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

When a Chinese factory sends a quote, those three or four letters in brackets — EXW, FOB or CIF — shift the real total cost of the shipment by 15–30%. This is not a legal formality: these letters decide who pays for pickup, export, freight and insurance and who bears the risk if the cargo sinks or burns en route. A “cheap” EXW at $10,000 can land at $14,400 door-to-door in the UAE, while a “expensive” FOB comes to $13,500. Let us break each term down with real numbers.

What Incoterms are and why they matter

Incoterms (International Commercial Terms) are delivery rules developed by the ICC (International Chamber of Commerce). The current edition is Incoterms 2020. The rules 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 core principle: “$10,000 EXW” and “$10,000 FOB” are different final amounts because they include different amounts of logistics. You can only compare supplier prices on identical Incoterms.

EXW (Ex Works) — “at the factory”

The seller simply hands over the goods at the factory. Everything else — pickup, Chinese export customs clearance, freight, insurance, import and door delivery — is entirely on the buyer.

Real example. A Foshan factory: $10,000 EXW for a furniture batch. The buyer’s actual costs:

The main EXW trap is export clearance in China. Foreign buyers often cannot handle it independently and need a local agent at $150–400. Without one, the goods will not leave China.

FOB (Free On Board) — “at the vessel’s rail”

The seller delivers to the port in China, handles export clearance and loads onto the vessel. From the moment of loading, risk passes to the buyer. Freight, insurance, import and door delivery are on the buyer.

This is the most common term for sea sourcing from China. The Chinese side covers the “hard” leg — pickup and export — while the buyer controls freight and destination customs through their forwarder. When outfitting a project from multiple factories, each factory ships to a consolidation warehouse on EXW or FOB terms — this is the standard pattern.

CIF (Cost, Insurance, Freight) — “to the destination port”

The seller pays freight and minimum insurance to the destination port. But unloading, customs and door delivery are on the buyer.

The key CIF nuance: risk passes to the buyer at the Chinese port (when the goods are loaded), even though the seller still pays the freight. If the cargo is damaged at sea, the buyer bears the risk but must claim against insurance arranged by the seller — which under standard CIF is minimal (ICC C, covers ~110% of value, excluding several risks). In practice this is a contested area.

CIF is convenient for one-off shipments if you do not want to arrange freight — but insist on extended cover (CIP or a separate policy) for high-value goods.

DAP and DDP — “to the door”

• DAP (Delivered at Place) — the seller delivers to the named location (port, warehouse, address), but the buyer pays import clearance.
• DDP (Delivered Duty Paid) — the seller handles the full route, including import duties. Maximally simple for the buyer, but the price is higher and you need to trust whoever manages the logistics and clearance.

Comparison table: who is responsible for what

*CIF includes minimum ICC C insurance; extended cover is recommended for high-value cargo.

Which term to choose when sourcing from China

• FOB — the gold standard for most sea sourcing: the Chinese side covers the complex export leg, you control freight and clearance via your own forwarder. Duty and VAT vary by destination country.
• EXW — only if you have a trusted agent in China with export clearance authority. Otherwise the “cheap” EXW price will cost an extra $150–400 for the agent.
• CIF — convenient for one-off shipments; confirm the insurance cover.
• DDP — when you want full simplicity and trust your partner’s logistics and customs management.

Where hidden costs hide

The most common mistake is comparing a bare EXW price from supplier A with a DDP price from supplier B and celebrating the “difference.” Add to EXW: pickup ($150–200), export ($150–400), freight ($1,500–5,000 depending on route), packing and insurance ($150–400), import duty and VAT (5–25% depending on destination country) and site delivery — and the “cheap” EXW can easily exceed FOB.

Always calculate landed cost — the final door price — not the price at factory terms.

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Don’t want to deal with Incoterms and logistics? We work turnkey with a fixed door-to-door price — you see the landed cost before you place the order. Write to us: orders@dreamviewchina.com, +66 80 942 2230, t.me/dreamviewchina.