DAP

Answer: B

Q18: Which Incoterm explicitly requires the seller to arrange export customs clearance?
A) EXW
B) FOB
C) CIF
D) DDP

Answer: D

Q19: Which Incoterm places maximum risk on the buyer?
A) EXW
B) DDP
C) CIF
D) FOB

Answer: A

Q20: INCOTERMS help avoid disputes because they standardize:
A) Shipping routes
B) Responsibilities for delivery, cost, and risk
C) Pricing formulas
D) Customs duties

Answer: B

Section 2: Risk Transfer (20 MCQs)

Q21: In FOB terms, when does risk transfer from seller to buyer?
A) When goods leave the seller’s warehouse
B) When goods are delivered onboard the vessel
C) When goods reach the buyer’s warehouse
D) When customs duties are paid

Answer: B
Explanation: FOB (“Free on Board”) transfers risk once the goods are on board the vessel at the port of shipment.

Q22: Under CIF, who bears the risk during sea transit?
A) Seller
B) Buyer
C) Freight Forwarder
D) Insurance Company

Answer: B
Explanation: The seller arranges insurance, but risk passes to the buyer once goods are onboard.

Q23: Which Incoterm transfers risk at the named place of destination?
A) EXW
B) DDP
C) DAP
D) FOB

Answer: C
Explanation: DAP (“Delivered at Place”) transfers risk upon delivery to the agreed destination.

 

Q24: In EXW, who assumes risk during transport to the port of export?
A) Seller
B) Buyer
C) Shipping Line
D) Bank

Answer: B
Explanation: EXW places all transport risk on the buyer, even before export customs.

 

Q25: Which Incoterm requires the seller to bear risk until goods reach the port of destination?
A) CIF
B) CFR
C) DDP
D) FOB

Answer: C
Explanation: DDP ensures seller is responsible for all costs and risks until delivery at the destination.

Q26: In CFR terms, who bears risk after loading?
A) Seller
B) Buyer
C) Carrier
D) Freight Forwarder

Answer: B
Explanation: CFR (“Cost and Freight”) covers transport cost to destination, but risk passes once goods are onboard.

Q27: FAS risk passes when:
A) Goods are on board
B) Goods are alongside the ship at the port of shipment
C) Goods are delivered to buyer’s warehouse
D) Customs duties are paid

Answer: B

Q28: In CIF, insurance covers:
A) Only inland transit at origin
B) Marine transit risk only
C) Both origin and destination inland transit
D) Buyer’s warehouse risk

Answer: B

Q29: Which Incoterm places risk on the seller until goods are unloaded at the buyer’s premises?
A) DDP
B) DAP
C) CIF
D) EXW

Answer: A

Q30: In FOB, if goods are damaged at the port before loading, who bears the risk?
A) Seller
B) Buyer
C) Carrier
D) Insurance Company

Answer: A
Explanation: FOB risk transfers only when goods are on board, so seller bears risk until loading.

Q31: Which Incoterm allows buyer to insure goods after shipment?
A) CIF
B) CFR
C) EXW
D) DDP

Answer: B

Q32: Under DAP, risk passes:
A) At seller’s warehouse
B) During shipment
C) Upon delivery to named destination
D) At port of loading

Answer: C

Q33: Which Incoterm is most suitable when buyer wants maximum control over insurance?
A) CIF
B) CIP
C) EXW
D) DDP

Answer: C

Q34: In CIP, risk transfers:
A) When goods leave warehouse
B) When goods are handed to first carrier
C) Upon arrival at destination
D) When insurance is purchased

Answer: B

Q35: Who bears risk under CFR during loading delays caused by port congestion?
A) Seller
B) Buyer
C) Carrier
D) Insurance Company

Answer: A

Q36: In DDP, if goods are damaged in transit, who is liable?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: A

Q37: Under EXW, if damage occurs during loading at the seller’s premises, who is responsible?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: B

Q38: FOB vs CIF difference in risk:
A) FOB – risk passes at destination; CIF – risk passes at warehouse
B) FOB – risk passes onboard; CIF – risk passes onboard but seller arranges insurance
C) FOB – risk passes at warehouse; CIF – risk passes at destination
D) Both are identical

