Incoterms explained: FOB, EXW, DDP, CIF and every other term

What are Incoterms?

Incoterms are three-letter trade terms, published by the International Chamber of Commerce (ICC), that say who does what when goods move from a seller to a buyer. Each term answers the same questions:

• Who pays for each part of the journey: loading, export customs, the main freight, insurance, unloading, and import duties.
• Where risk transfers. The point where loss or damage stops being the seller's problem and becomes yours.
• Who handles customs in the export and import countries.

There are 11 Incoterms in the current version, Incoterms 2020. A term is always followed by a named place, like FOB Shenzhen or DAP Toronto, and that place matters as much as the three letters. When a supplier quotes you a price, the Incoterm tells you what that price includes.

Chinese suppliers use the English codes too. You'll also see 出厂价 (factory price, usually EXW), 离岸价 (FOB price) and 到岸价 (CIF price) in quotes and price lists.

Incoterms comparison table: who pays freight, insurance and duties

This table compares all 11 terms, from EXW (the buyer does almost everything) to DDP (the seller does almost everything).

Based on Incoterms 2020, the current ICC rules. "Main freight" is the international leg. "Sea" terms are for sea and inland waterway transport only; "Any" terms work for sea, air, rail, road and courier.

Two things surprise most first-time importers. First, under CFR and CIF the seller pays the freight but the risk still transfers in the origin port, so if the goods are damaged at sea it's your claim to make. Second, only CIF and CIP require the seller to buy insurance at all.

FOB (Free On Board) Sea only

FOB is the most common term for importing from China. The supplier pays to get the goods to the port, clears them for export, and loads them on board the ship you or your forwarder booked. Risk transfers to you once the goods are on board.

• Seller pays: production, packing, trucking to the port, export customs, origin port charges and loading.
• Buyer pays: ocean freight, insurance, destination port charges, import duties and taxes, customs brokerage and delivery to your warehouse.

Example: a quote of $4.20 per unit FOB Ningbo covers everything up to the goods being loaded in Ningbo. Your forwarder quotes you the rest.

When to use it: for sea freight when you have your own forwarder. It keeps freight costs visible and gives you control of the booking. For air freight or courier, use FCA instead, since FOB is a sea-only term.

EXW (Ex Works) Any transport

EXW puts the least responsibility on the seller. The supplier makes the goods available at its factory or warehouse, and from that moment you carry the cost and risk of everything, including loading the truck and export customs clearance in China.

• Seller pays: production and packing.
• Buyer pays: loading, inland trucking, export clearance, origin port charges, freight, insurance, import duties and delivery.

Watch out: as a foreign buyer, you often can't legally act as the exporter in China, so your forwarder has to arrange export clearance, and some can't. EXW prices look cheapest but the inland and export charges can add more than the price difference. Many small importers are better off with FOB or FCA. EXW works well when you use a forwarder that collects from factories every day, or when you're consolidating orders from several suppliers.

DDP (Delivered Duty Paid) Any transport

DDP puts the most responsibility on the seller. The supplier delivers to your door, or a named place like an Amazon warehouse, and pays freight, insurance, import duties, taxes and customs clearance. Risk transfers when the goods arrive, ready for unloading.

• Seller pays: everything up to delivery at the named place, including import duties and taxes.
• Buyer pays: unloading, and anything the contract excludes.

In China this is often sold as 双清包税 (customs cleared at both ends, duties included).

Watch out: DDP is convenient, but you can't see how the price breaks down, and you don't control how the goods are declared. If they're undervalued or misclassified to reduce duty, the problem can still land on you as the owner of the goods. It's also hard to recover the import tax (such as Canadian GST or UK VAT) you would normally claim back. Ask who will be the importer of record, and get the declared value and HS code in writing.

CIF (Cost, Insurance and Freight) Sea only

Under CIF the seller pays for the goods to be shipped to your destination port and buys insurance for the voyage. But risk transfers to you in the origin port, as soon as the goods are loaded on board, just like FOB.

• Seller pays: everything up to loading, ocean freight to the destination port, and minimum cargo insurance (Institute Cargo Clauses C, for 110% of the contract value).
• Buyer pays: destination port charges, import duties and taxes, customs brokerage and delivery.

