Written for global buyers. Incoterms define the transfer of costs and risk. They do not define ownership, payment terms or product quality.
Two suppliers quote the same product at different prices. One quote says EXW Foshan. The other says DDP Hamburg. The numbers are not comparable, and treating them as comparable is one of the most common sourcing mistakes.
Incoterms 2020 provide a shared language for who arranges transport, who clears customs and where risk moves from seller to buyer. The rules are useful only when they are stated precisely and used in the right commercial context.
First: what Incoterms do not cover
An Incoterm does not answer:
- When you must pay
- Who owns the goods at each stage
- What happens if the product fails inspection
- Which law or court resolves a dispute
- Whether the supplier is legally able to import into your country
Those points need separate terms in the purchase order or contract. A quotation that says “DDP” without naming the destination, or “FOB” without naming the port, is incomplete.
The main terms in practice
| Term | Supplier’s main role | Buyer’s main role | Where risk transfers | Common China use |
|---|---|---|---|---|
| EXW | Makes goods available at its premises | Collects, exports and ships | At supplier premises | Rare for international buyers; buyer may have no local export capability |
| FCA | Delivers to a named carrier or place | Main carriage and import | When goods are handed to carrier | Useful when buyer controls export logistics |
| FOB | Delivers goods on board at named Chinese port | Ocean freight, insurance and import | When goods are on board | Common for sea freight; port must be named |
| CFR | Arranges and pays freight to destination | Insurance and import | When goods are on board | Supplier controls freight but not insurance |
| CIF | Arranges freight and minimum insurance | Import and additional insurance if required | When goods are on board | Common quote format; insurance cover may be narrower than buyers assume |
| DAP | Delivers to named destination, not cleared for import | Import clearance and duties | At destination, before unloading | Useful when buyer controls import compliance |
| DDP | Delivers cleared for import to named destination | Receives goods | At destination | Convenient but can be problematic when supplier cannot legally act as importer |
The table is a map, not a recommendation. The right term depends on your logistics capability, your importer of record, your insurance and the risk you can manage.
The China-specific traps
FOB is not complete without a port
FOB Shenzhen, FOB Ningbo and FOB Shanghai are different quotations. Inland transport, port charges and sailing schedules differ. If the quote only says FOB China, ask for the named port and the local charge breakdown.
CIF insurance may not cover what you think
CIF requires the seller to arrange minimum insurance under the applicable rules. That minimum may not cover your full commercial exposure or your particular risk. If you need broader cover, agree on the insurance type, currency and claim process.
DDP can create a compliance problem
A supplier offering DDP may be arranging import through a third party, understating value, using an unsuitable importer of record, or simply adding a logistics markup. In some markets, the seller cannot legally be the importer. Ask who will be the importer of record and who is responsible for VAT, duty and customs compliance.
The supplier may control the freight but not the risk
Under CIF, the supplier arranges freight, but risk normally transfers when the goods are on board. A delay or damage after loading may still be your problem. The fact that the supplier booked the vessel does not mean it owns the risk throughout the journey.
Incoterms do not fix a weak specification
A perfect FOB clause will not protect you from a supplier that substitutes material or packs the goods inadequately. Incoterms govern movement, not product conformity. Keep quality, inspection and payment rights in the contract.
How to compare quotations properly
Put every quote into the same structure before comparing price:
- Product specification and revision number
- Quantity and packaging format
- Incoterm plus named port or destination
- Currency and exchange-rate assumption
- Payment milestones
- Lead time, including order confirmation and production
- Inspection rights and release conditions
- Local charges, documentation fees and potential demurrage
Compare total landed cost, not the largest number on the page. A cheaper unit price can lose to a higher quote once freight, insurance, port charges and delay exposure are included.
Which term should a buyer choose?
There is no universal answer. A practical starting point:
- If you have a freight forwarder and import capability, FOB or FCA often gives you more control.
- If you want the supplier to arrange transport but not import, DAP may fit.
- If you want a delivered price and the supplier can legally manage import, DDP may be convenient — but verify the compliance structure.
- If you are shipping by air, use an air-compatible term and name the airport precisely.
The term should match the party that can actually control the risk.
Seven questions to ask before you accept an Incoterm
- What is the exact named port, airport or destination?
- Who is the exporter of record?
- Who is the importer of record?
- Which charges are included, and which are excluded?
- Where exactly does risk transfer?
- What insurance is included, and what does it exclude?
- What happens if the shipment is delayed, damaged or held by customs?
Put the answers in writing. A verbal explanation is not a contract.
Sample quotation wording
Instead of “FOB China,” write:
FOB Ningbo, Incoterms 2020. Price includes export clearance and delivery on board. Buyer appoints freight forwarder. Risk transfers when goods are on board. Local charges excluded: [list].
The more precisely the quote is written, the fewer disputes you will have later.
The bottom line
Incoterms are a control framework, not a price label. They tell you where cost and risk move, but only if both parties name the place and understand the surrounding obligations.
Before comparing suppliers, normalise the Incoterm. Before paying, confirm who controls freight, insurance, customs and the release of the goods.
— Richard Wang · Rongyitong Global Business Bridge · China sourcing risk advisor for global buyers
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