Answer: B

Q39: In CFR, if the seller fails to book a vessel on time, who bears the risk of delay?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: A

Q40: EXW is high-risk for buyer because:
A) Buyer controls all transport and insurance
B) Seller clears customs
C) Seller delivers at destination
D) Insurance is included

Answer: A

Section 3: Cost & Freight Responsibilities (20 MCQs)

Q41: In CIF terms, the seller is responsible for:
A) Only cost of goods
B) Cost of goods + freight + insurance to destination port
C) Cost of goods + export customs duties only
D) Import duties at buyer’s country

Answer: B
Explanation: CIF (“Cost, Insurance, Freight”) includes freight and marine insurance, but the buyer assumes risk once goods are onboard.

 

Q42: Under DDP, who pays import duties and taxes?
A) Buyer
B) Seller
C) Freight Forwarder
D) Bank

Answer: B

Q43: In CFR, who pays freight to destination port?
A) Buyer
B) Seller
C) Carrier
D) Bank

Answer: B

 

Q44: EXW cost responsibility:
A) Seller covers everything
B) Buyer covers all transport, insurance, and duties
C) Seller covers transport to port only
D) Buyer only pays customs

Answer: B

Q45: In CIP, the seller must:
A) Deliver goods and pay insurance to named destination
B) Deliver goods at warehouse only
C) Pay customs only
D) None of the above

Answer: A

Q46: Under FOB, who pays loading onto the vessel?
A) Seller
B) Buyer
C) Carrier
D) Insurance Company

Answer: A

Q47: FAS requires the seller to:
A) Deliver goods alongside the ship
B) Pay freight to destination
C) Clear import customs
D) Provide insurance

Answer: A

 

Q48: Under DAP, the buyer is responsible for:
A) Import duties and taxes
B) Freight
C) Seller’s warehouse costs
D) Loading at origin

Answer: A

 

Q49: Who pays insurance under CIF?
A) Seller
B) Buyer
C) Carrier
D) Both seller and buyer

Answer: A

Q50: Under CFR, if the buyer wants extra insurance beyond minimum coverage, who pays?
A) Seller
B) Buyer
C) Carrier
D) Insurance company

Answer: B

Q51: DDP vs DAP difference in costs:
A) DDP – seller pays duties; DAP – buyer pays duties
B) DDP – buyer pays duties; DAP – seller pays duties
C) Both same
D) Only risk differs

Answer: A

Q52: EXW is cost-effective for the seller because:
A) Seller handles all export formalities
B) Buyer takes responsibility for all costs and risks
C) Seller pays freight
D) Seller pays import duties

Answer: B

Q53: In FOB, who pays export customs clearance?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: A

Q54: CIF requires the seller to insure goods for:
A) Full market value
B) 110% of invoice value
C) Minimal coverage only
D) Only for inland transit

Answer: B
Explanation: ICC recommends 110% coverage of CIF value.

 

Q55: Under DAP, who is responsible for unloading at destination?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: B

 

Q56: CIP vs CIF difference:
A) CIP includes insurance for multimodal transport; CIF only for sea
B) CIF covers inland transport; CIP does not
C) Both identical
D) CIP is only for EXW shipments

Answer: A

Q57: Under CFR, if freight charges increase after contract, who pays?
A) Buyer
B) Seller
C) Carrier
D) Bank

Answer: B

Q58: EXW may cause hidden costs for the buyer, such as:
A) Inland freight at origin
B) Export customs
C) Port handling charges
D) All of the above

Answer: D

Q59: In DDP, if customs duties are underpaid, who is liable?
A) Seller
B) Buyer
C) Carrier
D) Insurance Company

Answer: A

Q60: Which Incoterm allows the buyer to control all transport and insurance arrangements?
A) EXW
B) CIF
C) DDP
D) DAP

Answer: A

Section 4: Trade Finance Applications (20 MCQs)

Q61: When using a Letter of Credit, which Incoterm is commonly preferred?
A) EXW
B) CIF
C) DDP
D) DAP

Answer: B
Explanation: CIF aligns with LCs because shipping documents, insurance, and freight costs are clearly defined, facilitating bank compliance.