Watch out: the minimum insurance under CIF covers major events, not most everyday damage, so you may want extra cover. Suppliers sometimes quote low CIF prices and choose a forwarder who then charges high fees at your port. If you use CIF, ask for the destination charges in writing before you pay.

FCA (Free Carrier) Any transport

FCA is the flexible, any-transport version of FOB. The seller clears the goods for export and hands them to the carrier you've chosen at a named place, and risk transfers at that handover.

• If the named place is the seller's factory, the seller loads the goods onto your carrier's truck.
• If it's somewhere else, such as your forwarder's warehouse or a container terminal, the seller delivers there and your carrier unloads.

When to use it: for air freight, courier, rail and container shipments. It's the term the ICC recommends for containers, and it's a better fit than EXW when you want the supplier to handle export clearance.

DAP (Delivered at Place) Any transport

Under DAP the seller pays to deliver the goods to a named place in your country, such as your warehouse, and carries the risk until they arrive. You handle import customs clearance and pay the duties and taxes, then unload.

• Seller pays: everything up to arrival at the named place, ready for unloading.
• Buyer pays: import duties and taxes, customs clearance and unloading.

Watch out: if customs holds the shipment because the paperwork isn't ready on your side, the storage charges are usually yours. DAP is common for courier and express shipments where the carrier bills the duties to the receiver.

CPT (Carriage Paid To) Any transport

CPT is the any-transport version of CFR. The seller pays the freight to a named destination, but risk transfers to you as soon as the goods are handed to the first carrier in the origin country.

• Seller pays: export clearance and freight to the named destination.
• Buyer pays: insurance (optional, but you carry the risk in transit), import duties and taxes, and anything after the named place.

Watch out: the seller is paying for a journey whose risk is yours. Arrange your own cargo insurance.

CIP (Carriage and Insurance Paid To) Any transport

CIP is CPT plus insurance, and the any-transport version of CIF. The seller pays freight and insurance to the named destination, and risk transfers when the goods are handed to the first carrier.

The big difference from CIF: under Incoterms 2020, CIP requires the higher level of insurance (Institute Cargo Clauses A, the "all risks" cover, for 110% of the contract value), while CIF only requires minimum cover. That makes CIP a better choice than CIF when you want the supplier to insure the goods.

The other three Incoterms: FAS, CFR and DPU

FAS (Free Alongside Ship)

The seller delivers the goods alongside your ship at the port of shipment, cleared for export, and risk transfers there. It's used mostly for bulk cargo and heavy goods like machinery and rarely for consumer products.

CFR (Cost and Freight)

The same as CIF without the insurance. The seller pays sea freight to your port, but risk transfers when the goods are loaded on board at origin. You may see it written as C&F or CNF on older quotes.

DPU (Delivered at Place Unloaded)

Like DAP, but the seller also unloads the goods at the destination. It replaced the old DAT term in Incoterms 2020 and is the only term where the seller must unload.

Which Incoterm should you use?

• Your first order by sea: FOB with a forwarder you've chosen. You see every cost and can compare quotes.
• Air freight, courier or samples: FCA, or DAP when the courier bills you the duties.
• You want one all-in price and delivery to your door: DDP, as long as you trust the supplier and forwarder and get the declared value in writing.
• You want the supplier to insure the goods: CIP rather than CIF, for the better cover.
• Several suppliers going into one container: EXW or FCA, with your forwarder collecting from each factory.

How Incoterms affect your landed cost

A lower price on one term isn't necessarily cheaper than a higher price on another. Always compare suppliers on the same term, then add everything the term leaves out: freight, insurance, duties, broker and port fees, and delivery. The total, divided by your units, is your landed cost per unit.

Duty is usually calculated on the value of the goods, but the rules differ. The US, Canada and Australia generally charge duty on the value of the goods without international freight, similar to the FOB value. The UK and the EU charge duty on the value including freight and insurance, the CIF value.

Frequently asked questions

This guide is general information for planning, not legal, tax or customs advice. Check the details with your supplier, freight forwarder, customs broker or platform before you commit to an order. Incoterms® is a registered trademark of the International Chamber of Commerce. SuanSupply is not affiliated with the ICC, Alibaba or 1688.