FOB vs EXW vs CIF vs DDP: China Shipping Terms Explained for Ecommerce Sellers

The quotation arrives at 11pm. “Silicone kitchen set, $2.85/pc, MOQ 500.” You run the numbers, the margin looks great, you wire the 30% deposit.

Six weeks later the cargo is sitting in a warehouse in Los Angeles and the forwarder will not release it until you pay $1,840 in “destination local charges.” The unit cost you thought was $2.85 is now $4.60, and the margin you planned is gone.

Nothing broke. Nobody cheated you — not technically. The number on the quotation was real. What you did not know is which four letters were sitting next to it, and those four letters decide who pays for every step between the factory door and your warehouse door.

Most sellers learn Incoterms the expensive way — in a warehouse, with a forwarder’s invoice in front of them and cargo that will not be released until it is paid. This is the cheap way.

What an Incoterm Actually Decides

Incoterms — International Commercial Terms — are published by the International Chamber of Commerce. The version in force is Incoterms 2020, which contains eleven three-letter rules.

Each rule answers exactly three questions:

1. Who pays for which leg of the journey? Inland trucking, origin port charges, export clearance, international freight, insurance, destination charges, import clearance, duty, final delivery.
2. At what precise point does risk transfer? If the container is damaged or lost after that point, it is your claim. Before it, the supplier’s.
3. Who clears customs, on which side? Export declaration out of China, and import entry into your country.

Just as important is what an Incoterm does not do. It does not transfer ownership or title. It does not set your payment terms. And it does not choose the shipping method — FOB and CIF are written for sea and inland waterway, but people use them for air freight constantly, which is sloppy but works.

Of the eleven rules, only four show up on most ecommerce quotations: EXW, FOB, CIF and DDP. There is a fifth worth knowing — FCA — and I will explain where it fits below.

A low unit price with the wrong Incoterm costs more than a higher unit price with the right one. Never compare two suppliers on the quoted number alone.

EXW, FOB, CIF and DDP — Term by Term

EXW (Ex Works): the number that lies

Under EXW the supplier’s only obligation is to make the goods available at their premises, packed and ready for collection. Everything else is yours: inland trucking to the port, the export customs declaration, origin port charges, international freight, insurance, import clearance, duty and final delivery.

Suppliers quote it because it produces the lowest-looking unit price and the least work for them. Here is why it usually backfires on a small seller.

Export customs clearance out of China requires an exporter of record holding a Chinese business license with import-export rights. You do not have one. So your forwarder — or the supplier — arranges the export declaration anyway and bills it back to you, frequently at a markup you never saw quoted. Meanwhile a surprising share of small Chinese factories have no export rights at all and ship through a trading partner. An EXW quote from a factory like that means you are buying from someone who cannot legally export your goods to you.

When EXW genuinely makes sense: when one party in China is consolidating. If you are buying from five factories and want everything delivered to a single warehouse, inspected, combined and shipped as one consignment, EXW is the correct term — because there is one named party holding the export arrangement. That is precisely the model we run. Without a consolidation partner, avoid it.

FOB (Free On Board): the industry default, and usually the right answer

Under FOB the supplier pays for and handles inland transport to the named port, the export customs declaration, origin port charges, and loading the goods onto the vessel. Risk transfers once the goods are on board. From that moment the ocean or air freight, insurance, destination charges, import clearance, duty and inland delivery are yours.

The detail most sellers miss: FOB must be followed by a named port. “FOB Ningbo” and “FOB Shenzhen” are different prices, sometimes by several hundred dollars on a large order, because inland haulage differs. A quotation that says only “FOB” is incomplete — get the port in writing before you pay a deposit.

FOB is the default for a good reason. It puts the leg the supplier is genuinely better at — Chinese domestic trucking and Chinese customs — on the supplier, and the leg you should control — international freight — on you. You pick the forwarder, so you know what freight really costs, you can re-shop it every shipment, and nobody can ever hold your cargo hostage with a surprise invoice.

The technical footnote worth knowing: FOB is a sea-and-inland-waterway rule, and it puts risk transfer at the moment the goods are “on board the vessel.” But a container is handed to the carrier at the terminal days earlier. During that gap you bear risk without controlling the goods — which is why the ICC actually recommends FCA (Free Carrier) for containerized cargo instead. In real China trade almost everyone still quotes FOB for containers and it works fine. Know the distinction; do not die on that hill.

CIF (Cost, Insurance and Freight): the term that burns first-time importers

Under CIF the supplier pays ocean freight to your destination port and buys minimum insurance cover. Risk still transfers at origin, once the goods are on board — so if the container is damaged in transit, that is your claim to file, not theirs.

It looks convenient: one price, delivered to my port, nothing to arrange. Here is what tends to happen instead.

