Ocean Sea Freight Incoterms and Trade Terms 1 — Questions and Answers
Question 1: Under FOB (Free on Board) Incoterms, when does risk transfer from seller to buyer?
- When cargo is loaded on board the vessel at the port of origin (Correct answer)
- When cargo arrives at the destination port
- When the seller delivers goods to the freight forwarder
- When the buyer pays the commercial invoice
Correct answer: When cargo is loaded on board the vessel at the port of origin
Under FOB, risk transfers from seller to buyer at the moment goods are loaded on board the named vessel at the port of shipment.
Question 2: Which Incoterm requires the seller to pay for freight and insurance to the destination port?
- CIF (Cost, Insurance and Freight) (Correct answer)
- CFR (Cost and Freight)
- FOB (Free on Board)
- EXW (Ex Works)
Correct answer: CIF (Cost, Insurance and Freight)
Under CIF, the seller must contract and pay for ocean freight and minimum cargo insurance (Institute Cargo Clauses C) to the named destination port, though risk transfers at loading.
Question 3: What does 'EXW (Ex Works)' mean for the buyer in ocean freight?
- The buyer is responsible for all costs and risks from the seller's premises to final destination (Correct answer)
- The seller delivers goods to the buyer's warehouse at destination
- The seller pays all freight but buyer handles customs
- The buyer only pays for destination port handling
Correct answer: The buyer is responsible for all costs and risks from the seller's premises to final destination
Under EXW, the seller's only obligation is to make goods available at their premises — the buyer bears all costs and risks of loading, export customs, ocean freight, import duties, and final delivery.
Question 4: Under CFR (Cost and Freight), who is responsible for arranging cargo insurance?
- The buyer (Correct answer)
- The seller
- The freight forwarder
- The ocean carrier
Correct answer: The buyer
Under CFR, the seller pays for freight to the destination port but is not required to insure the cargo — the buyer bears the risk from loading and should arrange their own insurance.
Question 5: Which Incoterm is recommended for containerized ocean freight shipments according to the ICC?
- FCA (Free Carrier) (Correct answer)
- FOB (Free on Board)
- CFR (Cost and Freight)
- FAS (Free Alongside Ship)
Correct answer: FCA (Free Carrier)
The ICC recommends FCA for containerized shipments because risk typically transfers when the carrier takes custody at the container terminal, not when cargo is loaded on the vessel as under FOB.
Question 6: Under DDP (Delivered Duty Paid), who is responsible for import customs clearance and duties?
- The seller (Correct answer)
- The buyer
- The customs broker appointed by the carrier
- Both buyer and seller equally
Correct answer: The seller
DDP places maximum obligation on the seller, who must deliver goods cleared through import customs with all duties and taxes paid at the named destination.
Ocean Sea Freight Incoterms and Trade Terms 1
Under FOB (Free on Board) Incoterms, when does risk transfer from seller to buyer?