EXW, FOB, DDP: who pays what, and how far

An Incoterm (International Commercial Term, published by the International Chamber of Commerce) answers three questions in one acronym: how far the seller carries the goods, when risk transfers to you, and who pays each link. It is not legal trivia: it is the line that separates a "factory" price from the real cost at your warehouse. Two quotes shown at the same figure can hide a several-percent gap once the Incoterm is factored in.

Under EXW (ex works), everything is on you the moment goods leave the workshop: loading, inland Chinese transport, export customs, sea freight, insurance, import. It is the lowest headline price, and the most misleading if you are not set up on the ground. Worse, under EXW the supplier has no obligation to handle Chinese export customs, a point that often jams in practice.

Under FOB (free on board), the supplier brings the export-cleared goods to the Chinese port and loads them on board. You take over sea freight, insurance and import. It is the most common setting between China and Europe, and often the soundest for comparing quotes: the seller’s scope stops at a precise, identical point from one factory to the next.

Between the two sit CFR and CIF, where the supplier pays sea freight (and, under CIF, minimal insurance) to the destination port. Comfortable on paper, but you inherit a forwarder you did not choose and destination charges that are sometimes inflated. We generally prefer to take over at the Chinese port (FOB) and steer the freight ourselves.

Under DDP (delivered duty paid), you are delivered to your door, all in: freight, customs, duties and VAT settled by the seller. Very comfortable, but the entire logistics margin vanishes into a single, opaque price. DDP only makes sense with a trusted intermediary who itemises what is in the price, otherwise it is an open door to hidden margins.

A point many buyers confuse: the Incoterm transfers risk as much as cost. Under FOB, the moment goods are on board, you carry the risk of loss or damage at sea, hence the value of transport insurance, which costs little against the value of a container. Choosing your Incoterm therefore also decides from when you insure.

In practice, we frame the Incoterm with you depending on how much logistics you handle and your volume. A first-time importer often gains by starting with a framed DDP, then moving to FOB once seasoned to recover the logistics margin. The key is that every cost line is named, exactly what our landed-cost calculator lays out.