Shipping Terms Explained 2026: FOB, CIF, EXW, DDP and Other Incoterms for China Imports

What Are Incoterms?

Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international trade transactions. They specify who pays for transportation, insurance, customs clearance, and duties at each stage of the shipping process, and critically, at what point the risk of loss or damage transfers from seller to buyer.

The current version is Incoterms 2020 (still in effect in 2026), which defines 11 terms divided into four groups. For China sourcing, you will encounter primarily four terms: FOB, CIF, EXW, and DDP. Understanding these terms is essential because your chosen Incoterm directly affects your total landed cost, your risk exposure, and your control over the shipping process.

According to the ICC’s 2025 survey of international trade practices, FOB is used in approximately 40% of China export transactions, CIF in 25%, EXW in 15%, and DDP in 10%, with other terms covering the remaining 10%.

The Four Most Common Incoterms for China Imports

FOB (Free on Board)

What it means: The seller delivers the goods onto the shipping vessel at the port of departure. From that point forward, the buyer assumes all responsibility for transportation, insurance, and customs clearance.

Seller’s responsibilities:

• Manufacture and package the goods
• Transport goods to the port of export
• Handle export customs clearance and documentation
• Load goods onto the shipping vessel

Buyer’s responsibilities:

• Arrange and pay for ocean freight
• Arrange and pay for cargo insurance
• Handle import customs clearance in the destination country
• Pay import duties and taxes
• Arrange domestic transportation from the port to the final destination

Risk transfer point: When goods are loaded onto the vessel at the port of origin.

Cost example (1 CBM shipment, Shenzhen to Los Angeles):

When to use FOB:

• When you want maximum control over shipping costs and carrier selection
• When you have an established freight forwarder relationship
• When you are shipping large volumes and can negotiate competitive freight rates
• This is the most recommended term for experienced importers

Why FOB is the industry standard: FOB gives you control over the most expensive variable in international shipping: the freight cost. When the supplier arranges freight (as in CIF), they often add a markup to the shipping cost. By arranging your own freight, you can compare carriers, negotiate rates, and optimize routing. Use our shipping cost calculator to estimate FOB shipping costs for your specific route.

CIF (Cost, Insurance, and Freight)

What it means: The seller delivers the goods to the destination port, covering ocean freight and basic insurance. The buyer takes over at the destination port for customs clearance and inland delivery.

Seller’s responsibilities:

• Everything under FOB, plus:
• Arrange and pay for ocean freight
• Arrange and pay for marine insurance (minimum coverage under ICC “C” terms)

Buyer’s responsibilities:

• Unload goods at destination port
• Handle import customs clearance
• Pay import duties and taxes
• Arrange domestic transportation

Risk transfer point: Same as FOB; when goods are loaded onto the vessel at origin. This is a critical and often misunderstood point. Even though the seller pays for freight and insurance, risk transfers at the origin port. If the ship sinks, the buyer bears the risk (though insurance should cover the loss).

Cost example (same 1 CBM shipment):

When to use CIF:

• When you are new to importing and want the supplier to handle shipping logistics
• For small orders where arranging your own freight is impractical
• When the supplier has competitive freight rates (some factories in port cities have excellent logistics partnerships)
• When you want a simplified purchasing process with fewer parties to coordinate

Caution: CIF prices from suppliers often include a 10-30% markup on the actual freight cost. Compare the supplier’s CIF price against their FOB price plus your own freight quote to determine which option is truly cheaper.

EXW (Ex Works)

What it means: The seller makes the goods available at their premises (factory or warehouse). The buyer is responsible for everything from that point forward, including loading, inland transportation, export customs, ocean freight, and import customs.

Seller’s responsibilities:

• Manufacture and package the goods
• Make goods available at their premises

Buyer’s responsibilities:

• Load goods at seller’s premises
• Arrange and pay for inland transport to port
• Handle export customs clearance (this is the challenging part)
• Arrange and pay for ocean freight
• All import-side responsibilities

Risk transfer point: When goods are made available at the seller’s premises.

When to use EXW:

• Rarely recommended for international importers from China
• Only if you have a local representative in China who can handle export customs clearance
• Sometimes used when a sourcing agent manages logistics within China

Why EXW is problematic for foreign buyers: Export customs clearance in China requires a Chinese business entity. As a foreign buyer, you cannot directly clear goods for export from China. If you use EXW, you need a Chinese freight forwarder or agent to handle export formalities, which adds cost and complexity that FOB avoids.

DDP (Delivered Duty Paid)

What it means: The seller delivers the goods to the buyer’s specified destination, fully cleared for import, with all duties and taxes paid. The buyer has no logistics responsibilities beyond receiving the goods.

Seller’s responsibilities:

• Everything: manufacturing, export clearance, freight, insurance, import clearance, duties, and delivery

Buyer’s responsibilities:

• Receive the goods
• Unload at the final destination

Risk transfer point: When goods are delivered to the buyer’s specified destination.

When to use DDP:

• When you want a turnkey “door-to-door” price with no hidden costs
• For small and medium orders where managing import logistics is not practical
• When you want the simplest possible purchasing process
• Some e-commerce sellers prefer DDP for its simplicity

Caution: DDP prices include the supplier’s markup on import duties, customs brokerage, and domestic delivery. The supplier is also handling customs declarations on your behalf, which means they control the declared value. This can create compliance issues if the declared value does not match the actual transaction value.

