Incoterms are eleven three-letter rules published by the International Chamber of Commerce that define, for any international sale, who arranges transport, who pays for what, who insures, and - most importantly - the precise point at which risk passes from seller to buyer.
They are not payment terms. They say nothing about when you pay or what happens if the goods are defective. They answer one question well: if this container goes over the side, whose problem is it?
For UAE importing, three of the eleven cover most of what you will encounter.
The three that matter
FOB - Free On Board (named port of shipment)
Example: FOB Shanghai
The seller delivers the goods on board the vessel at the origin port and clears them for export. Risk passes when the goods are on board. From that moment, ocean freight, insurance, destination charges, import clearance and duty are yours.
Buy on FOB when: you ship regularly enough to negotiate your own freight rates, you want direct control of routing and carrier, or you want quotes from different suppliers to be genuinely comparable.
That last point is underrated. Two FOB quotes differ only in the goods. Two CIF quotes differ in the goods and in whatever freight and insurance the seller happened to buy - and you cannot see the split.
Note that FOB is a sea and inland waterway term. For air freight or containerised cargo handed over at an inland terminal, FCA (Free Carrier) is the technically correct rule. FOB is widely used for containers anyway; it works in practice but leaves an ambiguity about the terminal-to-vessel gap that occasionally matters after a loss.
CIF - Cost, Insurance and Freight (named port of destination)
Example: CIF Jebel Ali
The seller arranges and pays ocean freight to the destination port and provides marine insurance. Risk still passes when the goods are on board at origin - the same point as FOB. This surprises people. Under CIF the seller pays for the main carriage but does not bear the risk of it.
Two things to understand:
The insurance is minimal by default. Incoterms 2020 requires only Institute Cargo Clauses (C) at 110% of contract value. That is a restricted named-perils policy, not all-risks. If you want ICC (A), you must specify it in the contract.
The bundled price hides the comparison. A CIF Jebel Ali quote combines goods, freight and insurance in one figure. Freight is volatile and the seller may have bought it well or badly, and may or may not have added margin to it. When freight rates fall, a CIF price often does not.
Buy on CIF when: you import occasionally, you cannot command competitive freight rates, or the simplicity of one number is worth more to you than the visibility.
DDP - Delivered Duty Paid (named place of destination)
Example: DDP Dubai Investment Park
Maximum seller obligation. The seller delivers to your named address with everything paid, including import clearance and duty.
The appeal is obvious. The problems are less so:
- Import clearance requires local standing. An overseas seller generally cannot act as importer of record in the UAE without a registered presence. In practice the arrangement often runs through a third party, and the accountability becomes unclear precisely when you need it.
- You cannot reclaim duty you never paid. Where duty recovery or free zone suspension might apply, DDP forecloses it.
- The risk premium is invisible. The seller is carrying duty and clearance risk in a jurisdiction they do not operate in, and has priced that into your unit cost with a margin you cannot examine.
DAP (Delivered At Place) is usually the better instrument: the seller delivers to your address but import clearance and duty remain yours. You keep the single-delivery simplicity without asking an overseas party to do something they are not positioned to do.
Where risk actually passes
| Incoterm | Seller pays to | Risk passes at |
|---|---|---|
| EXW | Nothing | Seller’s premises |
| FCA | Delivery to named carrier | Handover to carrier |
| FOB | On board at origin port | On board at origin port |
| CFR | Destination port | On board at origin port |
| CIF | Destination port + insurance | On board at origin port |
| DAP | Named destination | Named destination |
| DDP | Named destination + duty | Named destination |
The row worth reading twice is CIF. The seller pays freight to Jebel Ali; the risk became yours in Shanghai.
Comparing quotes properly
The most common costing error in UAE importing is comparing an FOB quote against a CIF quote and concluding the CIF supplier is more expensive.
Build every quote to the same landed basis:
- Goods, ex-works or FOB.
- Inland transport to load port (in FOB; in EXW it is yours).
- Ocean freight - get your own quote for the FOB option; note validity, because rates move.
- Marine insurance - price ICC (A), not (C), so the comparison is like for like.
- UAE customs duty - generally 5% on the CIF value under the GCC Common Customs Tariff.
- Terminal handling, clearance and documentation.
- Inland transport to site and offloading.
Only at step 7 do you have numbers that can be compared. It is normal for a higher FOB price to land cheaper than a lower CIF price, and for the ranking to reverse when freight moves. This is exactly the exercise our procurement consulting engagements start with.
UAE-specific points
Free zone versus mainland. Goods into Jebel Ali Free Zone are duty-suspended while they remain in the zone; duty is payable on entry to the mainland. Material destined for re-export may never attract UAE duty. Your Incoterm should name the correct place - “CIF Jebel Ali” does not distinguish between the free zone and mainland clearance, and the difference is real money.
Duty is on CIF value. Freight and insurance are inside the dutiable base. A cheaper FOB price with expensive freight does not reduce duty as much as buyers expect.
Name the place precisely. “DAP Dubai” is not a delivery instruction. “DAP Warehouse 4, Dubai Investment Park 2, Dubai” is. Vague place names are the origin of a large share of delivery disputes.
Demurrage and storage are not covered by Incoterms. If your documents are wrong and the container sits, the Incoterm does not decide who pays - your contract does. Address it explicitly.
A reasonable default
For most UAE importers with any regularity of shipment: buy FOB, arrange your own freight, and insure on ICC (A) at 110%.
You get comparable supplier quotes, control of routing, direct visibility of freight cost, and insurance that actually covers the losses that occur. It is more administration than CIF. On any meaningful volume it is worth it.
If you would rather not run that administration, the correct answer is not to hand it to the seller inside a bundled price - it is to have someone independent of the seller run it for you. That is what our trade facilitation service does, and the freight and clearance costs stay visible line by line.
Working through the terms on a live purchase order? Send it to the desk and we will price it both ways.