Incoterms 2020 Decoded: Which Terms Work Best for China Shipments?.

Incoterms (International Commercial Terms) are a set of standardised trade terms published by the International Chamber of Commerce. The 2020 edition is the current standard, and they define two critical things: who is responsible for arranging and paying for each stage of transport, and at what point risk transfers from seller to buyer.

Getting this wrong is expensive. A supplier who nominates a carrier under CIF can choose the cheapest, slowest option with minimal insurance. An EXW deal can leave you scrambling to arrange factory collection you cannot supervise. Your choice of Incoterm is essentially a choice about who controls your supply chain.

FOB is the most widely used term for ocean freight from China and the standard recommendation for most importers. Under FOB, the seller delivers goods to the named port of loading (e.g., Shenzhen or Shanghai), clears export customs, and loads goods onto the vessel nominated by the buyer.

From that point, risk and cost pass to you. You arrange the ocean freight (through your forwarder), marine insurance, and all destination charges. This gives you full control over carrier selection, freight rates, and insurance cover — critical advantages when shipping valuable goods.

Note: Under Incoterms 2020, FOB technically transfers risk when cargo crosses the ship's rail. For containerised freight where goods are handed to a terminal before loading, FCA (Free Carrier) is technically more precise, but FOB remains the practical standard in China trade.

Under CIF, the seller pays for ocean freight and provides a minimum insurance cover, with risk transferring to the buyer once goods are loaded on the vessel. The problem: minimum insurance under CIF is 110% of the invoice value — insufficient for most commercial cargo — and the seller chooses both the carrier and insurer.

This means you inherit the cheapest carrier the supplier could find, with insurance arranged by someone whose interests may not align with yours. For low-value commodity goods where the supplier relationship is well-established and trusted, CIF can simplify the transaction. For anything above $10,000 in cargo value, FOB with your own marine insurance is strongly preferable.

DDP places maximum obligation on the seller — they deliver to named destination with all duties paid. On paper, this seems attractive for importers who want a simple delivered price. In practice, it creates several serious problems.

First, the supplier often uses an agent to clear import customs on your behalf. This agent operates under a power of attorney but has no accountability to you for compliance decisions. Import duty calculations and HS code classifications that are incorrect become your legal liability, not the supplier's.

Second, DDP pricing bundles logistics and duty costs into the purchase price, making it difficult to benchmark freight costs or claim VAT/GST correctly. Use DDP only for well-understood, low-value, low-compliance-risk goods — and insist on full cost transparency when you do.

EXW puts the entire logistics responsibility on the buyer from the moment goods are ready at the factory. You arrange collection, export customs clearance in China, inland transport, ocean or air freight, import customs, and final delivery.

For importers without a forwarder managing their China-side logistics, EXW is unnecessarily risky. Export customs compliance in China is the seller's expertise, and errors can lead to cargo holds, penalties, or blacklisting. Use EXW only if your forwarder has a trusted on-the-ground presence in China to manage collection and export — which experienced 3PLs like SZViper do.