Key takeaways

• Incoterms 2020 divides 11 rules into seven multimodal terms for any transport mode and four terms exclusively for sea and inland waterway transport.
• Canada assesses customs duties on an FOB Place of Direct Shipment (PODS) basis, allowing post-export freight and insurance to be deducted from the Value for Duty (VFD) under Section 48 of the Customs Act.
• CIF requires only basic Institute Cargo Clauses (C) marine insurance, whereas CIP mandates comprehensive Institute Cargo Clauses (A) all-risks coverage.
• The International Chamber of Commerce discourages using FOB and CIF for containerized ocean freight, recommending FCA, CPT, or CIP instead.
• Under the CBSA Assessment and Revenue Management (CARM) system, foreign suppliers selling to Canadian buyers on DDP terms must obtain a Canadian Business Number and post direct financial security to clear customs.

What are the 11 Incoterms 2020 rules and how are they categorized?

The 11 Incoterms 2020 rules are grouped into two categories based on transport mode: seven rules for any transport mode (multimodal) and four rules exclusively for sea and inland waterway transport. Published by the International Chamber of Commerce (ICC) and effective since 1 January 2020, these terms establish a binding framework for international purchase orders.

Selecting the wrong category creates gaps in liability. If you ship goods in a 53-foot dry van across the US-Canada border or move 40HC containers through intermodal rail yards, choose from the seven multimodal rules. The four maritime rules apply only when the seller places goods directly alongside or on board a vessel at a port. Review our Incoterms reference guide for a quick breakdown before negotiating your next contract.

The 11 Incoterms explained by category

To compare the 11 Incoterms explained by transport mode, delivery point, and obligation, use the Incoterms 2020 chart below:

Key updates in Incoterms 2020

Four structural changes in the 2020 revision affect how purchasing teams manage logistics:

• DPU replaced DAT: The ICC renamed “Delivered at Terminal” (DAT) to Delivered at Place Unloaded (DPU), clarifying that the destination can be any agreed location. DPU is the only Incoterm that obligates the seller to unload the cargo at destination.
• Higher insurance under CIP: While CIF maintains the minimum requirement of Institute Cargo Clauses (C), CIP requires Institute Cargo Clauses (A) (“all-risks” coverage) at 110% of the contract value.
• FCA with on-board Bills of Lading: Under FCA ocean shipments, the buyer and seller can agree that the buyer will instruct their carrier to issue an on-board Bill of Lading (B/L) to the seller to satisfy Letter of Credit (L/C) bank requirements.
• Centralized cost articles (A9/B9): All cost allocations for freight, security, and customs are grouped into Articles A9 (seller) and B9 (buyer) of each rule so staff can quickly verify who pays terminal handling charges (THC).

What is the difference between FOB and CIF for Canadian importers?

Under FOB, the buyer contracts and pays for ocean freight and insurance while assuming risk once goods are loaded on the vessel; under CIF, the seller pays for transport and minimum insurance to the arrival port, but risk still transfers to the buyer upon loading at origin.

When evaluating FOB vs CIF Canada trade lanes—such as importing from Ho Chi Minh City or Shanghai into Vancouver or Prince Rupert—importers must distinguish between where the seller pays for transport and where physical risk changes hands.

How Group C rules split risk and cost

CIF, CFR, CPT, and CIP belong to the “C-Group” of Incoterms. A common misconception is that “CIF Vancouver” means the overseas supplier is responsible for the condition of the goods until the ship docks in British Columbia.

In reality, C-Group rules feature two separate points:

1. The risk transfer point (Origin): Under both FOB and CIF, physical risk of loss or damage transfers to the buyer at the origin port once the cargo is loaded on board the vessel.
2. The cost transfer point (Destination): Under CIF, the seller pays ocean freight and basic marine insurance to the Canadian arrival port. Unscheduled voyage costs—such as general average or war risk surcharges—fall on the buyer.

Because the buyer bears transit risk under both terms, buying on FOB gives Canadian importers better control. When you buy FOB (or FCA) and book through your own ocean freight forwarder—such as Soleil Global Transportation Inc., an FMC-registered NVOCC (FMC Org. No. 031607)—you control routing, schedules, and Canadian arrival charges. When a seller books cheap CIF freight, importers often face inflated destination Container Freight Station (CFS) and handover fees at Canadian warehouses.

