What each Incoterm means for costs, risk and paperwork when buying from China, and how to choose between EXW, FOB, CIF and DDP for your shipment.
Incoterms are the standard trade terms, published by the International Chamber of Commerce, that define who pays for what and at which point the risk passes from seller to buyer. The current version is Incoterms 2020. Two quotes for the same product can look very different simply because they use different Incoterms.
What an Incoterm defines
- Costs: who pays for transport, loading, export and import clearance, and insurance.
- Risk: where responsibility for loss or damage passes to the buyer.
- Tasks: who handles export documents, booking and customs.
An Incoterm does not define ownership of the goods, payment terms or what happens if there is a quality problem. Those belong in your purchase contract.
The four terms you will meet most often
EXW (Ex Works)
The supplier makes the goods available at its premises. You handle everything else: pickup, export clearance, freight, insurance and import.
- Pros: lowest quoted price, full control of logistics.
- Cons: you or your forwarder must handle Chinese export clearance, which can be difficult for a foreign buyer. Often FCA is the more practical choice.
FOB (Free On Board)
The supplier delivers the goods on board the vessel at the named port in China and handles export clearance. From that point, freight, insurance and risk are yours.
- Pros: the usual balance for sea freight. The supplier handles the part it knows best (local transport and export), and you choose your own forwarder for the main transport.
- Cons: only intended for sea and inland waterway transport. For containers and air freight, FCA is the technically correct term, although FOB is still widely used in practice.
CIF (Cost, Insurance and Freight)
The supplier pays freight and minimum insurance to the destination port. Risk still passes to you when the goods are loaded in China.
- Pros: simple for first imports.
- Cons: less control over the shipping line and transit time, and destination charges can be higher than expected because they are outside the supplier’s quote.
DDP (Delivered Duty Paid)
The supplier delivers to your address with import duties and taxes paid.
- Pros: one all-in price.
- Cons: you lose visibility over how goods are declared. If the declaration is wrong, problems can still reach you as the importer or recipient. Make sure the provider can show how duties and taxes are paid.
Other Incoterms 2020 terms
FCA, CPT, CIP, DAP and DPU apply to any mode of transport, and FAS, CFR, FOB and CIF to sea and inland waterway transport only. CFR is like CIF without the insurance obligation.
How to choose
- First import, small volume: a door-to-door service with clear, itemized costs reduces surprises.
- Regular sea shipments: FOB or FCA with your own forwarder usually gives the best control over cost and timing.
- Several suppliers: buy FCA or EXW to a consolidation warehouse and ship everything together.
Whatever term you use, write it with the named place and version, for example “FOB Shenzhen, Incoterms 2020”, and compare quotes only on the same basis. Our landed cost guide shows how to add everything up.
If you want one coordinated flow from factory to warehouse, see our End to End import service and customs support.
