Incoterms for first-time China buyers
Three letters on a quotation decide who pays for what, who carries the risk when something is damaged, and — least obviously and most importantly — who controls your shipment.
In short: for a first-time buyer, FOB at a named Chinese port is usually the right default. The supplier handles export clearance and loading; you control the main carriage, the cost visibility and the forwarder. EXW looks cheapest and rarely is. DDP looks easiest and quietly puts an unfamiliar party on the customs entry for goods you own.
Why the three letters matter
An Incoterm answers three questions: who pays for each leg, at what point risk passes from seller to buyer, and who is responsible for export and import clearance. It does not decide who owns the goods, and it does not decide who is the importer of record — those are separate, and confusing them is where the expensive surprises come from.
The practical reason to care is comparability. Two quotations on different terms are not comparable numbers, and a supplier quoting EXW against a competitor quoting FOB will look cheaper while being more expensive.
The four you will actually meet
| Term | Seller does | Risk passes | You do |
|---|---|---|---|
| EXW Ex Works | Makes the goods available at their premises. That is all. | At the factory gate | Everything: collection, export clearance, freight, insurance, import, duty, delivery |
| FOB Free On Board | Delivers on board the vessel at a named Chinese port, and clears for export | Once on board | Main carriage, insurance, import clearance, duty, delivery |
| CIF Cost, Insurance, Freight | Arranges and pays main carriage and minimum insurance to a named destination port | Once on board at origin — before the freight they paid for | Import clearance, duty, delivery, and any gap in that minimum insurance |
| DDP Delivered Duty Paid | Everything, to your door, including import clearance and duty | At your door | Receive the goods |
Note the CIF quirk. Risk passes to you when the goods are loaded at origin, even though the seller is paying for the voyage. If the container is lost mid-ocean it is your loss, claimed under insurance the seller chose and bought at the minimum level. That surprises people at exactly the wrong moment.
Why FOB is usually the answer
FOB puts the boundary at the point where the supplier’s local knowledge stops being an advantage and starts being an information asymmetry. They handle inland transport and export clearance in China, which they do every week and you cannot do at all. You handle the main carriage, which means:
- You choose the forwarder, so freight cost is visible rather than embedded in a unit price.
- You control the schedule and can consolidate with other suppliers.
- You know what the goods actually cost, which matters for customs valuation.
- Your forwarder works for you, and will tell you when a shipment slips.
That last point is worth more than it sounds. A forwarder appointed by your supplier reports to your supplier.
The DDP trap
DDP is genuinely attractive: one price, goods at your door, no customs paperwork. For very small shipments it can be the right call. But understand what you are agreeing to.
Under DDP the seller arranges import clearance in your country. Somebody has to be named as importer of record on that entry — and if it is not you, it is a party you did not choose, may never have heard of, and cannot supervise. Entries are being filed in respect of goods you own, with classifications and values you have not seen.
The question to ask before agreeing DDP: “Whose name appears as importer of record on the entry, and can I see the entry documentation for the last three shipments?” A straight answer is fine. No answer is the answer. See who is the importer of record?
Why EXW is rarely as cheap as it looks
EXW is the lowest number on the quotation, which is why suppliers offer it and why inexperienced buyers accept it. Under a strict reading, the seller is not even obliged to load the goods onto your collecting vehicle, and export clearance is your problem — in a country where you have no entity, no customs registration and no relationship.
In practice a Chinese supplier will usually help with export formalities anyway, which means you are relying on informal cooperation for a legal obligation that is contractually yours. That works until the day it does not.
Use EXW when you have a forwarder in China who genuinely handles this for you, and not before.
What to write on the contract
An Incoterm without a named place is incomplete and, in a dispute, close to meaningless. Write all four parts:
- The three-letter term — FOB.
- The named place, precisely — “FOB Ningbo” or “FOB Shanghai”, not “FOB China”.
- The Incoterms version — the rules are revised periodically and the versions differ; state which one applies.
- What is included that the term does not cover — export packing, palletisation, fumigation certificates, container loading. These are common sources of a surprise invoice.
| Written like this | Verdict |
|---|---|
| FOB Ningbo, Incoterms 2020, export packing and palletisation included | Complete |
| FOB China | Incomplete — which port, and at whose cost to get there? |
| CIF | Incomplete — to where? |
| DDP, importer of record to be the buyer | Contradictory in substance — resolve it before signing |
None of this is legal or customs advice, and the definitive text of the rules is published by the International Chamber of Commerce. What it is, is the set of things that come up on nearly every first China order — and the four lines that stop a quotation from meaning something different to each side.
Comparing quotations that use different terms?
A quotation is not comparable to another until both are on the same Incoterm. We can sit in on the supplier call and make sure both sides mean the same thing.
Sources
- International Chamber of Commerce — Incoterms rules
- U.S. Customs and Border Protection — importing basics
- European Commission — Taxation and Customs Union
This guide is general information, not legal advice. Requirements vary by city, document and personal circumstances — confirm your specific case before acting. Last checked 23 August 2026.
