Contents
Key points
- An Incoterm splits costs and risks between you and the supplier. Customs duties and import VAT at destination stay with you, except under DDP.
- For sea freight from China, FOB is the most common choice: the supplier pays up to loading on board, and you pick your freight forwarder.
- Avoid EXW: Chinese export clearance then falls on your side, which is rarely possible without a Chinese entity.
- DDP makes everything simpler, as long as you know who the importer of record is: they answer for the declared value and compliance.
What an Incoterm is, and what it is not
Incoterms are rules published by the International Chamber of Commerce. The current version dates from 2020. Each Incoterm is written as three letters followed by a place: "FOB Ningbo", "DAP Lyon". The place matters as much as the code: without it, the rule is incomplete.
An Incoterm answers three questions: who arranges and pays for the main transport, at what point the risk passes from seller to buyer, and who handles export and import formalities. It says nothing about the product price, payment terms, transfer of ownership or quality. Those belong in the contract or purchase order.
The 11 Incoterms 2020 at a glance
Seven rules apply to any mode of transport; four are for sea freight only.
| Code | Name | Risk passes to the buyer… | Mode |
|---|---|---|---|
| EXW | Ex Works | when goods are made available at the factory | Any |
| FCA | Free Carrier | on handover to the carrier named by the buyer | Any |
| CPT | Carriage Paid To | on handover to the first carrier, freight paid by the seller | Any |
| CIP | Carriage and Insurance Paid To | as CPT, with broad insurance paid by the seller | Any |
| DAP | Delivered At Place | at the agreed destination, before unloading | Any |
| DPU | Delivered at Place Unloaded | at the agreed destination, goods unloaded | Any |
| DDP | Delivered Duty Paid | at destination, duties and taxes paid by the seller | Any |
| FAS | Free Alongside Ship | alongside the vessel at the port of departure | Sea |
| FOB | Free On Board | on board the vessel at the port of departure | Sea |
| CFR | Cost and Freight | on board at departure, freight paid by the seller to the destination port | Sea |
| CIF | Cost, Insurance and Freight | as CFR, with minimum insurance paid by the seller | Sea |
Remember the catch with the C terms (CFR, CIF, CPT, CIP): the seller pays for transport to destination, but the risk passes to you at departure. If the container is damaged at sea, it is up to you to claim on the insurance.
FOB: the standard for sea imports from China
Under FOB, the supplier handles transport to the Chinese port, export clearance and loading on board. You take over for sea freight, insurance, destination charges and customs clearance at arrival.
It is the most widely used Incoterm, for good reasons. You choose your forwarder, you see the real freight cost and you can consolidate several suppliers into one shipment. Always name the port, for example "FOB Shenzhen" or "FOB Ningbo", and ask in writing that origin port charges are included: some suppliers bill them separately.
CIF and CFR: convenient on paper, traps in practice
Under CIF, the supplier books and pays freight to the destination port, with minimum insurance. It looks comfortable. In practice, freight is often bought at the lowest price and destination charges are billed to you on arrival by the carrier's agent, with no room to negotiate.
The insurance included in CIF is minimum cover that only protects against major events. And because the risk passes to you when the goods are loaded in China, the claim is yours to manage. If you are offered CIF, ask for the destination charges before comparing it with an FOB offer.
Got FOB, CIF or EXW quotes to compare? The first call is free: we will tell you which ones hold up.
Qualify my projectEXW: the cheapest on paper
Under EXW, the supplier makes the goods available at its factory and everything else is yours: loading the truck, transport to the port and the Chinese export declaration. That declaration must be filed by an exporter registered in China. Without a local entity, a forwarder or the supplier has to do it, often for an extra fee.
EXW only makes sense if your agent or forwarder organises pick-up and export on the ground. Otherwise an attractive EXW price quickly turns into complications at departure.
DDP: simple, as long as you know who imports
Under DDP, the seller delivers to your door with duties and taxes paid. You know your landed price in advance, which is reassuring for a first order.
The key question is: who appears as the importer on the customs declaration? They answer for the declared value, the tariff code used and the compliance documents. Very cheap "all-inclusive" DDP offers sometimes hide an under-declared value, and in an audit the problem can come back to you. For a business reselling in Europe, being the importer yourself, with your own EORI number, keeps control of the paperwork. In many EU countries, and in the UK, VAT-registered businesses can then account for import VAT on their VAT return instead of paying it upfront.
FCA: the recommended Incoterm for containers
The International Chamber of Commerce recommends FCA rather than FOB for containerised goods. Under FCA, the supplier hands the goods to the carrier at the terminal or consolidation warehouse rather than on board the vessel, which better matches how containers actually move. In practice, FOB remains the reference on the Chinese market. FCA is most useful for LCL shipments delivered to a consolidation warehouse.
Which Incoterm to choose for your situation
| Your situation | Suggested Incoterm | Why |
|---|---|---|
| First test order, no forwarder | DAP or DDP through a trusted intermediary | Landed price known upfront; check who the importer is |
| You work with a forwarder or agent | FOB (or FCA) Chinese port | You control freight and can compare offers |
| Several suppliers in one shipment | FCA consolidation warehouse, or FOB | Consolidation in China, a single shipment to clear |
| Small urgent express or air shipment | DAP or DDP | Simplicity; check the declared value |
| The supplier only offers EXW | EXW, with export handled by your agent | Chinese export must be declared locally |
The mistakes we see most often
- Writing "FOB" without the port, or "DAP" without a delivery address.
- Confusing who pays for freight with who carries the risk, especially under CIF.
- Accepting a CIF offer without asking for destination charges.
- Using outdated terms: DAT from Incoterms 2010 no longer exists and has been replaced by DPU.
- Thinking DDP removes the need to check product compliance. A non-compliant product gets stopped whatever the Incoterm.
Frequently asked questions
FOB, followed by the Chinese port of departure (Shanghai, Ningbo, Shenzhen…). It lets the buyer choose the forwarder and control the cost of sea freight.
No. FOB stops at loading on board in China. Freight, insurance, destination charges, customs duties and import VAT are paid by the buyer.
Under CIF, the seller also pays freight and minimum insurance to the destination port. But in both cases, the risk passes to the buyer once the goods are loaded in China.
The quoted price is higher because it includes freight, duties and taxes. To compare, work out the landed cost of an FOB offer with the same items.