There is a clause in millions of international sales contracts that the International Chamber of Commerce says should not be used for containerised freight — and has been saying so since 2000. The clause is FOB: Free On Board.
Traders continue to use it anyway, partly out of habit, partly because their bank requires it, and partly because nobody has explained what the problem actually is. The problem is that FOB defines risk transfer at a point that does not correspond to how containerised freight actually moves.
What Incoterms are and what they do
Incoterms are standard trade terms published by the International Chamber of Commerce that define the point at which risk transfers from seller to buyer, the obligations of each party for transport, insurance, and documentation, and the point at which costs transfer. They are incorporated into a sales contract by reference: "FOB Brisbane Incoterms 2020" means both parties have agreed to the ICC's published definition of FOB.
Incoterms do not determine title, do not govern the transport contract, and do not replace the need for a well-drafted sales contract. They do one specific, limited job: allocate delivery obligations and risk transfer between seller and buyer.
The problem with FOB for containers
FOB transfers risk from seller to buyer when the goods are on board the named vessel. In the era of break-bulk shipping, when goods were loaded piece by piece onto a ship, this was a clear, observable moment.
A containerised shipment does not work that way. The seller delivers a full container to a container freight station or a port terminal, often days before the vessel arrives. The result is a grey zone — often several days long — during which the goods have left the seller's control but have not yet reached the ship's rail. If the container is dropped by a port crane during that period, FOB's risk transfer rule leaves both parties arguing about whose loss it is.
What the ICC says to use instead
The ICC introduced FCA — Free Carrier — precisely for containerised and multimodal freight. Under FCA, risk transfers when the seller delivers the goods to the named carrier or another nominated person at the named place. For a containerised export, this corresponds to the commercial reality.
For CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To) — the seller-pays-freight equivalents of CFR and CIF — risk similarly transfers at the first carrier rather than at the vessel. Incoterms 2020 added a specific provision allowing FCA terms to require the carrier to issue an on-board bill of lading, addressing the letter of credit problem directly.
Cost transfer versus risk transfer
Incoterms define two separate transfer points: when the cost of freight and insurance shifts from seller to buyer, and when the risk of loss or damage shifts. Understanding which obligation each Incoterm assigns — and to which party — is the starting point for any international sales negotiation. The wrong term creates gaps in insurance cover, ambiguity in cargo claims, and disputes between seller and buyer that a correct choice of Incoterm would have prevented.
The full treatment of Incoterms, their interaction with letters of credit, cargo insurance, and transport contracts is in International Trade: The Ins and Outs of Import and Export, Book 1 of the International Trade and Transport Law Library. Choosing the right any-mode Incoterm for door-to-door container shipments is covered in Multimodal Transport: Moving Goods Door to Door, Book 8 of the International Trade and Transport Law Library. See the Library.