The 5 most important Incoterms® when shipping to or from China

The Incoterms® rules define the obligation between buyers and sellers to deliver commodities under sales agreements. Here are the five most important Incoterms® rules when exporting or importing goods to or from China, what they mean, and their advantages and disadvantages.

1. What’s the meaning of FOB (Free on Board) in China?

Generally, FOB is the Incoterms® rule most often used if you’re importing from China. Here, the seller's responsibilities end when the goods board the ship transporting them to your chosen destination. The seller's delivery is completed when the goods are across the ship's rail.

2. What's the meaning of EXW (Ex Works) in China – and what are the pros and cons?

Ex Works means that the delivery is completed when the buyer picks up the goods from the seller at the named place, such as a warehouse or factory. The buyer takes over ownership and responsibilities once the goods are available for transport. This term is used for ocean freight and air freight.

We suggest you take serious consideration when you choose EXW in China. Dealing with inland transportation in China, customs clearance in Chinese ports, and other related issues may create a lot of work that needs to be managed.

3. What's the meaning of CIF (Cost, Insurance and Freight) in China?

The CIF Incoterms® rule is for sea and inland waterway transport. It’s when the buyer takes over ownership of the goods only at the destination port. The sellers control the freight. It has gradually become less recommended when importing goods from a Chinese supplier.

4. What's the meaning of CFR (Cost and Freight) in China?

CFR or Cost and Freight is another of the Incoterms® rules for sea and inland waterway transport. The difference between a CFR and CIF agreement is minimal. Under CIF, insurance must be provided by sellers. With CFR, insurance is optional.

If you choose to work under CFR in China as a buyer, clearly define and specify the insurance terms in the sales contract.

5. What is the meaning of DDP Shipping (Delivered Duty Paid) in China?

This term can be challenging for sellers. With DDP , the seller is obliged to cover everything during the freight. The buyer only needs to unload the goods at the final destination.

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