Q62: In a CIF shipment under LC, which document is essential for the bank?
A) Bill of Lading
B) Seller’s warehouse receipt
C) Invoice only
D) Purchase order

Answer: A

Q63: Under DDP, which document is critical for customs clearance at destination?
A) Insurance certificate
B) Import declaration
C) Bill of Lading
D) Packing list

Answer: B

Q64: Which Incoterm may cause documentary discrepancies in LC if incorrectly applied?
A) EXW
B) CIF
C) FOB
D) All of the above

Answer: D
Explanation: Misalignment between contracted Incoterm and LC documents often leads to discrepancies and payment delays.

Q65: In FOB, which document proves delivery onto the vessel?
A) Bill of Lading
B) Cargo receipt
C) Packing list
D) Insurance certificate

Answer: A

 

Q66: Under CIP, the seller must provide:
A) Insurance certificate to the buyer
B) Freight forwarding invoice
C) Letter of Credit
D) Bank guarantee

Answer: A

 

Q67: If an LC specifies DDP, the seller must:
A) Include all taxes and duties in the invoice
B) Let the buyer clear customs
C) Pay only freight
D) None of the above

Answer: A

Q68: In LC transactions, using EXW can be risky for the buyer because:
A) The bank may reject documents
B) Buyer bears export clearance responsibility
C) Freight costs may be unpredictable
D) All of the above

Answer: D

Q69: Which Incoterm ensures seller compliance with shipping documents in LC?
A) CIF
B) EXW
C) DAP
D) FAS

Answer: A

Q70: If a buyer wants insurance coverage handled by themselves, which Incoterm is best?
A) EXW
B) CIF
C) CIP
D) DDP

Answer: A

 

Q71: In CIF under LC, the bank checks:
A) Bill of Lading, insurance, commercial invoice
B) Seller’s warehouse receipt
C) Buyer’s internal records
D) None

Answer: A

 

Q72: Under DAP, who is responsible for presenting import documents to customs?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: B

 

Q73: LC discrepancies often occur when:
A) Incoterm in LC differs from sales contract
B) Insurance certificate missing or incorrect
C) Bill of Lading not properly endorsed
D) All of the above

Answer: D

Q74: In FOB under LC, if the bill of lading is late, who may face payment delays?
A) Seller
B) Buyer
C) Bank
D) All parties

Answer: D

Q75: For CIF, the insurance certificate must indicate:
A) Value covered (typically 110%)
B) Destination port
C) Seller’s name
D) All of the above

Answer: D

Q76: Using DDP in LC requires:
A) Bank acceptance that seller handles import duties
B) Buyer to pay freight
C) Carrier to insure goods
D) Seller to load goods only

Answer: A

Q77: In EXW LC transactions, which cost is NOT included by seller?
A) Inland freight
B) Export customs
C) Shipping insurance
D) All of the above

Answer: D

 

Q78: Which Incoterm simplifies documentary compliance for export-oriented LCs?
A) CIF
B) EXW
C) DDP
D) FAS

Answer: A

 

Q79: In CIF LC, the insurance document must be:
A) Original or copy acceptable to the bank
B) Optional
C) For inland transport only
D) Issued by buyer

Answer: A

Q80: Which Incoterm can cause LC rejection if the bank expects the seller to handle duties but EXW is applied?
A) EXW
B) DDP
C) CIF
D) DAP

Answer: A

 

Section 5: Case Studies & Problem-Solving (20 MCQs)

Q81: A Bangladeshi exporter ships garments to Germany under EXW Dhaka. Buyer arranges pickup and export clearance. During transport, goods are damaged at Chittagong port. Who bears the risk?
A) Exporter
B) Buyer
C) Carrier
D) Insurance company

Answer: B
Explanation: EXW places maximum responsibility on the buyer, including export and transit risk.

 

Q82: A shipment under FOB Mumbai is loaded onto the vessel. During transit, goods are damaged by storm. Who bears the loss?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: B
Explanation: FOB risk passes to the buyer once goods are on board, regardless of who arranged insurance.

