Transfer of risk
Moment when the responsibility for risks of loss or damage to goods passes from seller to buyer, as defined by the chosen Incoterm.
Definition and principle
The transfer of risk is the precise moment when responsibility for risks of loss, damage, or deterioration of goods passes from seller to buyer. It is one of the essential functions of Incoterms: determining this tipping point with certainty for both parties.
Legal framework
Incoterms 2020 from the ICC define the point of risk transfer for each commercial term. The CISG (articles 66 to 70) also addresses risk transfer in international sales. The two frameworks are complementary: Incoterms specify the place of transfer, the CISG governs its legal consequences. Risk transfer is distinct from transfer of ownership, which is governed by the national law applicable to the contract.
Risk transfer by Incoterm
- EXW: when made available at the seller's premises (maximum risk for the buyer)
- FCA: when handed to the carrier at the named place
- FAS: when goods are placed alongside the vessel
- FOB: when goods are placed on board the vessel
- CFR/CIF: when placed on board the vessel at the port of shipment (note: the seller pays transport to destination, but risk transfers at departure)
- CPT/CIP: when handed to the first carrier (same logic as CFR/CIF for multimodal)
- DAP: when made available on the arriving means of transport at destination, ready for unloading
- DPU: when made available once unloaded at the place of destination
- DDP: when made available at the place of destination, cleared for import (maximum risk for the seller)
Critical considerations
- With CFR and CIF, the seller pays transport to destination but risk transfers at departure — this disconnect is a frequent source of misunderstanding
- Risk transfer does not necessarily coincide with transfer of ownership — two distinct moments
- Insurance coverage must be aligned with the point of risk transfer