Incoterms are the eleven standard trade terms, published by the International Chamber of Commerce (ICC), that define exactly where a Chinese supplier's responsibility ends and yours begins: who pays freight and insurance, who clears customs, and at what point the risk of loss passes to you. For most European SMEs buying from China, FOB is the safest default, EXW is risky for beginners, and DDP should be used with caution.
Key takeaways
- Incoterms 2020 remain the current edition in 2026; there is no official "Incoterms 2026", and contracts should state "Incoterms 2020" explicitly.
- Incoterms define costs, risk transfer and customs duties between buyer and seller, but they do not transfer ownership or set payment terms.
- FOB (Free On Board) is the most common term for sea freight from China and gives the buyer control over the main freight leg.
- EXW (Ex Works) makes the buyer responsible for Chinese export clearance, which a foreign company often cannot do directly.
- DDP (Delivered Duty Paid) makes the seller the importer of record, which can block import VAT recovery and create compliance risk for EU businesses.
- FOB, FAS, CFR and CIF are designed for sea and inland waterway transport only; FCA, CPT, CIP, DAP, DPU and DDP work for any mode, including air and rail.
What are Incoterms and why do they matter?
Every purchase order from China implies a handover point. Without a clear term, disputes arise quickly: the factory says the price "includes shipping", you discover it meant shipping to the port in Ningbo, and you are suddenly paying unexpected terminal handling charges in Le Havre.
Incoterms solve this with three-letter codes always followed by a named place, for example "FOB Shenzhen, Incoterms 2020" or "DAP Lyon warehouse, Incoterms 2020". The named place is not decoration: it determines where risk moves to you. A quote of "FOB China" without a port is incomplete and should be corrected before you pay a deposit.
Incoterms do not cover payment terms, product quality, ownership transfer or penalties for late delivery. Those belong in your purchase contract or proforma invoice. For more on payment safety, see our guide on how to pay Chinese suppliers safely.
The 11 Incoterms 2020 at a glance
The ICC splits the rules into two groups: seven for any mode of transport and four for sea and inland waterway only.
| Incoterm | Full name | Transport mode | Risk passes to buyer | Main freight paid by |
|---|
| EXW | Ex Works | Any | At seller's premises, not loaded | Buyer |
| FCA | Free Carrier | Any | When handed to buyer's carrier | Buyer |
| CPT | Carriage Paid To | Any | When handed to first carrier | Seller |
| CIP | Carriage and Insurance Paid To | Any | When handed to first carrier | Seller |
| DAP | Delivered At Place | Any | At named destination, not unloaded | Seller |
| DPU | Delivered at Place Unloaded | Any | At destination, unloaded | Seller |
| DDP | Delivered Duty Paid | Any | At destination, duties paid | Seller |
| FAS | Free Alongside Ship | Sea | Alongside vessel at origin port | Buyer |
| FOB | Free On Board | Sea | On board vessel at origin port | Buyer |
| CFR | Cost and Freight | Sea | On board vessel at origin port | Seller |
| CIF | Cost, Insurance and Freight | Sea | On board vessel at origin port | Seller |
Note the trap in the "C" terms: under CFR and CIF the seller pays freight to Europe, but the risk passes to you when goods are loaded in China. If the container is damaged at sea, you bear the loss and must claim on the insurance.
FOB: the default for sea freight from China
Under FOB, the Chinese supplier pays for inland trucking to the port, Chinese export customs clearance, and terminal charges until the goods are loaded on the vessel at the named port, such as Shanghai, Ningbo, Shenzhen (Yantian or Shekou), Qingdao or Xiamen. From that moment, you pay ocean freight, insurance, destination charges, EU customs clearance, duties and delivery.
Why FOB works well for European importers:
- You appoint your own freight forwarder, so you can compare quotes and avoid inflated freight hidden in the product price.
- The supplier handles Chinese export formalities, which require a Chinese exporter registration.
- The customs value in the EU is easy to establish: FOB price plus freight and insurance to the EU border.
FOB is technically a sea term. For full container loads it fits perfectly; for goods delivered to a consolidation warehouse or for air freight, FCA is the more accurate choice, although many Chinese suppliers still say "FOB" informally.
