Incoterms decide one thing: at which point in the journey does the cost and the risk move from the seller to you. Get it wrong and you can find yourself paying for trucking you thought was included, or owning cargo that is still sitting in a Chinese warehouse.
This guide covers the terms you will actually see on a purchase order, in plain language.
Incoterms are published by the International Chamber of Commerce and revised roughly every ten years. This article covers Incoterms 2020. Always confirm the exact term and named place with your supplier in writing before ordering.
The short version
| Incoterm | Who pays freight to the port | Who pays the ocean freight | Who clears import customs | Best for |
|---|---|---|---|---|
| EXW | You | You | You | You have your own agent in China |
| FCA | You | You | You | Similar to EXW but seller loads |
| FOB | Seller | You | You | Most common for sea freight from China |
| CFR | Seller | Seller | You | You want the seller to book the ship |
| CIF | Seller | Seller (plus insurance) | You | Like CFR, with cargo insurance included |
| DAP | Seller | Seller | You | Seller delivers to your door, you clear |
| DDP | Seller | Seller | Seller | Hands-off, but you are not the importer |
The four you will actually use
FOB — Free On Board
The seller delivers the goods onto the vessel at the named Chinese port and handles export clearance. From the moment the cargo is on board, everything is yours: ocean freight, insurance, destination charges, import duty.
Why it dominates China sourcing: you control the freight, which means you control the cost, the carrier and the transit time. You can negotiate your own rates, consolidate shipments from several suppliers, and see exactly what you are paying for.
Watch out for: the named port must be specific. "FOB China" is not a valid term. It should read FOB Yantian, Incoterms 2020.
EXW — Ex Works
The seller makes the goods available at their factory. Everything after that — loading, inland trucking, export declaration, ocean freight, import clearance — is your problem.
Why beginners should avoid it: export customs declaration in China must be filed by a party registered there. If you buy EXW and have no entity or agent in China, you have a gap in the chain that has to be solved by someone. In practice most importers convert EXW into FOB by asking the forwarder to handle the origin leg.
CIF — Cost, Insurance and Freight
The seller pays for ocean freight to the destination port and provides minimum cargo insurance. You still pay destination charges, import duty and inland delivery.
The catch: the seller chooses the carrier and the insurance cover. Minimum cover under CIF is quite low, and the seller has every incentive to pick the cheapest sailing. It is convenient, but you give up visibility and speed.
DDP — Delivered Duty Paid
The seller delivers to your door with import duty paid. It is the most hands-off option and very common on e-commerce platforms.
The two problems:
- You are usually not the importer of record. The seller or their agent imports in their name. That can affect your ability to claim duty back, and it means you have no direct relationship with the customs authority if something goes wrong.
- You cannot see the cost breakdown. You get one number, so you cannot tell whether the freight is competitive or the duty has been declared correctly.
For a first test order DDP is fine. For a real business, importing in your own name on FOB terms is the cleaner arrangement.
The difference between DDP and DDU (and why DDU is gone)
DDU — Delivered Duty Unpaid — was removed in Incoterms 2010 and replaced by DAP, Delivered At Place. DAP means the seller delivers to your named address, ready for unloading, but you handle import clearance and duty.
Many suppliers still quote "DDU" out of habit. When you see it, confirm in writing whether they mean DAP (you clear customs) or DDP (they do). The difference is significant.
Rules that apply to every Incoterm
- The named place must be exact. A city, a port, or a full address. Not a country.
- Incoterms do not cover ownership. They define cost and risk, not when title transfers. That belongs in your sales contract.
- Incoterms do not cover payment terms. Deposit, balance on bill of lading, letter of credit — all separate.
- They do not override customs law. Whoever is the importer of record owes the duty, whatever the Incoterm says.
Which one should you choose?
| Your situation | Recommended |
|---|---|
| First order, small volume, want simplicity | DDP, but understand the trade-off |
| Regular importer, want cost control | FOB |
| Shipping LCL and consolidating suppliers | FOB, with your forwarder doing the origin leg |
| Seller insists on their own logistics | CIF, but ask which carrier and sailing |
| You have a Chinese entity or agent | EXW or FCA |
For most importers shipping regularly from China, FOB is the right default. It gives you control of the two things that matter most: what you pay and how long it takes.
Once you are on FOB, the next decisions are the container type — see FCL vs LCL — and what the freight should actually cost, which we break down in sea freight from China to the USA.
Frequently asked questions
What is the most common Incoterm for imports from China? FOB. It is the default in most Chinese export contracts because it lets the buyer control freight costs.
Is DDP better than FOB? Not for a business. DDP is simpler but hides the cost breakdown and usually means you are not the importer of record. FOB costs more effort but gives you control and transparency.
Who pays import duty under CIF? You do. CIF covers the goods to the destination port, including freight and minimum insurance. Duty, destination charges and inland delivery remain yours.
Can I use Incoterms for air freight? Yes, but EXW, FCA, CPT and CIP are more appropriate than FOB, which is specific to sea and inland waterway transport.
What does "FOB Shanghai, Incoterms 2020" mean exactly? The seller delivers the goods on board the vessel at Shanghai and clears them for export. From that point, cost and risk transfer to you.
Need help choosing terms for your next order?
Tell us what you are buying and where it is going, and we will tell you which term gives you the best combination of cost control and simplicity.
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