Incoterms (International Commercial Terms) are three-letter codes published by the International Chamber of Commerce (ICC) that split, between seller and buyer, who pays for what and exactly where the risk passes on a shipment. When importing from China, the Incoterm printed on a quote changes the number you are comparing: a FOB price and a DDP price do not contain the same costs. Never compare two quotes without first checking their Incoterm.
Why every importer needs to understand Incoterms
On a trade-show stand, one supplier says "4.20 USD CIF" and another "3.80 USD FOB". The second looks cheaper — except it includes neither the ocean freight nor the insurance to the arrival port. Comparing those two raw numbers is comparing different things. The Incoterm sets the boundary of responsibility: how far the supplier's price reaches, and where your share of the cost (and risk) begins.
Two ideas people constantly confuse:
- Cost transfer: the point from which you start paying transport, port charges, and customs.
- Risk transfer: the point from which, if the goods are lost or damaged, you carry the loss — even though the supplier has already been paid.
These two points do not always coincide. It is the single most common beginner mistake.
The 11 Incoterms 2020, in two families
The rules in force are Incoterms 2020. There are 11 rules, grouped into two families:
- 7 multimodal rules (any mode of transport — road, air, sea, rail, container): EXW, FCA, CPT, CIP, DAP, DPU, DDP.
- 4 sea-only rules (ocean or inland waterway transport only): FAS, FOB, CFR, CIF.
Two 2020 changes worth knowing: DPU (Delivered at Place Unloaded) replaced the old DAT; and the insurance required under CIP was raised to the higher Institute Cargo Clauses (A) level, while CIF stays at the minimal (C) level.
EXW — Ex Works
The seller simply makes the goods available at their factory or warehouse. Everything else is on you: loading, local transport, Chinese export clearance, freight, insurance, and import customs. It is the "barest" price — the lowest headline figure, but the heaviest to handle. Avoid it until you have a freight forwarder able to arrange export out of China on your behalf.
FCA — Free Carrier
The seller delivers the goods cleared for export to a carrier you name (often the forwarder's warehouse in Shenzhen or Yiwu). Risk passes at that handover. The ICC recommends FCA over FOB for containers, because it fits the reality of containerized shipping better.
FOB — Free On Board
The workhorse of China imports. The seller handles the goods, inland Chinese transport, and export clearance up to loading them onto the vessel at the departure port. From there, ocean freight, insurance, and arrival customs are yours. Container catch: FOB was written for bulk cargo loaded directly onto a ship. With a container, you hand the box to the terminal several days before it is loaded — under FOB, the risk technically stays with you during that gap at origin. In practice FOB remains the clearest standard for comparing Chinese suppliers.
CFR — Cost and Freight
Like FOB, plus the ocean freight paid by the seller to the arrival port. But note: the risk still transfers at the departure port, not at destination. The seller pays the transport; if the container goes overboard, it is your loss (hence the case for carrying your own insurance).
CIF — Cost, Insurance and Freight
CFR plus minimal insurance taken out by the seller. Sea transport only. Risk still passes at the departure port. Classic trap: the required cover is the minimal Institute Cargo Clauses (C) level, which covers very little. Do not rely on it for partial damage.
CPT / CIP — Carriage (and Insurance) Paid To
The multimodal equivalents of CFR / CIF. The seller pays transport to the named destination, but risk passes as soon as the goods reach the first carrier. Cost and risk therefore transfer at two different places. Under CIP, the required insurance is the higher Institute Cargo Clauses (A) level.
DAP / DPU — Delivered at Place (Unloaded)
The seller delivers to destination (your warehouse, a hub). Under DAP the goods arrive ready to unload, and unloading is on you. Under DPU the seller unloads as well. In both, import clearance and duties remain yours.
DDP — Delivered Duty Paid
The mirror image of EXW: the seller carries everything, including import clearance and duties, right to your door. The most "all-in" price — convenient, but often the most opaque: you cannot see the breakdown, and a supplier who under-declares customs value exposes you legally.
Incoterms 2020 comparison table
| Incoterm | Main freight arranged by | Insurance paid by | Risk transfer point | Best for |
|---|---|---|---|---|
| EXW | Buyer | Buyer | Seller's factory | Seasoned importer with a China-side forwarder |
| FCA | Buyer | Buyer | Handover to carrier (export cleared) | Containers, multimodal (ICC-recommended) |
| FOB | Buyer | Buyer | Loaded on board at departure port | The comparison standard for China imports |
| CFR | Seller | Buyer | Departure port (on board) | Buyer delegating freight, carrying own insurance |
| CIF | Seller | Seller (min. ICC-C) | Departure port (on board) | Small volumes, beginners wanting sea freight bundled |
| CPT | Seller | Buyer | First carrier | Air / multimodal with freight delegated |
| CIP | Seller | Seller (higher ICC-A) | First carrier | Air / multimodal with proper insurance |
| DAP | Seller | Seller | Destination, ready to unload | Door delivery, you handle import customs |
| DDP | Seller | Seller | Your door (all-in) | Samples, small parcels, "turnkey" delivery |
How the Incoterm changes your landed cost
Landed cost is the true cost of a product once it reaches you: product price + freight + insurance + import duties + VAT + incidental fees. The Incoterm decides what is already included in the supplier's figure, and therefore what you still have to add:
- An EXW or FOB price is "low" but you must add freight, insurance, and customs to know the real cost.
- A DDP price looks "high" but contains almost everything — sometimes cheaper in the end than a badly-completed FOB.
To compare two quotes honestly, bring them to the same Incoterm — the simplest being to convert everything to final landed cost. That is exactly what our landed-cost method for China imports and our landed-cost calculator are for. And to dodge the "cheapest on the sticker" trap, see how to compare supplier quotes on equal terms.
FAQ
What does FOB mean when importing from China?
FOB (Free On Board) means the Chinese supplier handles the goods, inland transport, and export clearance up to loading them onto the vessel at the Chinese port. After that, ocean freight, insurance, and arrival customs are your responsibility. It is the most common Incoterm for comparing Chinese suppliers because it cleanly isolates the "factory + delivery to port" price.
FOB or CIF — which should I pick?
CIF adds ocean freight and minimal insurance on top of the FOB price. CIF makes life easier for a beginner (sea freight is bundled in), but the required insurance is thin and you lose control over the choice of forwarder. Regular importers often prefer FOB and then arrange their own freight, usually cheaper than the margin a supplier adds on transport under CIF.
Is EXW really the lowest price?
On the sticker, yes: EXW only covers making the goods available at the factory. But it leaves you to arrange loading, local transport, and Chinese export clearance — a difficult process for a foreigner. The real cost once everything is added often exceeds a good FOB quote. EXW only makes sense when you already have a solid forwarder on the ground.
Is DDP risk-free for the buyer?
DDP is the most comfortable: the seller delivers everything cleared to your door. But it is also the most opaque, and some suppliers under-declare the customs value to cut duties — a fraud that you, the importer, remain legally liable for. Demand transparency on the customs declaration, or handle clearance yourself under DAP.
Do Incoterms cover payment and transfer of ownership?
No. Incoterms 2020 deal only with the split of costs, risks, and transport/customs obligations. They say nothing about the payment method, the moment ownership transfers, or what happens in a commercial dispute. Those belong to your sales contract, which is separate from the Incoterm.
At a fair like the Canton Fair, you rarely note the Incoterm while capturing a price — and you pay for that in confusion back home. With Fairloop, every captured price keeps its Incoterm and currency, and the landed-cost calculation brings them all to a comparable base. You finally compare apples with apples. See pricing.