EXW: cheapest on paper, riskiest in practice
EXW quotes are often 2-5 percent lower than FOB, because the price excludes everything after the factory gate, even loading the truck. The buyer must then arrange pickup, loading, inland transport and Chinese export declaration.
The problem is that export clearance in China must be done by an entity registered with Chinese customs. A European SME cannot do that directly, so your forwarder has to arrange it, often for a fee of around 50-150 euros plus trucking. On small orders, EXW can end up more expensive than FOB. EXW also gives you little leverage if the factory loads the goods badly, because loading is formally your responsibility.
EXW can make sense when you buy from several suppliers in the same region and consolidate them in a warehouse in China, or when you work with a sourcing agent who handles pickups.
CIF and CFR: convenient but less control
With CFR or CIF the supplier books the ocean freight. This feels easy, but the factory usually chooses the cheapest carrier and the forwarder it works with may recover its margin through high destination charges in Europe (documentation, terminal handling, delivery order fees). Importers sometimes discover several hundred euros of extra charges when the container arrives.
CIF also only requires minimum insurance (Institute Cargo Clauses C, 110 percent of the contract value). For goods that can be damaged rather than lost, this cover is thin. If you use CIF, ask for the insurance certificate and check the conditions.
DDP from China: why EU importers should be careful
DDP means the seller delivers to your door with all duties and taxes paid. Many Alibaba sellers and "door to door" freight agents offer DDP for small shipments. The risks for an EU business are real:
- Import VAT recovery. Under DDP the seller, or its agent, is the importer of record. Import VAT is not registered under your company's VAT number, so in France you cannot deduct it through the CA3 return.
- Undervaluation. Some DDP operators declare a low value to reduce duties. If customs audits the shipment, penalties can follow, and goods can be seized.
- Product compliance. The EU importer named on the product carries legal duties under CE marking rules and the General Product Safety Regulation. A foreign DDP seller rarely provides a valid EU economic operator.
- Hidden costs. The DDP price may look competitive while including generous margins on freight and taxes you cannot verify.
For a deeper look at how duties and VAT are calculated, read import duties and VAT from China to France.
How to choose the right Incoterm in 5 steps
- Check your transport mode. For full containers by sea, use FOB or CFR/CIF. For air, rail, groupage or courier, use FCA, CPT, DAP or DDP.
- Decide who controls freight. If you want to compare forwarders, choose FOB or FCA and book transport yourself.
- Clarify customs on both sides. The seller should handle export clearance in China (any term except EXW); you should handle import clearance in the EU with your EORI number (any term except DDP).
- Write the full term in your contract. Include the code, the precise named place and "Incoterms 2020", for example "FOB Ningbo, Incoterms 2020".
- Match insurance to risk transfer. Buy cargo insurance from the point where risk passes to you, typically all-risks cover on 110 percent of the CIF value.
Incoterms and your landed cost
The Incoterm determines which costs appear in the supplier's price and which ones you add later. An EXW price and a FOB price are not comparable until you add trucking and export clearance to the EXW quote. Likewise, a DDP quote must be compared with FOB plus freight, insurance, duties, import VAT (if not recoverable) and delivery. Our step-by-step method to calculate landed cost shows how to put every quote on the same basis.
| Quote received | Costs you still need to add |
|---|
| EXW | Loading, inland trucking, export clearance, freight, insurance, EU clearance, duties, delivery |
| FOB | Freight, insurance, EU clearance and port charges, duties, delivery |
| CIF | Insurance top-up (optional), EU port charges, clearance, duties, delivery |
| DAP | EU clearance, duties, import VAT, unloading |
| DDP | Nothing in theory, but check VAT recovery and declared value |
How Cina helps
Cina's freight forwarders directory lists shipping and logistics companies operating from China, so you can request FOB-based quotes from several forwarders instead of relying on the supplier's carrier. The supplier directory helps you shortlist factories located near major ports, which keeps inland costs low. The logistics and Incoterms guide in Cina resources includes contract wording and a checklist to agree terms with suppliers before paying a deposit.
Conclusion
Incoterms 2020 are still the reference, and choosing the right one is one of the cheapest ways to protect your margin. For most first imports from China to Europe, FOB at a named Chinese port, combined with your own forwarder and your own customs clearance, offers the best mix of control, transparency and VAT recovery. Use EXW only when you have local support in China, and treat DDP offers with healthy scepticism.
