Procurement Glossary
Incoterms transfer of risk: definition, meaning, and application in Procurement
November 19, 2025
The Incoterms transfer of risk defines the exact point in time at which responsibility for goods passes from the seller to the buyer. This regulation is crucial for cost allocation, insurance obligations, and liability risks in international trade transactions. Find out below what the Incoterms transfer of risk means, how it is applied in practice, and what strategic implications it has for your procurement processes.
Key Facts
- Depending on the Incoterm, the transfer of risk takes place at different points in the supply chain.
- With EXW, the risk immediately passes to the buyer, while with DDP, the seller bears the risk until the destination is reached.
- Transport damage after transfer of risk shall be borne by the buyer.
- The insurance obligation is regulated independently of the transfer of risk.
- Choosing the wrong Incoterm can lead to significant unplanned costs
Contents
Definition and meaning of Incoterms transfer of risk?
The Incoterms transfer of risk precisely regulates when the risk of loss or damage to the goods passes from the seller to the buyer.
Fundamentals of risk transfer
The transfer of risk occurs independently of the transfer of ownership and the distribution of costs. It defines exclusively who is liable for damage, loss, or delays. The International Chamber of Commerce (ICC) sets out these rules in Incoterms 2020.
Incoterms Transfer of risk vs. transfer of costs
While the transfer of risk regulates liability, the transfer of costs determines who bears which transport costs. In the case of CIF deliveries, for example, the seller bears the freight costs, but the risk is transferred at the time of loading.
Importance in Procurement
For buyers, the transfer of risk determines the necessary transport insurance and influences the choice of supplier. A strategic choice of Incoterm can minimize risks and optimize costs.
Process, control and planning
Systematic planning of risk transfer requires careful selection of Incoterms and appropriate hedging measures.
Incoterm selection based on risk profile
The choice of the appropriate Incoterms depends on risk tolerance and logistics expertise. EXW terms transfer the entire risk to the buyer, while DDP agreements offer maximum security.
Documentation and evidence
The transfer of risk must be documented by appropriate documents. Depending on the Incoterm, these are bills of lading, consignment notes, or handover reports. Complete documentation is essential for insurance claims.
Monitoring and control
Modern tracking systems enable the monitoring of critical transfer points. Especially in the case of valuable or time-critical shipments, buyers should actively monitor the transfer of risk and react immediately in the event of problems.
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Operational KPIs for risk transfer
Measurable indicators help to evaluate and optimize the risk transfer strategy.
Damage ratio according to Incoterms
The frequency and amount of damage after transfer of risk shows the effectiveness of the chosen Incoterms. An analysis by transport route and Categories potential for optimization. Target value: less than 0.5% of the value of the goods.
insurance cost ratio
The ratio of insurance costs to the value of the goods should be reviewed regularly. Different Incoterms require different insurance strategies. The aim should be to strike an optimal balance between risk and cost.
documentation quality
The completeness and accuracy of risk transfer documentation has a significant impact on claims processing. KPIs include the number of incomplete documents and the average processing time for claims.
Risks, dependencies and countermeasures
Unclear or incorrectly selected risk transfers can lead to significant financial losses and legal problems.
Insurance gaps
The greatest risk lies in insufficient insurance coverage after the transfer of risk. Buyers must ensure that their transport insurance takes effect from the defined transfer point. Gaps between seller and buyer insurance are frequent points of contention.
documentation risks
Missing or incomplete documentation of the transfer of risk can jeopardize insurance claims. Especially in FOB transactions, the exact time of loading is crucial for determining liability.
Countermeasures
Preventive measures include detailed contract clauses, regular employee training, and established escalation processes. A risk management system should identify critical handover points and define appropriate hedging strategies.
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Practical example
A German mechanical engineering company purchases components from Asia under FOB conditions. The transfer of risk takes place upon loading at the port of origin. When a container is damaged during sea transport, the company must settle the claim through its own transport insurance. Thanks to precise documentation of the loading time and comprehensive insurance coverage, the claim can be settled quickly.
- Clear definition of the point of risk transfer in the contract
- Comprehensive transport insurance from transfer of risk
- Documentation of all relevant dates and circumstances
Current developments and effects
Digitalization and changing trade structures have a significant impact on the design and monitoring of risk transfer.
Digital documentation
Blockchain-based systems are revolutionizing the documentation of risk transfer. Smart contracts can automatically document the transfer and trigger insurance claims. This reduces disputes and speeds up claims settlement.
AI-supported risk analysis
Artificial intelligence analyzes historical damage data and transport routes to provide optimal Incoterm recommendations. Machine learning identifies risk factors and supports preventive damage avoidance.
Sustainability aspects
Environmental risks are becoming increasingly important for risk transfer. Climate change-related transport disruptions require new hedging strategies. Buyers must increasingly incorporate ESG criteria into their Incoterm decisions and prioritize sustainable transport routes.
Conclusion
The Incoterms transfer of risk is a key element of successful procurement strategies. A well-considered choice of Incoterms, combined with appropriate insurance coverage and precise documentation, minimizes risks and optimizes costs. Purchasers should use the transfer of risk as a strategic tool and regularly review and adjust their practices.
FAQ
What happens in the event of damage before the transfer of risk?
Damage occurring before the transfer of risk shall be borne by the seller. The seller must either provide a replacement or refund the purchase price. The burden of proof for the time of damage lies with the respective contractual partner.
How does the transfer of risk differ between different Incoterms?
With EXW, the risk is transferred immediately upon collection, while with FOB it is only transferred when the goods are loaded onto the ship. With CIF and CFR, the risk is transferred upon loading, while with DDP, the seller is liable until delivery.
Who is responsible for transport insurance?
The obligation to insure is regulated independently of the transfer of risk. In the case of CIF and CIP, the seller must insure the goods; in the case of other Incoterms, the decision lies with the party bearing the risk. Double insurance should be avoided.
Can the transfer of risk be modified by contract?
Yes, additional contractual clauses can be used to adjust the standard transfer of risk. However, such modifications should be clearly worded and understood by both parties in order to avoid disputes.
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