FOB, CIF or DDP: which Incoterm suits your first import from China
What each term means, who pays for what, where the risk passes and which one to choose based on your experience and the size of your order.
Supro Group team
When you ask China for a quote, the price always comes with three letters: FOB, CIF, EXW, DDP. They are not a technical detail. They define who pays the freight, who arranges the insurance, at what point the risk passes from the factory to you and, in the end, how much each unit really costs you. Comparing an FOB price with a CIF price is comparing apples and oranges.
Incoterms are rules published by the International Chamber of Commerce. The current version is Incoterms 2020; it is a good idea to always write it in the quote, for example: “FOB Shanghai Incoterms 2020”.
The four terms you will see most often
| Term | The seller takes care of | You take care of |
|---|---|---|
| EXW (Ex Works) | Having the goods ready at its factory | Everything else, including export clearance in China |
| FOB (Free On Board) | Export clearance and loading on board at the Chinese port | Freight, insurance, destination customs, taxes and delivery |
| CIF (Cost, Insurance and Freight) | All of the above, plus freight and basic insurance to your port | Unloading, customs, taxes and inland transport |
| DDP (Delivered Duty Paid) | Everything, to your door, with taxes paid | Receiving the goods |
FOB: the standard if you already have a freight forwarder
With FOB, the factory or your supplier delivers the goods loaded on the vessel in China. From there, the freight and the risk are yours. It is the most transparent option: you see exactly how much you pay for the product and how much for transport, and you can negotiate the freight with your own freight forwarder.
It suits you if you already import, have a freight forwarder you trust or move enough volume to get good rates.
CIF: the simplest way to start
With CIF, the seller also arranges the freight and basic insurance to your port. For a first import it is usually the most convenient option: you get a single price to your port and only need to coordinate customs with your broker. One important detail: even though the seller pays the freight, the risk passes to you when the goods are loaded on the vessel in China. That is why it matters that the insurance is properly arranged.
Ask for the CIF quote to show the freight separately. That way you can compare it with an FOB quote and see whether the transport is at market price.
DDP: convenient, but with conditions
DDP is the simplest term for the buyer: the goods are delivered to your warehouse with duties and taxes paid. The problem is that someone has to formally import into your country and pay those taxes. That is not always possible, and when it is, the price includes a margin for that service. Also check who appears as the importer of record: it can affect your VAT recovery and your history with customs.
What about EXW?
With EXW you pick up the goods at the factory door and handle everything, even export clearance in China. It looks like the lowest price, but the costs and paperwork at origin are on you. For an importer who is just starting, it rarely pays off.
How to choose
- First import and a small order: CIF, with the freight itemized in the quote.
- You already have a freight forwarder or import frequently: FOB.
- You don't want to deal with customs and your supplier can legally offer it: DDP, comparing the total cost.
- In every case: always compare the landed cost at your warehouse, not the unit price.
The Incoterm does not change what you pay in duties and taxes, which are calculated on the CIF value of the goods. What changes is who organizes each leg of the journey and where the risk lies. Choosing well from the start avoids surprises at the port.
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