Introduction
Incoterms define where the supplier’s responsibility ends and the buyer’s begins. On a first China order they can feel like alphabet soup. In practice, three of them cover 90% of transactions: EXW, FOB, and DDP.
This article compares them in plain terms, so a buyer can choose the right one for their situation.
EXW — Ex Works
The supplier makes the goods available at their premises. The buyer arranges everything from there — pickup, export clearance, freight, import clearance, delivery.
Advantages
- Maximum buyer control
- Cheapest supplier quote (nothing added)
- Buyer can shop freight independently
Disadvantages
- Buyer needs local capability to arrange pickup and export clearance in China
- More coordination work
- Small mistakes at origin become the buyer’s problem
Best for: Experienced importers with a Chinese logistics partner. Not usually best for first orders.
FOB — Free On Board
The supplier is responsible up to the point the goods are loaded on the shipping vessel at a Chinese port. Export clearance is handled by the supplier. Everything after loading — main freight, import clearance, destination delivery — is the buyer’s.
Advantages
- Buyer controls main freight (can shop forwarders)
- Origin coordination handled by supplier
- Clear handover point
- Most transparent cost structure
Disadvantages
- Buyer still needs a destination-side plan (broker, delivery)
Best for: Most B2B import orders. FOB is the industry default for a reason.
CIF — Cost, Insurance, Freight
Similar to FOB but the supplier also arranges main freight and insurance to the destination port. Buyer handles clearance and delivery from destination port onwards.
Advantages
- Simpler for buyer than FOB
- Supplier handles the sea leg
Disadvantages
- Buyer loses control of freight forwarder selection
- Supplier’s freight markup is opaque
- Buyer still handles destination clearance
Best for: Buyers who want less freight coordination and are willing to accept less price transparency.
DDP — Delivered Duty Paid
The supplier handles everything, including duties and taxes, and delivers to the buyer’s door.
Advantages
- Simplest for buyer
- One quote, one contact
- No customs coordination
Disadvantages
- Highest price and least transparency
- Duties handled by supplier or their agent, not the buyer’s broker — can be under-declared, which creates risk for the buyer of record
- No ability to compare freight independently
- Duty declarations that are wrong become the buyer’s problem at audit
Best for: Very small orders, sample shipments, buyers with no import infrastructure. Not recommended for regular B2B volume.
Which To Choose
For most importers on most orders: FOB. Clean handover, transparent cost, buyer controls the freight.
For experienced importers with a Chinese logistics partner: EXW gives incremental control and small savings.
For very small or urgent orders: DDP or express courier gets goods to the door with least effort — accept the price and transparency tradeoff.
FAQ
Can I change Incoterm mid-order? Sometimes, but it complicates the paperwork. Better to commit at PO stage.
Which Incoterm is cheapest for the buyer overall? Usually FOB, once independent freight is factored in. DDP looks simple but tends to be highest total cost.
Who is responsible for damage in transit? Depends on Incoterm and insurance. FOB shifts risk to the buyer once goods are loaded; CIF includes insurance but the payout goes to whoever holds the insurance contract.
Get The Right Incoterm Set Up At PO Stage
Choosing the Incoterm before the PO is signed avoids most disputes later. If you would like Hansen to structure a purchase order that fits your import capability, start a project.