Your supplier quotes "FOB Shenzhen." Your buyer expects "DDP." What do these three letters actually decide — and who ends up paying and holding the risk at each step?
Incoterms are eleven three-letter trade terms published by the International Chamber of Commerce (ICC). The current edition is Incoterms 2020, in force since January 1, 2020. Each rule answers three questions for a sale between a supplier in China and a buyer abroad: who arranges and pays for transport, at what exact point risk of loss or damage passes from seller to buyer, and who handles export and import customs clearance.
Incoterms do not decide the price of the goods, the payment method, or when legal ownership transfers — those are separate terms in your purchase contract.
Any mode of transport (7 rules): EXW, FCA, CPT, CIP, DAP, DPU, DDP — these work for truck, air, sea or a container handed over inland. This is the group that fits most FCL, LCL and Air Freight shipments from China.
Sea & inland waterway only (4 rules): FAS, FOB, CFR, CIF — written for cargo loaded directly onto a vessel. They're common in supplier quotes from China, but were designed for bulk cargo loaded at the ship's rail, not for a container sealed at an inland depot days before sailing.
A common, costly mix-up: suppliers quote "FOB" out of habit, even for containerized cargo that never touches the ship's rail directly. If your container is damaged on the road to the port, FOB leaves that leg in a gray zone. For FCL and LCL containers, FCA almost always describes reality better — risk passes cleanly the moment the container is handed to the carrier.
Of the eleven rules, these five cover the overwhelming majority of quotes and contracts in China sourcing.
Seller's only job is to make the goods available at its factory or warehouse, not loaded, not export-cleared. Everything else — loading, export paperwork, freight, insurance, duties, delivery — is on the buyer.
Risk passes: at the seller's premises, before loading
Seller delivers the goods, export-cleared, to a carrier or place you name — often a forwarder's warehouse in China. The workhorse term for containerized cargo, and usually the right substitute when a supplier defaults to FOB.
Risk passes: when handed to your carrier at the named point
Seller delivers once goods are loaded on board the vessel at the named Chinese port, export-cleared. One of the most-used — and most-misused — terms; written for bulk sea cargo, not containers handed over inland.
Risk passes: once goods are on board the vessel
Seller pays the cost, sea freight and a minimum-level insurance policy to your destination port. Risk still passes at origin, once loaded — the seller pays for the voyage but doesn't carry the risk of it.
Risk passes: once goods are on board at origin (China)
The mirror image of EXW — seller delivers to your door, import-cleared, with all costs and duties paid. Gives you a predictable landed price, which is why it's popular for retail and Amazon FBA-bound cargo.
Risk passes: at destination, ready for unloading
| Rule | Mode | Export clearance | Main carriage paid by | Insurance by seller | Import clearance | Risk passes to buyer |
|---|---|---|---|---|---|---|
| EXW Ex Works | Any | Buyer | Buyer | No | Buyer | At seller's premises, before loading |
| FCA Free Carrier | Any | Seller | Buyer | No | Buyer | When handed to buyer's carrier |
| CPT Carriage Paid To | Any | Seller | Seller | No | Buyer | When handed to first carrier |
| CIP Carriage & Insurance Paid To | Any | Seller | Seller | Yes — all-risk | Buyer | When handed to first carrier |
| DAP Delivered at Place | Any | Seller | Seller | No | Buyer | At destination, ready to unload |
| DPU Delivered at Place Unloaded | Any | Seller | Seller | No | Buyer | At destination, after unloading |
| DDP Delivered Duty Paid | Any | Seller | Seller | No | Seller | At destination, ready to unload |
| FAS Free Alongside Ship | Sea | Seller | Buyer | No | Buyer | Alongside vessel at origin port |
| FOB Free on Board | Sea | Seller | Buyer | No | Buyer | Once on board at origin |
| CFR Cost & Freight | Sea | Seller | Seller | No | Buyer | Once on board at origin |
| CIF Cost, Insurance & Freight | Sea | Seller | Seller | Yes — minimum | Buyer | Once on board at origin |
In the D-group (DAP, DPU, DDP) they line up — the seller pays and carries risk all the way to your destination.
In the C-group (CPT, CIP, CFR, CIF) they don't. The seller pays freight to your destination port, but hands off risk much earlier — the moment goods are loaded in China. If cargo is damaged mid-voyage under CIF, that's a claim you file against the insurance policy, not a delay the seller owes you.
Knowing which group you're in tells you exactly when to file a claim, and with whom.
For FCL and LCL containers, FCA is usually the cleanest choice — it was written for goods handed to a carrier inland, not loaded directly onto a vessel. FOB is common in supplier quotes but was designed for bulk sea cargo.
The buyer carries the risk from the moment goods are loaded in China, even though the seller paid for freight and insurance to the destination. A mid-voyage claim goes against the insurance policy the seller arranged, not the seller directly.
Under DDP, the seller (or their forwarder) clears import customs and pays duties on your behalf, delivering to your door ready to unload. It gives you one predictable landed price, but the seller needs to be genuinely equipped to clear customs in your country.
No. Incoterms cover delivery, cost allocation and risk transfer only — not title, price or payment terms. Those need to be spelled out separately in your purchase contract.
Tell us your shipment and destination and we'll advise the right Incoterm and shipping mode for it.
Incoterms® is a registered trademark of the International Chamber of Commerce (ICC). This page is an independent summary for general guidance and is not affiliated with or endorsed by the ICC.
