EXW (Ex Works), FOB (Free On Board), and DDP (Delivered Duty Paid) are three widely used ICC Incoterms. They lead to fundamentally different legal positions. Those who understand the legal differences bear no more risk than necessary — and no less than strategically desirable. In our practice, we see entrepreneurs who use the same Incoterm for years without considering the consequences for risk transfer, VAT, and customs.
What is the legal problem?
EXW places the risk almost entirely with the buyer, starting from the seller's warehouse. FOB places the risk transfer on board the ship in the agreed port. DDP goes furthest in the other direction: the seller bears all risks and costs up to the final destination, including import duties and VAT. A wrong choice can have major financial and operational consequences.
What does the law say?
Incoterms 2020 describes the obligations of seller and buyer per term in ten standard articles (A1-A10 and B1-B10). EXW (Ex Works) makes the buyer responsible for export and import formalities. FOB (Free On Board) is a purely maritime term — risk passes as soon as goods are on board. DDP (Delivered Duty Paid) requires the seller to act as importer in the destination country.
Additionally, Article 7:11 of the Dutch Civil Code (transfer of risk upon delivery) and Article 67 of the CISG regulate the default position when Incoterms do not explicitly regulate something. For VAT, the EU VAT Directive (2006/112/EC) applies — DDP for exports to third countries often requires local VAT registration.
What risks do companies face?
With EXW, sellers run the risk of export inspection and the practical impossibility of transferring goods from the warehouse to a foreign carrier. With FOB, the risk lies in improper use for container transport, as the warehouse risk remains uncovered until on board. With DDP, the seller bears liability for local customs obligations and VAT. Lack of knowledge leads to delays, fines, and damage claims.
Practical example from our practice
We advised a Dutch exporter who sold under FOB Rotterdam to an American buyer. The goods were transported in containers, but were damaged during transshipment in the port. Under FOB, risk only transfers upon loading, not upon handover at the terminal. The legal uncertainty led to six months of arbitration regarding whose insurance would pay. Upon renegotiation, we chose FCA Rotterdam — which is a better fit for container transport and offers a clear moment of transfer at the carrier.
What can you do?
Match Incoterm to transport modality and your own knowledge. Use FCA instead of FOB for containers. Avoid DDP if you do not have local VAT registration or a customs broker in the destination country. Use EXW only if the buyer is actually capable of carrying out export formalities. Document the transfer carefully and take out corresponding cargo insurance. See also our article on Which Incoterm should you choose?