Incoterms Explained for New Importers: EXW, FOB, CIF and DDP in Plain English
Short answer
Incoterms are standard trade terms, published by the International Chamber of Commerce (current version Incoterms 2020), that set who pays for each part of shipping and when risk passes from seller to buyer. Under EXW you handle almost everything from the factory door. Under FOB the supplier delivers the goods onto the ship at the Chinese port. Under CIF the supplier also pays freight and minimum insurance to your port. Under DDP the supplier delivers to your door with duties paid. For most new importers, FOB with your own forwarder gives the best balance of cost and control.
Key takeaways
- ✓Price quotes are only comparable when they use the same Incoterm.
- ✓Under CIF, risk passes when goods are loaded in China, even though the seller pays freight.
- ✓DDP is convenient but hides costs and is hard to check.
- ✓FOB, CFR and CIF are for sea and inland waterway freight; FCA suits air and containers.
Who pays and who carries the risk?
| Term | Supplier handles | You handle | Risk passes to you |
|---|---|---|---|
| EXW (Ex Works) | Making goods available at the factory | Loading, export clearance, freight, import, delivery | At the factory |
| FCA (Free Carrier) | Delivery to your carrier, export clearance | Main freight, import, delivery | When handed to your carrier |
| FOB (Free On Board) | Export clearance, loading on the ship | Sea freight, insurance, import, delivery | When goods are on board |
| CIF (Cost, Insurance and Freight) | FOB plus sea freight and minimum insurance | Import clearance, duties, delivery | When goods are on board in China |
| DDP (Delivered Duty Paid) | Everything to your door, including duties | Unloading | At your door |
Which Incoterm should you choose?
- FOB: the usual choice. The supplier handles the Chinese side; your forwarder handles freight, so you control cost and timing.
- EXW: only if your forwarder can handle export clearance in China; otherwise it causes problems.
- CIF: convenient, but the supplier chooses the freight and insurance, often at a markup, and you still pay destination charges.
- DDP: easiest for tiny orders and samples, but costs are bundled and harder to compare or check.
The hidden-cost trap
A CIF or DDP quote can look cheaper than FOB because costs are tucked away or charged later at destination. Behavioural economists call our tendency to focus on the visible price and underweight add-ons partitioned pricing effects. Always convert quotes to the same basis and calculate your full landed cost.
How Husbar helps
We agree the right Incoterm for each order and line up a forwarder, so you know your real cost before you commit. With Husbar's China Line, we find and verify the supplier, negotiate price and terms on your behalf, arrange samples, inspection and shipping, then market the product in the UAE, Saudi Arabia or Pakistan. You own the brand; we do the heavy lifting. Browse the Suppliers Directory or tell us what you want made.
Frequently asked questions
What is the difference between FOB and CIF?+
Under FOB you pay sea freight and insurance; under CIF the supplier pays them. In both, risk passes to you once goods are loaded on the ship in China.
Is DDP good for beginners?+
It is simple for small orders and samples, but costs are hard to check and you rely on the supplier's logistics choices.
Which Incoterm is best for importing from China?+
FOB with your own freight forwarder is the most common choice for balancing cost and control.
Are Incoterms legally binding?+
They become part of your contract when referenced, for example "FOB Ningbo, Incoterms 2020".
Sources
- International Chamber of Commerce. Incoterms 2020.
- Morwitz, V. G., Greenleaf, E. A., and Johnson, E. J. (1998). Divide and prosper: Consumers' reactions to partitioned prices. Journal of Marketing Research, 35(4).
Team Husbar
Husbar Editorial
Team Husbar is the strategy, psychology and research team at Husbar, a psychology-led growth agency headquartered in Dubai. Together we have worked with 100+ brands over 10+ years.
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