The container trap: why the ICC advises FCA and CIP instead of FOB and CIF

The ICC discourages using FOB and CIF for containerized ocean shipments (FCL and LCL). Those rules were designed for break bulk cargo delivered directly to the ship’s side.

In container shipping, the seller hands the sealed box to the carrier at a Container Yard (CY) or CFS days before the vessel arrives, yet risk under FOB or CIF does not transfer until loading. If a container is damaged in the origin terminal before loading, FOB leaves the loss with the seller despite the cargo being in the carrier’s custody. Conversely, if concealed damage is found upon opening the container in Mississauga, proving when the impact occurred is difficult.

To close this gap for containers:
* Use FCA (Free Carrier) instead of FOB: Risk transfers when the seller delivers the container to the carrier at the origin terminal or CFS.
* Use CIP (Carriage and Insurance Paid To) instead of CIF: Risk transfers at the origin terminal, and the seller must provide higher-tier insurance.

Marine insurance differences: Institute Cargo Clauses (C) vs (A)

Under Incoterms 2020, CIF requires the seller to procure only Institute Cargo Clauses (C) coverage for 110% of the contract value. Clause (C) is a basic, named-perils policy covering catastrophic events like a vessel sinking, stranding, colliding, or catching fire. It generally excludes common container losses such as water ingress, moisture damage, pilferage, or breakage from rough handling at sea.

By contrast, CIP requires Institute Cargo Clauses (A), providing “all-risks” protection (subject to standard exclusions like inadequate packaging). If you import on FOB, FCA, or CIF terms, ask your logistics provider to arrange dedicated all-risks cargo insurance.

How do Incoterms affect CBSA customs valuation and duty in Canada?

Unlike jurisdictions that calculate customs duty on a CIF basis, the Canada Border Services Agency (CBSA) calculates duty on an FOB Place of Direct Shipment (PODS) basis under Section 48 of the Customs Act.

While the European Union, the UK, and many Asian authorities assess tariffs on the cost of goods plus international freight and insurance (CIF), Canada excludes post-export transport from the duty calculation.

Understanding Place of Direct Shipment (PODS)

Under Section 48 of the Customs Act, the CBSA determines the Value for Duty (VFD) based on the price paid or payable, adjusted around the Place of Direct Shipment (PODS)—the physical location where goods begin their continuous, uninterrupted journey to Canada.

For example, if goods are loaded into a container at a factory in Binh Duong, Vietnam, and shipped to Vancouver without leaving the carrier’s control, the Binh Duong factory is the PODS. If goods from multiple factories are stored at a Hong Kong consolidation warehouse before being packed for Canada, or cross-docked in a US warehouse when trucking north, that consolidation point becomes the PODS.

Deducting post-PODS freight under Subsection 48(5)(b)(i)

Subsection 48(5)(b)(i) of the Customs Act allows transportation and insurance costs incurred after the PODS to be deducted when calculating the Value for Duty, provided they were included in the invoice price.

As detailed in CBSA Memorandum D13-3-3 (Transportation and Associated Costs) and CBSA Memorandum D13-3-4 (Place of Direct Shipment), your Incoterms and invoice structure dictate how you claim this deduction:

• Buying on EXW, FCA, or FOB: The invoice covers the goods at origin, and you pay international freight separately. Freight from the PODS to Canada is excluded from the VFD (though inland pre-carriage before the PODS must be included).
• Buying on CIF, CIP, DAP, or DDP: The supplier bundles international freight and insurance into the price. To avoid paying duty and the 5% federal Goods and Services Tax (GST) on international freight, the commercial invoice must itemize post-PODS freight and insurance separately, or you must supply objective carrier invoices showing the exact freight paid.

If a supplier issues a lump-sum invoice stating “$50,000 CIF Toronto” with no freight breakdown or carrier bill, CBSA auditors will disallow the deduction and assess duty and GST on the entire $50,000. Working with an experienced customs brokerage team ensures your invoices and HS classifications are verified before filing. Because customs valuation rules are strictly audited and subject to change, confirm complex routing deductions with a customs professional or the CBSA.

Why does selling or buying on DDP terms require caution under CARM?

Under the CBSA Assessment and Revenue Management (CARM) system, overseas suppliers selling on DDP terms must register directly as Non-Resident Importers (NRIs) and post their own financial security to clear Canadian customs legally.