 

Q83: Seller ships machinery under CIF Rotterdam. Insurance certificate only covers 50% of invoice value. Buyer claims loss. Who is at fault?
A) Seller
B) Buyer
C) Carrier
D) Insurance Company

Answer: A
Explanation: Seller must provide adequate insurance coverage (typically 110% of invoice) under CIF.

 

Q84: Buyer wants goods delivered under DAP but refuses to pay import duties. Seller has already paid freight. Who bears risk until goods reach buyer?
A) Seller
B) Buyer
C) Carrier
D) Customs

Answer: A
Explanation: DAP risk remains with seller until goods are delivered, but buyer is responsible for import duties, which may affect legal responsibility if not clarified.

 

Q85: Goods shipped under FAS Shanghai are lost while still alongside the ship. Who bears the risk?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: B
Explanation: In FAS, risk passes once goods are alongside the vessel.

 

Q86: An EXW shipment is delayed at origin because the buyer has not arranged pickup. Who incurs cost?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: B

 

Q87: A CIF LC shipment arrives late due to carrier delay. Buyer refuses payment. What is correct?
A) Buyer must pay if documents comply
B) Seller bears responsibility for delay
C) Bank rejects payment automatically
D) Carrier reimburses

Answer: A
Explanation: Banks honor LCs if documents comply, regardless of delivery delay, unless contract specifies penalties.

Q88: Seller ships goods under CIP, but insurance certificate is missing. Buyer claims loss. Who is liable?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: A

 

Q89: Under DDP, goods are damaged in transit by customs handling. Who bears the loss?
A) Seller
B) Buyer
C) Carrier
D) Insurance company

Answer: A

 

Q90: Buyer uses EXW but delays customs clearance at origin, leading to demurrage charges. Who pays?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: B

 

Q91: Goods shipped under FOB are insured by seller. Damage occurs during transit. Who claims from insurance?
A) Buyer
B) Seller
C) Carrier
D) Bank

Answer: B
Explanation: Seller arranged insurance; the insurance policy is in seller’s name unless otherwise agreed.

 

Q92: A shipment under CIF is missing LC-compliant insurance. Bank rejects documents. Who is at fault?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: A

 

Q93: Buyer insists on EXW, but seller is responsible for export license under local law. Who bears compliance risk?
A) Seller
B) Buyer
C) Both
D) Carrier

Answer: A

Q94: Goods shipped DAP arrive at buyer’s warehouse. Buyer refuses to unload. Who bears risk?
A) Seller
B) Buyer
C) Carrier
D) Insurance

Answer: B

 

Q95: Seller ships under FOB, but bill of lading is incorrect. Bank refuses LC payment. Who is responsible?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: A

 

Q96: Goods under CFR are damaged during handling at destination port. Who bears cost of damage?
A) Buyer
B) Seller
C) Carrier
D) Bank

Answer: A
Explanation: CFR transfers risk once goods are onboard at origin port, so buyer bears transit risk.

 

Q97: Under DDP, seller ships goods, but import duties increase after shipment. Who pays extra?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: A

 

Q98: Buyer requests CIF but asks seller to cover inland freight at origin. Who is responsible for these costs?
A) Seller
B) Buyer
C) Carrier
D) Insurance company

Answer: B

 

Q99: Shipment under CIP is delayed due to carrier. Buyer suffers losses. Who bears risk?
A) Buyer
B) Seller
C) Carrier
D) Insurance

Answer: A
Explanation: CIP transfers risk once goods handed to first carrier, so delay by carrier does not shift risk to seller.

 

Q100: EXW shipment is lost during transit from seller’s warehouse to port. Who bears the loss?
A) Seller
B) Buyer
C) Carrier
D) Bank

Answer: B

 

Key Takeaways for CDCS Candidates

• Understand risk vs cost transfer: Know exactly when responsibility passes from seller to buyer.

• Focus on LCs & Incoterms links: Document compliance is crucial for LC payment.

• Practice with scenarios: Real-world cases help remember which party bears cost or risk.

• Revision tip: Break MCQs into sections: General, Risk, Cost, Finance, Cases.

 

CDCS Exam Tip — Advanced Incoterms® Scenario Questions

Q1. FCA — Seller's Premises vs Other Named Place

A sales contract states:

FCA Seller's Warehouse, Dhaka, Incoterms® 2020.

