An Incoterm answers two questions and no others: who pays for which leg of the journey, and at what point does the risk of loss or damage move from seller to buyer. It says nothing about who owns the goods, when payment is due, or who is liable if the product is defective. A great deal of confusion in China importing comes from expecting these three letters to do more work than they do.
The terms you will actually be quoted
The current set is Incoterms 2020, published by the International Chamber of Commerce. In practice, China importers encounter four.
EXW — Ex Works
The seller makes the goods available at their premises and does nothing else. In theory the buyer handles everything from that point, including export clearance out of China.
That last part is where EXW quietly breaks down. Export declaration in China requires an entity with export rights, and a foreign buyer generally does not have one. So in reality the supplier or an agent handles the export formalities anyway, and you have bought a term that does not describe what is happening. EXW is best treated as a way of reading a price — the factory-gate cost with nothing else in it — rather than as a shipping arrangement.
FOB — Free On Board
The seller delivers the goods on board the vessel at a named port, clears them for export, and bears cost and risk to that point. It is the most commonly quoted term for China exports and the most useful default for a buyer who wants to control the main freight leg while leaving Chinese-side formalities with the supplier.
One technical point worth knowing: FOB was written for cargo loaded over a ship's rail, not for containers. With containerised freight you hand over your box at a terminal days before it is loaded, and under a strict reading of FOB you carry risk during that gap while having no control over the goods. The term drafted for this is FCA. In practice the entire China trade quotes FOB anyway, and for most buyers this is a theoretical exposure rather than a live one — but if you are shipping high-value goods, it is worth understanding what you have actually agreed.
CIF — Cost, Insurance and Freight
The seller arranges and pays for main carriage to a named destination port and takes out insurance. Attractive on the surface, because one number covers more.
Two things to watch. The insurance the seller is obliged to obtain under CIF is minimum cover, which may be well short of what you would buy yourself. And because the supplier chooses the forwarder, you may meet destination charges at the other end that were not in the quoted price and that you have no ability to negotiate. CIF often looks cheaper than FOB and lands more expensive.
DDP — Delivered Duty Paid
The seller delivers to your door with everything paid, including import duty. It is the maximum obligation on the seller and it is popular with buyers who want a single all-in number.
It also deserves the most scrutiny. Under DDP the seller handles import clearance in your country, which raises the question of who is named as importer of record and whether the declared value and classification are ones you would stand behind. If a customs authority later disputes the entry, the consequences tend to find the party in that jurisdiction. DDP can be entirely legitimate and convenient. It can also be a way of moving a customs problem to a place where nobody is looking at it. Know which one you have bought.
How to compare quotations that use different terms
You cannot compare an EXW price with a CIF price directly, and suppliers occasionally rely on that. The only sound method is to convert everything to landed cost: the price of the goods, plus every charge from the factory gate to your warehouse, plus duty and any import taxes.
The charges that most often go missing are the ones at the destination. Terminal handling, customs entry, delivery from port and any storage all sit outside the quoted product price under most terms, and they do not disappear because the quotation did not mention them.
A reasonable default
For most importers with any volume, FOB at a named Chinese port is the sensible starting position. It leaves Chinese-side formalities with the party best placed to handle them, gives you control of the main freight leg and your own insurance, and produces a price you can compare between suppliers because it covers the same scope every time.
Move away from it deliberately. Take DDP when you genuinely want someone else to own the import process and you have satisfied yourself about how it will be declared. Read EXW as a price rather than a plan. Treat CIF with the same care you would give any bundled quotation.
Whichever you use, name the port and write the Incoterms version into the contract. "FOB China" is not a term; "FOB Ningbo, Incoterms 2020" is.