DDP (Delivered Duty Paid) places the maximum obligation on the seller, covering export clearance, all transport, Canadian import clearance, customs duties, SIMA fees, and import GST. While Canadian buyers often favour DDP for its fixed landed price, accepting DDP from an unprepared foreign supplier under CARM frequently causes border holds.

How CARM changes the rules for DDP sellers

Under CARM, the CBSA holds the Importer of Record (IOR) directly responsible for accounting and duty payments. Customs brokers can no longer use their own broker bond to obtain Release Prior to Payment (RPP) privileges for commercial importers.

If a foreign vendor ships to Canada on DDP terms, that vendor acts as the Importer of Record and must:

1. Obtain a 15-digit Canadian Business Number (BN9) with an import-export account (RM0001) from the Canada Revenue Agency (CRA) as an NRI.
2. Register on the CARM Client Portal (CCP) and delegate authority to their Canadian customs broker.
3. Post financial security in CARM (a surety bond or cash deposit) for RPP privileges, or pay duties before cargo release.

Operational risks for Canadian buyers and foreign vendors

Two major problems arise when foreign suppliers quote DDP without meeting CARM requirements:

• Border holds and forced intervention: If a DDP supplier lacks a CARM account or RPP security, the shipment cannot clear in their name and will accrue daily demurrage and storage charges at the terminal. To release the freight, the Canadian buyer often has to step in as Importer of Record and pay duties they already paid the seller in the DDP price.
• Unrecoverable 5% import GST: Even when an NRI clears customs under DDP, they must pay the 5% federal import GST. Unless the foreign seller is registered for a GST/HST account under the Excise Tax Act, they cannot claim Input Tax Credits (ITCs) to recover that 5% tax—nor can the Canadian buyer claim the ITC if they were not the Importer of Record.

For most Canadian importers, DAP (Delivered at Place) or FCA (Free Carrier) is safer than DDP. Under DAP, the seller still pays for door-to-door delivery, but your company acts as the Importer of Record through your CARM account and recovers the 5% import GST on your corporate tax return.

Frequently asked questions

Why is EXW considered risky for Canadian businesses importing from overseas?

Under EXW (Ex Works), the buyer is legally responsible for loading the goods at the foreign supplier’s facility and completing origin export customs clearance. Canadian buyers rarely hold the local registrations required to file export declarations in countries like China or Vietnam, and the buyer bears the risk if the supplier’s forklift damages cargo during loading. FCA (Seller’s Premises) is safer because the seller loads the truck and clears export customs.

Can North American domestic FOB terms be used interchangeably with ICC Incoterms?

No. Domestic phrases such as “FOB Destination” or “FOB Origin” come from the US Uniform Commercial Code (UCC) and allocate freight costs and risk differently than ICC rules. To prevent cross-border disputes, write the full citation into your contract: the three-letter rule, the exact port or address, and the edition—for example, FCA 2446 Cawthra Road, Mississauga, ON, Canada Incoterms® 2020.

Do Incoterms 2020 rules govern the transfer of cargo ownership or payment terms?

No. Incoterms govern only physical delivery, the division of transport and customs costs, and the transfer of risk of loss or damage. They do not determine when legal title (ownership) transfers, nor do they specify payment methods, currency, or breach remedies, which must be stated separately in your sales agreement.

What is the primary operational difference between DAP and DPU?

Under DAP (Delivered at Place), the seller delivers goods on the arriving vehicle ready for the buyer to unload at the buyer’s risk and cost. Under DPU (Delivered at Place Unloaded), the seller must unload the goods at destination at the seller’s own cost and risk. Use DAP when your warehouse crew operates the dock; use DPU when the seller arranges specialized unloading or LTL tailgate delivery.

Navigating the incoterms 2020 rules properly protects your supply chain from unexpected customs duties, CARM border delays, and transit liabilities. At Soleil Transportation, we coordinate ocean freight, North American ground transport, cargo insurance, and customs clearance across Canada, the USA, Vietnam, and Asia to keep your shipments compliant with CBSA standards. To review the shipping terms on your upcoming orders or request a freight quote, contact our Mississauga head office at +1 888-998-5199, email info@soleiltransportation.com, or reach out through our contact page (Monday to Friday, 8:30am to 4:30pm Eastern).