Other Incoterms You May Encounter

FCA (Free Carrier)

Goods are delivered to a carrier nominated by the buyer at a specified location. Increasingly used as a practical alternative to FOB when goods are shipped via containers from inland locations. The ICC actually recommends FCA over FOB for containerized shipments because FOB’s “loaded onto vessel” risk transfer point is less meaningful when goods are sealed in a container well before reaching the ship.

CFR (Cost and Freight)

Similar to CIF but without insurance. The seller pays for freight to the destination port, but the buyer must arrange their own cargo insurance. Less common than CIF and potentially risky if you forget to arrange insurance independently.

DAP (Delivered at Place)

Goods are delivered to a specified destination, but the buyer handles import customs clearance and duties. Similar to DDP but the buyer retains control over import customs, which is often preferable for compliance reasons.

How Incoterms Affect Your Total Landed Cost

Your total landed cost is the complete cost of a product delivered to your warehouse, including product cost, shipping, insurance, duties, and all handling fees. Different Incoterms allocate these costs differently, but the total should be similar regardless of which term you use. The key question is who controls each cost element and who profits from each stage.

Example: 500 units of a product from Shenzhen to Chicago

In this example, FOB is cheapest because you control the shipping and avoid supplier markups. CIF adds approximately $220 in supplier freight markup. DDP adds approximately $510 in various markups across the supply chain. The trade-off is convenience versus cost.

Choosing the Right Incoterm

For First-Time Importers

Start with CIF for your first few orders. It simplifies logistics while you learn the import process. Once you understand the shipping process and have established a freight forwarder relationship, transition to FOB for better cost control.

For Experienced Importers

Use FOB as your default. You control the freight, insurance, and routing, giving you maximum flexibility and cost optimization. Work with a trusted freight forwarder who handles your imports regularly.

For Small Orders

DDP can make sense for small orders where the convenience of door-to-door pricing outweighs the markup. The supplier handles everything, and you know your exact total cost upfront. This is particularly useful for sample orders and small trial shipments.

For Large Shipments

FOB is almost always the best choice for full container loads. The savings from arranging your own freight at scale are significant and justify the additional logistics management.

Common Mistakes with Incoterms

1. Not specifying a named place. “FOB China” is incomplete. Use “FOB Shenzhen” or “FOB Shanghai Port” to specify the exact location.
2. Assuming CIF means the seller bears all risk. Risk transfers at the origin port under CIF, not the destination port. If goods are damaged during ocean transit, the buyer bears the risk (with insurance to claim against).
3. Using EXW as a foreign buyer. Unless you have a Chinese entity handling export customs, EXW creates more problems than it solves.
4. Not accounting for all cost elements. When comparing FOB and CIF quotes, add your estimated freight, insurance, and handling costs to the FOB price before comparing with the CIF price.
5. Ignoring the insurance implications. Under FOB, you must arrange your own marine insurance. Forgetting to do so leaves you financially exposed if goods are lost or damaged.
6. Using outdated Incoterms versions. Always specify “Incoterms 2020” in your purchase orders and contracts to ensure both parties are referencing the same definitions.

Frequently Asked Questions

What is the difference between FOB and CIF?

Under FOB, the buyer arranges and pays for ocean freight and insurance from the origin port. Under CIF, the seller arranges and pays for freight and insurance to the destination port. In both cases, risk transfers at the origin port. FOB gives the buyer more control and typically lower costs; CIF gives the buyer less logistics management responsibility.

Which Incoterm is best for importing from China?

FOB is the most recommended Incoterm for established importers because it provides the best balance of cost control and clear risk allocation. CIF is recommended for beginners who want the supplier to manage shipping. DDP is suitable for small orders where simplicity is the priority. Use our shipping cost calculator to compare costs under different terms.

Do I need to specify Incoterms in my purchase order?

Yes, always. Your purchase order should state the Incoterm, the version (Incoterms 2020), and the named place. Example: “Price: USD 5.00 per unit, FOB Shenzhen Port, Incoterms 2020.” This prevents disputes over who pays for what.

Can I change the Incoterm during an order?

Yes, with mutual agreement. If you agreed on FOB but later decide you want the supplier to arrange shipping (CIF), this can be renegotiated. The price will change to reflect the new cost allocation. Get the revised terms in writing.

How do Incoterms affect import duty calculations?

Import duties are typically calculated on the CIF value of goods (product cost + freight + insurance) regardless of which Incoterm you use. If you buy FOB, customs will ask you to declare the freight and insurance values in addition to the product cost to determine the dutiable value. See our import duties guide for detailed customs information.

Sources

1. International Chamber of Commerce (ICC), “Incoterms 2020: ICC Rules for the Use of Domestic and International Trade Terms,” official publication.
2. ICC, “2025 Global Survey: Usage of Incoterms in International Trade,” research report.
3. World Customs Organization (WCO), “Guidelines on Customs Valuation and Incoterms,” 2025 edition.
4. China Briefing (Dezan Shira & Associates), “Guide to Incoterms for China Importers,” 2025.
5. International Trade Administration (trade.gov), “Incoterms Resource Guide for U.S. Exporters and Importers,” 2025.
6. Freightos, “Global Freight Rate Index and Incoterm Cost Analysis,” Q4 2025 data.
7. Journal of International Trade Law, “Incoterms 2020: Practical Application in Sino-Western Trade,” Vol. 12, 2024.