Incoterms define who is responsible for shipping costs, insurance, and customs at each stage of an international trade transaction. Choosing the wrong Incoterm can expose you to unexpected costs and liability.
EXW — Ex Works
The buyer is responsible for everything from the factory gate. Maximum risk for the buyer. Rarely recommended for first-time importers.
FOB — Free on Board
The seller is responsible until goods are loaded onto the vessel at the Chinese port. This is the most common Incoterm for sea freight from China.
CIF — Cost, Insurance & Freight
The seller pays freight and insurance to the destination port. Convenient but can hide inflated freight margins.
DDP — Delivered Duty Paid
The seller handles everything including import customs and delivery to the buyer's door. Maximum convenience for the buyer.
Which should you use from China?
For most sea freight shipments, FOB is the industry standard. For air freight and express, DDP is often practical if your supplier offers it competitively.
Key mistakes to avoid
- Never use EXW if you cannot arrange your own China-side logistics
- Always clarify which port is meant in FOB terms
- Verify insurance coverage under CIF — the minimum required is often inadequate
Real Cost Comparison: EXW vs FOB vs CIF vs DDP
Using a sample shipment of 500kg of auto parts from Guangzhou to Dubai as an example:
- EXW Guangzhou factory: Buyer pays all costs. Inland China trucking (USD 150–300) + export customs clearance (USD 100–200) + port handling (USD 80–150) + ocean freight (USD 400–700 LCL) + destination charges + import customs. Total additional cost: USD 900–1,600 over FOB.
- FOB Guangzhou port: Seller delivers to port and loads. Buyer pays ocean freight (USD 400–700 LCL) + destination charges + import customs. Most common and transparent arrangement.
- CIF Dubai port: Seller pays freight and insurance to Dubai. Convenient but the seller may inflate freight by 15–30%. Buyer still handles import customs and inland delivery.
- DDP Dubai warehouse: Seller handles everything. Most convenient but highest risk — seller controls logistics choices and may pass on high-cost options. Best for small, high-value shipments.
Incoterms 2020 Updates That Affect China Importers
The 2020 revision of Incoterms made two significant changes relevant to China importers:
- FCA (Free Carrier) now allows on-board B/L: Under FCA, the buyer can now instruct the seller to obtain a bill of lading stating "on board" — previously only possible under FOB. This is important for letter of credit transactions.
- DAP and DDP updated security obligations: Both terms now include explicit security requirements, which affects documentation requirements for post-9/11 and post-COVID customs environments.
- CIF insurance minimum remains inadequate: CIF requires only Institute Cargo Clauses (C) coverage — the minimum level. For high-value goods, specify ICC (A) which covers all risks including theft and rough handling.
Common Questions About Incoterms
Can I negotiate Incoterms with my Chinese supplier? Yes. While suppliers often default to EXW or FOB, experienced importers regularly negotiate CIF or even DAP terms for convenience. The key is understanding who controls freight and therefore freight costs.
Does the Incoterm affect import duties? Yes, in many countries. Import duty is calculated on the CIF value (cost + insurance + freight to destination port). Under FOB terms, you're responsible for arranging freight, which means you control what figure appears on shipping documents — relevant for customs valuation.
Which Incoterm is best for first-time importers from China? FOB is the best starting point. It's the industry standard, well-understood by Chinese suppliers, and gives you full control over freight arrangements while keeping China-side logistics the seller's responsibility. As you build experience, consider CIF for convenience.
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