Incoterms (International Commercial Terms) define who is responsible for goods, costs and risk at each stage of an international shipment. Choosing the right Incoterm is one of the most consequential decisions in a China sourcing arrangement — and one of the least understood.
The Four Terms You'll Encounter Most
EXW — Ex Works
The seller makes goods available at their premises. The buyer is responsible for everything from that point: loading, trucking to port, export clearance, ocean freight, import clearance, and final delivery.
In practice: EXW is the most buyer-unfriendly Incoterm for new buyers sourcing from China. You're responsible for export clearance in China — which you likely have no capacity to manage. Avoid unless you have a well-established freight forwarder relationship in China.
FOB — Free on Board
The seller is responsible for getting goods to the named port of loading and handling export clearance. Risk and cost transfer to the buyer once goods are loaded onto the vessel.
In practice: FOB is the most commonly used Incoterm for China-origin shipments, and generally the most appropriate for buyers. You take control of freight and insurance — which means you can shop for competitive freight rates and choose your own insurer.
CIF — Cost, Insurance and Freight
The seller arranges and pays for freight and insurance to the named port of destination. Risk transfers to the buyer when goods are loaded onto the vessel (same as FOB) — so despite paying for freight, the buyer bears the risk during transit.
In practice: CIF is simpler for buyers who don't want to manage freight arrangements. But you lose price transparency — factories often mark up CIF freight, and you can't compare their quote to market rates. For large shipments, the freight markup can be significant.
DDP — Delivered Duty Paid
The seller is responsible for everything — freight, insurance, import customs clearance and duties — all the way to the buyer's named destination. Maximum convenience for the buyer.
In practice: DDP sounds attractive but creates problems. Factories quoting DDP to US or EU destinations often use grey-channel freight arrangements or undervalue customs declarations to minimise duty — practices that create legal risk for the buyer. For high-value shipments, DDP can mean the factory is handling your import compliance. Be cautious.
Which Term Should You Use?
| Term | Who Arranges Freight | Risk Transfers At | Best For |
|---|---|---|---|
| EXW | Buyer | Factory gate | Experienced buyers with China freight agents |
| FOB | Buyer | On vessel at origin port | Most buyers — recommended default |
| CIF | Seller | On vessel at origin port | Buyers who want simplicity and small shipments |
| DDP | Seller | Buyer's premises | Very small orders; approach with caution |
One Practical Note on Freight Forwarders
Whichever Incoterm you use, building a relationship with a reliable freight forwarder is essential. They handle the operational complexity of international shipping, advise on documentation, and can be the difference between goods clearing customs smoothly and sitting in a bonded warehouse incurring storage fees.
For GBA-origin shipments, having a freight forwarder with a presence in both China and your destination market is ideal.
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