The buyer arranges a truck to collect the goods from the seller's warehouse. The seller loads the goods onto the buyer's collecting vehicle at the agreed delivery point.

At what point does delivery occur and risk transfer under FCA?

A. When the goods arrive at the buyer's warehouse
B. When the goods are loaded onto the buyer's collecting vehicle at the seller's premises
C. When the goods are loaded onto the ocean vessel at the port of shipment
D. When the buyer's bank makes payment

Answer: B

CDCS Exam Insight: Under FCA Incoterms® 2020, when the named place is the seller's premises, the seller completes delivery when the goods are loaded on the means of transport arranged by the buyer. Risk transfers at that point.

Important distinction: If the named FCA delivery place is another place—for example, an airport cargo terminal or port container terminal—the delivery mechanism is different: the seller delivers when the goods, loaded on the seller's means of transport, reach the agreed place and are ready for unloading at the disposal of the buyer's nominated carrier.

CDCS Trap: Do not memorize FCA simply as "risk transfers when goods are handed to the carrier." First identify where the FCA delivery point is.

CDCS Trap — FCA Has Two Delivery Scenarios

FCA Seller's Premises
→ Seller loads the goods onto the buyer's collecting vehicle
→ Delivery/risk transfer occurs after loading

FCA Other Named Place
→ Seller transports the goods to the agreed place on its own means of transport
→ Goods are made available to the buyer's nominated carrier ready for unloading
→ Delivery/risk transfer occurs at that point

This distinction is important in CDCS examination questions because the answer depends not merely on the word FCA, but on the named place of delivery.

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Q2. FCA and Letter of Credit

An LC requires presentation of a full set of on-board bills of lading. The underlying sale is FCA Seller's Premises, Incoterms® 2020. The buyer's nominated carrier collects the goods from the seller.

Which issue is most relevant?

A. FCA automatically prohibits an on-board B/L
B. FCA cannot be used with an LC
C. The parties may need to agree that the buyer instructs the carrier to provide an on-board B/L to the seller
D. The seller must change the contract to CIF

Answer: C

CDCS Exam Insight: FCA and documentary credits can coexist. The practical issue is obtaining the transport document required by the LC.

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Q3. CIP — Insurance

A contract states:

CIP Rotterdam, Incoterms® 2020.

The seller purchases cargo insurance covering only 110% of the invoice value under Institute Cargo Clauses (C).

The buyer claims that the insurance is inadequate.

Which is the best answer?

A. The seller is always required to provide 110% ICC(A) coverage under CIP
B. CIP requires insurance in accordance with the higher insurance obligation applicable to CIP under Incoterms® 2020
C. CIP imposes no insurance obligation
D. Insurance is always the buyer's responsibility under CIP

Answer: B

CDCS Exam Insight: Don't treat CIP and CIF as having identical insurance requirements. Under Incoterms® 2020, CIP generally carries the higher insurance coverage requirement.

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Q4. CIF — Risk vs Cost

Under CIF Hamburg, Incoterms® 2020, the seller pays freight and insurance to Hamburg.

The vessel sinks after the goods have been loaded on board at Chattogram but before reaching Hamburg.

Who generally bears the transit risk?

A. Seller
B. Buyer
C. Carrier
D. Insurer automatically bears all risk

Answer: B

Why? Under CIF, risk transfers when the goods are loaded on board the vessel at the port of shipment—not when the goods arrive at the destination.

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Q5. CIF — Insurance Does Not Mean Risk Remains with Seller

An importer argues:

“Because the seller arranged insurance under CIF, the seller remains responsible for the goods until they reach the destination.”

Is this correct?

A. Yes
B. Yes, but only for containerized cargo
C. No. Insurance responsibility and risk transfer are separate concepts
D. Yes, unless the LC states otherwise

Answer: C

CDCS Exam Insight: This is a classic examination trap: who pays for insurance ≠ who bears risk.

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Q6. DAP — Unloading

A contract is DAP Buyer's Warehouse, Dhaka, Incoterms® 2020.

