Question 1

What are Incoterms and why do they matter for China imports?

Accepted Answer

Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce that define who pays for freight, insurance, and customs, and where risk transfers from seller to buyer. For China imports, the most common are: EXW (you pay everything from factory), FOB (seller loads at origin port, you pay freight+insurance+customs), CIF (seller pays freight+insurance, you pay customs+delivery), DAP/DDP (seller delivers to your door). Choosing the wrong Incoterm can cost thousands in unexpected charges or missed insurance coverage.

Question 2

Which Incoterm is best for importing from China?

Accepted Answer

FOB (Free on Board) is the most common and generally most favorable for importers with an established freight relationship. You control the freight, choose your forwarder, and know the cost. EXW gives you maximum control but requires arranging export customs in China (complex for foreign buyers). CIF is convenient but you don't control the freight and the seller's insurance (typically ICC(C) minimum) may be inadequate. DDP (Delivered Duty Paid) is simplest but you lose visibility into the cost components. For most importers: FOB or DAP.

Question 3

What is the difference between FOB and CIF for China imports?

Accepted Answer

FOB (Free on Board): Seller delivers goods to the named port of shipment (e.g., Shanghai), clears for export, and loads aboard the vessel. From that point, the buyer is responsible for freight, insurance, and destination customs. Cost implication: You arrange and pay for ocean freight and insurance. CIF (Cost, Insurance, Freight): Seller pays for ocean freight and insurance to the named destination port. Risk still transfers to buyer when goods are loaded in China (same as FOB). You pay destination customs and delivery. Important: Under CIF, the seller chooses the freight carrier and the insurance policy — you have no control over either.

Question 4

What does EXW mean and when should I use it for China imports?

Accepted Answer

EXW (Ex Works): The seller's obligation ends when goods are made available at their factory gate. You (buyer) arrange: factory pickup, export customs clearance in China, inland trucking to the port, freight, insurance, and import customs. EXW is often quoted by Chinese suppliers because it's the lowest-priced starting point. However, foreign buyers face challenges clearing Chinese export customs (requires a local entity or customs agent). Most buyers use a sourcing agent or freight forwarder in China to handle the export leg. Effectively, EXW + local agent fees ≈ FOB in cost.

Question 5

What is the risk transfer point under different Incoterms?

Accepted Answer

Risk of loss or damage transfers at different points: EXW: At factory gate (buyer bears all risk from pickup). FCA: At carrier's first terminal/transport mode. FOB: When goods cross ship's rail at origin port. CFR/CIF: When goods cross ship's rail at origin port (same as FOB — seller pays freight/insurance but buyer bears risk during ocean transit). DAP: At named destination (before customs clearance). DDP: At named destination after customs clearance. Common misconception: Under CIF, the seller pays for insurance but the BUYER bears the risk during transit. The insurance is for the buyer's benefit but often with minimum coverage.

Question 6

What is DDP and when is it suitable for China imports?

Accepted Answer

DDP (Delivered Duty Paid): Seller delivers goods to your named destination, pays all freight, insurance, customs duties, and taxes. For you as the buyer, it's the simplest possible option — one price, goods arrive at your door. DDP is popular with: small importers who find customs intimidating, e-commerce sellers doing dropship-to-customer, and first-time importers. Downsides: You don't see the cost breakdown — you can't verify what the seller is actually paying for freight and duties. Sellers using DDP often mark up freight 20–40% and may undervalue goods to reduce duty. For experienced importers, FOB + your own customs broker is usually better value.

Question 7

How do Incoterms affect my import duty calculation?

Accepted Answer

Duties in the US are assessed on CIF value (cost + insurance + freight). Under FOB terms, you need to add your freight and insurance to calculate dutiable CIF value. Under CIF terms, the dutiable value is the CIF price stated on the commercial invoice. Under DDP, the declared value should still be CIF — but some sellers under DDP may manipulate the invoice value to reduce declared duty, which is customs fraud and your risk as the importer of record. Always verify that your customs broker uses the actual CIF value for duty assessment regardless of the Incoterm.

Question 8

Should I negotiate FOB or EXW prices with Chinese suppliers?

Accepted Answer

Always negotiate FOB prices. FOB gives you: (1) A clear comparison basis across suppliers (both responsible to the same point — Chinese port). (2) Ability to choose your own freight forwarder. (3) Competitive freight pricing (forwarder competitive bidding). (4) Control over your cargo documentation. EXW prices look lower but you then add: China inland trucking ($200–$600), local export customs agent ($100–$250), and sometimes loading fees. Total adds $300–$850 vs FOB. Unless you have a very good China-side logistics operation, FOB is simpler and more comparable.

Incoterm	Who Pays Export Customs	Who Pays Ocean Freight	Who Pays Insurance	Who Pays Import Customs	Risk Transfer Point
EXW	Buyer	Buyer	Buyer	Buyer	Factory gate
FCA	Seller	Buyer	Buyer	Buyer	At seller's carrier
FOB	Seller	Buyer	Buyer	Buyer	Ship's rail, origin port
CFR	Seller	Seller	Buyer	Buyer	Ship's rail, origin port
CIF	Seller	Seller	Seller (minimum)	Buyer	Ship's rail, origin port
DAP	Seller	Seller	Seller	Buyer	Named destination
DDP	Seller	Seller	Seller	Seller	Named destination

Incoterm	% of China Exports	Who Prefers It
FOB	~65%	Most importers
EXW	~15%	Large importers with China operations
CIF	~10%	Small importers, buyers new to freight
DDP	~8%	E-commerce, dropshippers, first-timers
Other	~2%	DAP, FCA for specific logistics arrangements

Incoterm Quoted	Seller's Price	Your Additional Costs	Your Total
EXW	$9,200	+$900 (export + trucking) + $1,500 (freight) + $650 (import)	$12,250
FOB	$10,000	+$1,500 (freight) + $650 (import)	$12,150
CIF	$11,800	+$650 (import)	$12,450
DAP	$12,500	+$650 (import customs + duty)	$13,150
DDP	$13,500	$0	$13,500

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