Incoterms are the 11-term grammar of international shipping — each defines exactly where the seller's responsibility ends and the buyer's begins. Get the wrong Incoterm and your cost estimate is $500–$5,000 off. Get it right and both sides know exactly who pays for what. This guide covers the 6 Incoterms you'll actually encounter when buying CNC parts from China.
Incoterms specify three things for every international shipment:
Incoterms do NOT define: who owns the goods, who pays taxes on the sale, when payment is due, or what currency. Those are contract terms separate from Incoterms.
The 11 Incoterms are organized in two groups:
In practice, CNC buyers encounter about 6 of them. The rest are niche or mostly for commodities.
| Term | Name | Seller pays | Buyer pays |
|---|---|---|---|
| EXW | Ex Works | Nothing (parts ready at factory) | Everything from factory door |
| FCA | Free Carrier | Loading onto carrier, export clearance | Freight, insurance, import, duties, last mile |
| FOB | Free on Board | Export, port-of-origin handling | Ocean freight, insurance, import, duties, last mile |
| CIF | Cost, Insurance, Freight | Ocean freight + basic insurance to destination port | Destination handling, import, duties, last mile |
| DAP | Delivered at Place | Freight + delivery to buyer's address | Import duties, VAT |
| DDP | Delivered Duty Paid | Everything — landed at buyer's door, duty-paid | Nothing further |
Seller's responsibility ends the moment parts are packed and ready for pickup at the factory loading dock. Buyer arranges everything from there.
When to use EXW:
When EXW goes wrong:
Rule of thumb: EXW saves the most money at scale (container-load volumes). For occasional <$10K orders, the overhead isn't worth it — use FOB or DDP.
Seller handles everything through loading the shipment onto the ocean vessel at the port-of-origin. From that moment, the buyer owns the risk and pays for onward transport.
Critical detail: "FOB port name" specifies which port. "FOB Shenzhen" means the seller ships to Shenzhen port, loads on a vessel, buyer's responsibility from there. "FOB Shanghai" means a different port and often different local freight costs for the seller.
When to use FOB:
FOB is the default B2B Incoterm for container-load and LCL shipments. Most Chinese factories know FOB better than any other term.
DAP (Delivered at Place): seller manages everything through delivery to buyer's specified address. But buyer still pays import duties and VAT at destination.
DDP (Delivered Duty Paid): seller pays everything, including import duties and destination VAT. Parts arrive at buyer's door, no invoice to pay the customs broker.
When DAP/DDP make sense:
DDP pricing reality: A typical "DDP your door" quote from a Chinese supplier includes:
That supplier markup is the "cost of convenience." For small orders it's trivial. For large orders it's significant — which is why bigger buyers move to FOB.
CIF (Cost, Insurance, Freight): seller arranges ocean freight and basic insurance to the destination port, then buyer takes over.
The catch: CIF insurance is usually the minimum required by Incoterms — Clause C coverage, which pays out only for total loss or general average situations. It does NOT cover damage during handling, theft, water damage short of total loss, or delayed shipments.
For most practical purposes, CIF insurance is inadequate. If you need real cargo insurance, specify "CIF with Clause A coverage" (all-risk), which the seller will quote with appropriate premium.
In modern CNC importing: CIF is not commonly used. FOB (with buyer-arranged insurance) or DAP/DDP are clearer alternatives.
Use DDP. Fully landed, no surprises, no customs paperwork. Supplier handles everything. Pay the 10–15% convenience premium — you'll lose more than that learning FOB the hard way.
Use FOB. Supplier handles export, you handle import through your broker. Most cost-effective for most B2B transactions.
Use EXW, arrange pickup with your freight forwarder. Most savings but requires logistics maturity.
Use EXW. Forwarder picks up from all suppliers, consolidates at origin warehouse, ships one container. Saves on per-shipment handling.
Use DAP. You control customs/VAT for proper books, supplier handles everything else. Cleaner bookkeeping than DDP (where duties are embedded in the part price).
Use DAP. You maintain control of import records — important for traceability and compliance. Never DDP for regulated goods where paperwork control matters.
Email [email protected] with your preferred term — FOB, DAP, DDP, or whatever works for you. We quote accordingly with transparent line items, so you can compare across suppliers fairly.
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