Every quote you receive from China carries a three-letter label: FOB, CIF, EXW, DDP. Most buyers skim past it. It is the single most expensive line to ignore.

The Incoterm decides who pays for what between the factory and your door — and, just as importantly, the exact point at which the risk becomes yours. Choose the wrong one and you will not find out until a container is sitting at a port that nobody has arranged to clear.

What Incoterms actually decide

An Incoterm is a standard three-letter code published by the International Chamber of Commerce. It fixes two things, and only two:

• Who pays for each stage of the journey — export clearance, inland transport, loading, international freight, insurance, import clearance, duty, and final delivery.
• Where risk transfers from seller to buyer. This is the part buyers miss. If goods are damaged after the handover point but before they reach you, the loss sits with whoever held the risk at that moment.

What an Incoterm does not decide: who owns the goods, when you pay, which country’s law applies, or what happens if the shipment is late. Those belong in your contract, not in the three-letter code.

The current edition is Incoterms 2020. There are eleven terms in total. Four of them cover almost every import from China.

The four terms you will actually be offered

EXW — Ex Works

The seller makes the goods available at their premises, and that is where their involvement ends. Loading, transport to the port, export clearance, freight — all of it is yours. EXW looks cheapest because the seller has removed themselves from every cost.

In practice it is the hardest term to work with. You cannot even complete the Chinese export declaration without a Chinese entity, so unless you already have a partner on the ground, EXW creates work you have no way to do. Most importers should avoid it.

FOB — Free On Board

The seller handles everything up to the moment the goods are loaded on board the vessel at the named Chinese port: inland transport, export clearance, and loading. From that point, both cost and risk transfer to you.

FOB is the default quote for most Chinese suppliers, and for good reason — it is where the seller’s job genuinely ends. It is also the term that gives you the most control, because you choose who handles everything after the port.

CIF — Cost, Insurance and Freight

The handover point is the same as FOB — goods on board — but the seller also pays the freight to your destination port and arranges cargo insurance. That is why a CIF quote always looks more expensive than FOB: you are buying the sea freight through them.

The insurance element deserves a closer look. Under CIF the seller is only required to arrange minimum cover — the equivalent of Institute Cargo Clauses (C) — which excludes a long list of risks including theft, water damage and non-delivery. Many buyers read “insured” as “covered for everything”. It is not. (Under CIP, by contrast, Incoterms 2020 requires broader cover.)

DDP — Delivered Duty Paid

The seller delivers to your address with import duty and taxes paid. One price, one invoice, goods at your door. It is the most comfortable term for a buyer and the most demanding for a seller — which is exactly why it deserves scrutiny rather than gratitude.

Side by side: FOB vs CIF vs DDP

Read this table from top to bottom. Every bold cell is a cost or a risk that lands on you.

Why your supplier’s CIF price is not your landed cost

This is where first-time importers get hurt.

A CIF quote stops at your destination port. It does not include:

• Destination port charges and terminal handling
• Customs clearance and the clearing agent’s fee
• Import duty
• VAT or the local equivalent
• Delivery from the port to your address
• Storage, if the paperwork moves slowly

On a typical container, those lines together can add a third or more to what you thought you were paying. The CIF number looks like a final price. It is not one.

The DDP trap

DDP sounds like the answer to everything above. Sometimes it is. But before you accept a DDP quote, ask three questions.

Who is the importer of record?

Under DDP the seller handles import clearance, which normally means they — or their agent — appear as the importer on the customs entry. That is worth understanding, because if you are registered for VAT you will usually need import documentation in your own name to reclaim it.

What value was declared?

An unusually cheap DDP rate sometimes means the goods were declared below their real value to reduce duty. That was the seller’s decision, but when customs reviews it, the goods are in your warehouse. You are the one who loses the cargo.

Is the seller actually able to deliver it?