The goods arrive at the buyer's warehouse. The seller's truck is ready to unload.

Who is normally responsible for unloading?

A. Seller
B. Buyer
C. Carrier only
D. Seller's insurer

Answer: B

CDCS Exam Insight: Under DAP, delivery occurs when goods are placed at the buyer's disposal on the arriving means of transport, ready for unloading.

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Q7. DPU vs DAP

A seller agrees to deliver machinery to the buyer's factory and unload it from the arriving truck.

Which Incoterm® 2020 is specifically designed to reflect this arrangement?

A. DAP
B. DPU
C. FCA
D. CIF

Answer: B

CDCS Exam Insight: DPU = Delivered at Place Unloaded. DAP does not require the seller to unload.

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Q8. DDP — Import Clearance

Under DDP Buyer's Warehouse, Incoterms® 2020, the seller argues that the buyer should handle import customs clearance because the buyer is located in the importing country.

Which statement is best?

A. Correct
B. Correct only for containerized cargo
C. Incorrect; DDP places the import clearance and associated obligations on the seller
D. Import clearance is always the carrier's responsibility

Answer: C

CDCS Exam Insight: DDP places the maximum responsibility on the seller, including import clearance, duties and taxes, subject to the practical/legal ability to perform those obligations.

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Q9. DDP — Local Import Restrictions

A seller agrees to DDP in a country where foreign sellers cannot legally perform certain import-clearance formalities.

What is the best conclusion?

A. DDP automatically solves the problem
B. The parties should consider whether DDP is appropriate and whether another Incoterm® better reflects the legal/practical position
C. The buyer must always pay import duty under DDP
D. The carrier assumes the seller's import obligations

Answer: B

CDCS Exam Insight: Incoterms® rules allocate obligations between parties; they do not override local law or regulatory restrictions.

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Q10. Multimodal Transport — FOB Trap

Goods are containerized and will move by truck from the seller's premises to a port, then by ocean vessel.

The seller wants to use FOB, even though the goods are handed to a carrier at an inland terminal before reaching the port.

Which Incoterm® is generally more appropriate for this type of multimodal/containerized movement?

A. FCA
B. FOB
C. CIF only
D. DPU only

Answer: A

CDCS Exam Insight: FCA is generally better suited to containerized and multimodal transport, particularly where delivery occurs before the goods are loaded on board the vessel.

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Q11. FCA vs FOB

The buyer nominates a carrier. The seller delivers the goods to the carrier at an inland terminal. The goods will subsequently travel by sea.

The buyer asks the seller to use FOB.

What is the strongest objection?

A. FOB cannot be used for international trade
B. FOB is intended for sea/inland waterway delivery where delivery occurs on board the vessel, whereas FCA may better match delivery to a carrier at an inland point
C. FOB always requires seller-arranged insurance
D. FOB transfers risk at destination

Answer: B

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Q12. CIP — Multimodal Shipment

A shipment consists of machinery transported by truck from the seller's factory to an airport and then by air to the buyer's country.

Which Incoterm® is particularly suitable where the seller arranges carriage and insurance to the named destination?

A. CIP
B. FOB
C. FAS
D. CIF only

Answer: A

CDCS Exam Insight: CIP is designed for any mode or combination of modes of transport, unlike FOB/CIF, which are sea/inland-waterway rules.

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Q13. Insurance and CIP

Under CIP, the seller purchases the required cargo insurance.

The buyer believes this means the seller retains risk until the goods arrive at the named destination.

A. Correct
B. Incorrect; risk normally transfers at the point of delivery specified by the CIP rule, even though the seller arranges insurance to the destination
C. Correct only when the goods are insured under ICC(A)
D. Correct only under an LC

Answer: B

CDCS Exam Insight: Again, separate risk transfer from insurance procurement.

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Q14. DAP and Risk

Under DAP Buyer's Premises, the goods are damaged while still on the seller's truck immediately before being placed at the buyer's disposal at the named destination.

Who generally bears the risk?

A. Buyer
B. Seller
C. Carrier automatically
D. Bank

Answer: B

CDCS Exam Insight: Under DAP, risk transfers at the destination when the goods are placed at the buyer's disposal on the arriving means of transport, ready for unloading.

