Incoterms explained: EXW, FOB, CIF and DDP for importers

When a Chinese factory quotes a price, it is almost always tied to delivery terms — Incoterms. Those three or four letters decide who pays for shipping, who bears the risk in transit and where hidden costs hide in the final price. Let us break it down without the legal jargon.

What Incoterms are

Incoterms are international rules that split two things between seller and buyer:

• costs — who pays for which leg of the journey;
• risk — from what point the buyer is responsible for the cargo.

The key thing to grasp: a price of “$10,000 EXW” and “$10,000 CIF” are different final amounts, because each includes a different amount of logistics.

The main terms when sourcing from China

EXW (Ex Works) — “at the factory.” The seller simply hands over the goods at the factory. Everything else — pickup, export clearance, transport, insurance, import — is on the buyer. The price looks lowest, but the most cost is added on top.

FOB (Free On Board) — “on board the vessel.” The seller brings the goods to the port in China, handles export clearance and loads them onto the vessel. Beyond that (freight, insurance, import) is on the buyer. The most common and convenient option for sea sourcing: the Chinese side covers everything “to the rail.”

CIF (Cost, Insurance, Freight) — “to the destination port.” The seller pays freight and insurance to the destination port. But unloading, customs and door delivery are on the buyer. Note: risk passes to the buyer earlier than the seller’s paid costs end.

DAP / DDP — “to the door.”

• DAP (Delivered at Place) — the seller delivers to the named place, but the buyer pays import clearance.
• DDP (Delivered Duty Paid) — the seller is responsible for everything, including import duties: the goods arrive turnkey. Maximally convenient for the buyer, but the price is higher and you need trust in how logistics are organised.

Table: who is responsible for what

Term	Export from China	Freight	Insurance	Import/clearance	Door delivery
EXW	Buyer	Buyer	Buyer	Buyer	Buyer
FOB	Seller	Buyer	Buyer	Buyer	Buyer
CIF	Seller	Seller	Seller	Buyer	Buyer
DAP	Seller	Seller	Seller	Buyer	Seller
DDP	Seller	Seller	Seller	Seller	Seller

Which term to choose

• FOB — the sweet spot for most sea sourcing: the Chinese side covers everything to the port, you control freight and import via your forwarder.
• EXW — justified only if you have strong logistics in China; otherwise you take on the hardest leg — pickup and export.
• CIF — convenient if you do not want to handle freight, but remember the risk/cost gap.
• DDP — maximally simple (“arrived turnkey”), but it matters to trust whoever organises the whole chain and clearance.

You can only compare suppliers’ prices on identical Incoterms. A “cheap” EXW and an “expensive” CIF may cost the same once landed — or the opposite.

Where hidden costs hide

The most common mistake is comparing a bare EXW price with a final price and celebrating the “saving.” On EXW, pickup, export, freight, insurance, import and delivery land on top. Always calculate the final door price (landed cost), not the price at factory terms.

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