A factory in Zhejiang is a manufacturer, not a licensed customs broker in your country. What is sold to you as DDP is usually a third-party arrangement the seller has bought from someone else. That is perfectly fine if the partner is good. It is a problem if the seller is guessing — and a buyer cannot tell the difference from the price alone.

So which one should you actually choose?

There is no universally right answer to the FOB vs CIF question, but there is a right answer for your situation.

First order, small volume, testing the market

DDP through someone you trust is defensible. The simplicity is worth real money when you are still learning what the costs even are. Just ask the three questions above, and get the duty and tax breakdown in writing.

Importing regularly

FOB, almost always. You choose the forwarder, you see the real freight number, you control clearance, and the import documentation ends up in your own name. It is also the only term that lets you compare — because you can put your forwarder’s rate next to anyone else’s. Under CIF the freight is bundled and invisible.

No partner on the China side

CIF is a reasonable middle ground: the supplier handles the export half, you handle everything from your port. Just budget the destination costs properly — that is the number CIF hides.

EXW

Only when you already have a China-side partner who will act as your exporter of record. Otherwise the savings are imaginary: you will pay someone to do what the seller would have done, usually at a worse rate.

How to compare two quotes properly

Most quotes cannot be compared, because they cover different things. Ask every supplier or forwarder the same seven questions before you look at the price:

• Where exactly does your responsibility end?
• Is the freight included, and is it to a port or to my address?
• Is insurance included, and at what level of cover?
• Who handles export clearance, and who handles import clearance?
• Are duty and taxes included — and at what declared value?
• What are the destination port charges, and who pays them?
• What happens if the container sits at the port for a week?

If a seller cannot answer these, the number on the quote is not a price. It is an estimate with a label attached.

How we quote

We work at both ends of this, because the right answer depends on how you import rather than on which term sounds simplest.

Ask us for FOB and you get the freight, clearance and delivery shown as separate lines, so you can see what each one costs and challenge any of them. Ask us for DDP and you get the duty and tax we are paying on your behalf, at the declared value, itemised rather than folded into a single number.

If you already have a supplier quoting CIF, send us that quote. We will tell you what it does not include — and what the shipment will actually cost to get to your door.

Frequently asked questions

Is FOB or CIF better for the buyer?

FOB is usually better once you import regularly, because you choose the forwarder and see the real freight cost. CIF is simpler, since the supplier arranges the sea leg and insurance, but the freight is bundled into the price so you cannot tell whether it is competitive. The exception is when you have no reliable forwarder of your own — then CIF removes a problem you cannot currently solve.

Who pays import duty under CIF?

You do. CIF covers the goods to your destination port; everything after that — clearance, duty, VAT, port charges and delivery — is the buyer’s responsibility. This is the single most common misunderstanding in the FOB vs CIF comparison.

Is DDP safe?

DDP is not unsafe by definition, but it concentrates control in the seller’s hands. Two things are worth checking: whether you receive import documentation in your own name, and whether the declared value reflects what you actually paid. Where the declared value has been reduced to keep the duty low, the risk sits with whoever holds the goods.

What is the difference between FOB and FCA?

Technically, FOB is designed for cargo loaded directly onto a vessel, while FCA is the correct term when goods are handed to a carrier at a terminal — which is how most containers move. In practice, almost every Chinese supplier quotes FOB for containerised freight anyway. It is worth knowing the distinction, but it rarely changes the commercial outcome.

Do Incoterms cover cargo insurance?

Only CIF and CIP require the seller to arrange insurance, and CIF only requires minimum cover. Under FOB, EXW and DDP, insurance is not required at all — which means if you are buying FOB, arranging your own cargo insurance is your responsibility and worth doing.

Tell us which term you are working with

Send us the quote you have — FOB, CIF, EXW or DDP — and your destination. We will show you what it covers, what it does not, and what the shipment will really cost to land at your address.

There is no charge for that, and no obligation to move anything with us.

Send us your quote →