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Q15. DPU — Risk Transfer

Under DPU, the seller's truck arrives at the named destination but the goods have not yet been unloaded.

A package falls from the truck and is damaged.

Who generally bears the risk?

A. Buyer
B. Seller
C. Issuing bank
D. Carrier automatically

Answer: B

CDCS Exam Insight: DPU requires the seller to unload the goods. Delivery/risk transfer occurs after unloading at the named place.

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Q16. DDP — Risk vs Import Duty

Under DDP, the seller bears the cost of import duties.

The buyer argues:

“Therefore, the seller also bears all risk until the goods are physically unloaded inside my warehouse.”

Which is the best response?

A. Correct
B. Incorrect; DDP does not mean risk transfers only after unloading
C. Correct only if insurance is purchased by seller
D. Correct only for sea shipments

Answer: B

CDCS Exam Insight: Don't confuse cost allocation, customs obligations and risk transfer.

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Q17. Named Place vs Named Port

An LC states:

“CIP Dhaka, Incoterms® 2020.”

The commercial invoice states:

“CIP Bangladesh.”

What is the best documentary examination approach?

A. Automatically compliant because Bangladesh includes Dhaka
B. Automatically discrepant under every LC
C. Examine whether the presented data complies with the credit and applicable documentary requirements; do not assume a broader geographic description automatically satisfies a specific named place
D. Incoterms® eliminates the need for documentary examination

Answer: C

CDCS Exam Insight: For CDCS, distinguish Incoterms interpretation from documentary compliance under the LC. A document can create an LC discrepancy even where the commercial transaction itself might be workable.

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Q18. Transport Document vs Incoterm

An LC requires:

“Full set of clean on-board ocean bills of lading.”

The underlying sale contract is CIP Hamburg, Incoterms® 2020, and the goods are transported by sea.

Which statement is most accurate?

A. CIP automatically requires a bill of lading
B. CIP prohibits a bill of lading
C. The Incoterm and the LC are separate instruments; the documentary requirement must be examined according to the LC terms
D. The bank must reject the LC because CIP cannot involve sea transport

Answer: C

CDCS Exam Insight: Incoterms® does not replace UCP 600 documentary requirements. This distinction is highly relevant to CDCS.

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Q19. Cost Paid by Seller ≠ Risk

Under CIF, the seller pays:

• export clearance;
• ocean freight;
• insurance.

The buyer asks:

“Since the seller pays all these costs, doesn't the seller retain risk until arrival?”

A. Yes
B. No; cost allocation and risk transfer are different concepts
C. Yes, if insurance is ICC(A)
D. Yes, if an LC is involved

Answer: B

CDCS Exam Insight: This is one of the most important Incoterms principles to master.

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Q20. Advanced — Incoterms and LC Independence

An LC requires shipment from Chattogram to Hamburg and presentation of an on-board B/L.

The underlying sales contract states FCA Seller's Factory, Chattogram, Incoterms® 2020.

The seller argues that because the sales contract is FCA, the bank should not require an on-board B/L.

What is the best answer?

A. The seller is correct
B. The LC requirement prevails for documentary examination, subject to the applicable LC rules
C. FCA automatically cancels the B/L requirement
D. The bank must examine the sales contract instead of the LC

Answer: B

CDCS Exam Insight: This tests the independence principle. The bank examines the presentation against the credit and applicable rules—not simply against the underlying sales contract.

Author Bio

Kazi Suhel Tanvir Mahmud – Trade Finance & Letter of Credit Specialist at Inco-Terms – Trade Finance Insights, is also  AVP and Operations Manager at AB Bank, with 24 years of banking experience, including 17 years specializing in trade finance. He has deep expertise in letters of credit, shipping documentation, and international trade compliance. Throughout his career, he has managed trade finance operations, overseen documentary credits, and ensured adherence to UCP 600 and global banking regulations, supporting exporters, importers, and banking professionals in executing smooth and compliant cross-border transactions. You can also find my technical deep-dives on Medium or view my full professional portfolio in my Media Kit.

Connect with me on LinkedIn 

Last updated 28 Augusr, 2026

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