Incoterms for import from China: EXW, FOB, DDP, which Incoterm to choose

Incoterms are acronyms published by the International Chamber of Commerce (ICC). They do not govern transfer of ownership, payment, or quality. They allocate two things between seller and buyer: transport costs on one hand, transfer of risk on the other. The current version, Incoterms 2020, has been in effect since January 1, 2020 and includes eleven terms.

Three families suffice. Departure: EXW and FCA, where the buyer arranges almost everything. Main carriage paid by seller: FOB, CFR, CIF, CPT and CIP, with risk transferring early. Arrival: DAP, DPU and DDP, where the seller delivers to destination. Last point: FAS, FOB, CFR and CIF are only for sea and inland waterway, the other seven for any mode of transport.

EXW (Ex Works) is the term that least involves the seller. It makes the goods available on its premises, packed, without loading. From that point, everything is yours: loading, domestic transport in China, export customs clearance in China, international freight, import customs clearance, duties and VAT. It is the maximum obligations on the buyer side, and you need to know this before comparing an EXW price to a FOB price.

The difficulty is concrete: from abroad, you cannot easily clear a Chinese export. A local agent is needed to file the export declaration. Many factories readily quote FOB for this reason, and some refuse EXW. An EXW quote often appears lower, but it hides costs you will pay anyway: compare on an equal scope.

FOB (Free On Board): the seller transports the goods to the agreed port of loading, for example FOB Shenzhen or FOB Ningbo, clears the Chinese export and loads them on board the vessel. Risk transfers at that moment. After that, international freight, possible insurance, import customs clearance, duties and VAT are for you.

For a full container, FOB is the common balance between a Chinese factory and a European buyer: the factory does what it controls, you choose the forwarder and you know the actual freight cost. For sea consolidation, however, the term implies delivery on board which is poorly suited to consolidated shipments: the multimodal term FCA fits better.

DAP (Delivered at Place): the seller brings the goods to the agreed place, ready for unloading, and assumes transport and risk up to that point. You handle import customs clearance and pay duties and VAT. It is the common arrival term when a Chinese seller keeps control of freight, for example on a rail shipment or delivery to your warehouse.

DDP (Delivered Duty Paid) goes one step further: the seller clears import, pays duties and taxes, and delivers. It is the maximum obligations on the seller side. Concretely, a Chinese seller quoting DDP to the European Union becomes de facto the importer: it must handle the customs declaration, VAT and local formalities. Many delegate to consolidators, and the declared value is not always compliant. If the goods are inspected and blocked, you have no control over the file and your recourse is weak.

Then DPU (Delivered at Place Unloaded), introduced with the 2020 version replacing DAT: the seller delivers and unloads. It is the only term that imposes unloading on the seller.

Risk transfer does not follow payment of freight. Under CIF or CFR, the seller pays transport to the port of arrival, but risk transfers upon loading on board at the port of departure. Damage on the high seas therefore concerns you, not the seller. This is a common trap for first-time importers, who believe that a delivered port of arrival price protects them.

Simple reference points to keep in mind. EXW: risk transfers at the seller's premises. FCA: at delivery to the designated carrier. FOB, CFR and CIF: on board the vessel at the port of departure. DAP and DDP: at the place of destination. What happens between these two points falls under insurance, not the trade term: since the 2020 revision, a CIF sale requires at least Institute C clauses insurance, and a CIP sale requires clauses A coverage, which is broader.

There is no right term in absolute terms, only a division of roles that must match who arranges what. A few common cases, with the sensible choice:

At Sorva, a brokerage and sourcing firm, Incoterms are not a contract detail: they decide who controls freight, who clears customs, and therefore what you really pay. Our Chinese-speaking team in Guangzhou negotiates departure conditions with factories, aligns quotes on the same scope, coordinates the freight forwarder and has the goods inspected before loading. You open a file, we negotiate the goods for you, and you follow every step from factory departure to arrival.

In most cases, you pay no fees: you open a file, we negotiate the goods for you and we take a commission on their ex-factory value.