Incoterms Explained: EXW, FOB, CIF, DDP for China Imports
Four little acronyms decide who pays for freight, who eats the risk if a container sinks, and how much markup hides in your price. Here is exactly what EXW, FOB, CIF and DDP mean — and which one to ask for.
Incoterms set who pays and who bears risk at each shipping stage. EXW: buyer handles everything from the factory gate. FOB: seller loads the goods onto the vessel, buyer covers ocean freight onward. CIF: seller pays freight and insurance to the destination port, but risk still passes at origin. DDP: seller delivers fully cleared to your door. For most new China importers, FOB is the safest, most transparent default.
What Incoterms actually decide
Incoterms (International Commercial Terms) are the standard three-letter rules that split responsibility between a seller and a buyer for an international shipment. Every term answers three questions: who pays for each leg of transport, who arranges export and import clearance, and — critically — at what exact point the risk of loss or damage transfers from seller to you. Two shipments at the same "price" can cost wildly different amounts once you add the costs a term quietly leaves on your side of the line.
The four terms below run from least seller responsibility (EXW) to most (DDP). The more the seller does, the higher the headline price — and the more room there is for freight and clearance markups you can't see. That trade-off between control and convenience is the whole game.
EXW
Ex Works
- Seller pays for
- Only making the goods available at the factory gate or warehouse.
- Buyer pays for
- Everything else — local pickup, export clearance, main freight, insurance, import duties, and final delivery.
- Risk transfers
- Passes to the buyer the moment goods are ready at the seller's premises.
- When to use it
- Rarely ideal for new importers. It gives the lowest headline price but the most work and hidden China-side costs. Best only if you already have a strong local agent handling export.
FOB
Free On Board
- Seller pays for
- Inland transport to the origin port, export clearance, and loading the goods onto the vessel.
- Buyer pays for
- Ocean freight, marine insurance, destination charges, import duty/VAT, and delivery to your door.
- Risk transfers
- Passes once the goods are loaded on board the vessel at the origin port.
- When to use it
- The default for most China container orders and the industry benchmark for comparing quotes. It gives you control of the freight leg while the supplier handles the messy China export side.
CIF
Cost, Insurance & Freight
- Seller pays for
- Everything up to the destination port: export clearance, ocean freight, and minimum marine insurance.
- Buyer pays for
- Destination port handling, import duty/VAT, customs clearance, and delivery to your door.
- Risk transfers
- Passes at the origin port (on loading) even though the seller pays freight to destination — a common trap.
- When to use it
- Convenient for first-timers who want a single all-in-to-port number, but you lose control of the carrier and often overpay on freight and destination fees the supplier chooses.
DDP
Delivered Duty Paid
- Seller pays for
- Everything, end to end — freight, insurance, import duty, VAT, customs clearance, and delivery to your address.
- Buyer pays for
- Nothing after the agreed price (in theory). You just receive the goods.
- Risk transfers
- Passes only when goods are delivered, cleared, at your named destination.
- When to use it
- Simplest for the buyer, but the highest maximum risk of hidden markups and grey-channel customs. Fine for samples or small parcels; scrutinise it hard for full containers.
EXW vs FOB vs CIF vs DDP
Who carries the load — and where the risk sits — for each term.
A worked example
Say a factory quotes an order at $20,000 EXW. The same goods might be roughly $20,800 FOB once you add inland trucking and export clearance, then perhaps $23,000–$25,000 CIF after ocean freight and minimum insurance, and higher again as DDP once duty, VAT and last-mile delivery are folded in.
These are illustrative ranges, not a quote — freight rates and duties swing with lane, season and product HS code. The point: the "cheapest" EXW number can end up costing the most once the hidden legs are yours to arrange.
Our recommendation for new importers
- Quote FOB by default so prices are comparable across suppliers
- Control your own ocean freight and insurance rather than the seller's
- Treat CIF and DDP quotes with care — ask for the cost breakdown
- Use DDP only for samples or small courier parcels
- Have an agent verify the true FOB price line by line
Incoterms (EXW, FOB, CIF, DDP) — FAQ
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