The supplier hands the booking to their own forwarder. That forwarder gives the supplier a very cheap — sometimes nominally zero — ocean freight rate, because the margin is going to be recovered from the consignee at destination. When your cargo lands, the forwarder’s destination agent invoices you for terminal handling, documentation, customs clearance, storage and assorted “handling fees” that you never saw and cannot shop, because your goods are physically in their warehouse. Pay or wait.

It is not unusual for the destination charges on a CIF shipment to end up several times the ocean freight itself. Sellers describe it as being held for ransom, and functionally that is what it is.

Second, quieter problem — insurance. Under Incoterms 2020 a CIF seller only owes minimum cover: Institute Cargo Clauses (C), which excludes a long list of things you would assume are covered. If you want all-risks cover (Clauses A), you must either arrange it yourself or specify it explicitly in the contract.

Rule: accept CIF only if the supplier names the destination agent and gives you their full destination charge sheet in writing before you ship. Otherwise decline it, no matter how good the number looks.

DDP (Delivered Duty Paid): the simplest, and the best place to start

Under DDP the supplier delivers to a named address — your warehouse, or straight into an Amazon FBA centre — with import clearance completed and duty paid. You pay one number and the goods arrive.

Why small sellers like it: total cost predictability, no customs broker to hire, no duty calculation to get wrong, no destination charges to be ambushed by, and no importer-of-record paperwork on your side. For a first order, a small air shipment, or an FBA delivery, that is usually worth paying extra for.

What it costs you, and what to watch:

• The unit price is higher, because the supplier is pricing in their freight margin plus a risk buffer on duty. Sometimes a lot higher. Always get a FOB quote alongside it so you can see the gap.
• You are usually not the importer of record. That means no customs entry in your own name — no import history to build, and if duty was overpaid you cannot claim it back. Once you are doing real volume into the US this matters more than people expect. Ask explicitly, on every DDP quote, whether you will be IOR.
• “DDP” is quoted loosely. Get it in writing that the price includes duty, customs clearance fees, destination local charges and final delivery — and ask what happens if the tariff rate moves while your goods are in transit. If that risk lands on you, it is not really DDP.

A note for US importers: the de minimis treatment of low-value shipments for China-origin goods has been changed repeatedly since 2025. Do not build a DDP cost model on any assumption about it. Have your broker or supplier confirm the current rule in writing for your specific HS code and value band before you commit to a price.

Which Term Should You Use?

Match the term to your order size and your stage, not to whatever the supplier typed on the proforma invoice first.

Whichever term you land on, the comparison rule never changes: convert every quote to landed cost per unit before you rank suppliers. As a rough planning figure — expect your true US landed cost to come in 30–40% above the FOB price once freight, duty, broker fees and inland delivery are in. If your margin survives that number, you have a product.

How to Read a Chinese Quotation Without Getting Surprised

Five questions, on every quotation, before you pay anything:

1. Which Incoterm, and which named place? “FOB Ningbo,” “DDP Los Angeles 90001.” Not “FOB,” not “DDP USA.”
2. Is the export customs declaration included? It should be, on FOB, CIF and DDP. If the answer is vague, you are effectively on EXW.
3. What are the carton dimensions, gross weight and total CBM? Without these you cannot price freight independently — and a supplier who will not hand them over is trying to keep you on their freight.
4. What is the HS code? You need it to check the duty rate, and to find out whether your product needs FCC, CE, FDA or CPSIA certification before it ships.
5. Who books the forwarder? If the answer is “we do” on a CIF quote, you have just found where your money is going.

Then build the landed cost yourself rather than trusting anyone’s total. Take the FOB unit price, add your own forwarder’s freight quote, add duty on the HS code, add the customs broker fee (typically $100–200 in the US), add MPF/HMF, and add inland delivery to your warehouse or FBA centre.

Five Cost Traps Hidden in the Wrong Term

1. The EXW quote from a factory with no export rights. You get the lowest number in your inbox and the least ability to actually ship the goods. Ask for their business license and check the scope on gsxt.gov.cn — the same check you should be running on any supplier before you wire money.

2. CIF destination charges. Covered above, and still the most common way first-time importers get burned. The fix is one sentence in your contract: consignee’s destination charges capped at $X, any excess for seller’s account.

3. “FOB” that is not FOB. Some suppliers quote FOB and then add origin local charges — THC, documentation fee, customs clearance fee — as separate line items on the final invoice. Under a correct FOB those are theirs. Push back, in writing, before the deposit.

4. Insurance gaps. CIF gives you minimum cover only. EXW and FOB give you none at all unless you buy it. If you are shipping anything fragile, electronic, or seasonal where a lost container ends your year, buy all-risks cover yourself — it normally costs a small fraction of a percent of cargo value, which is the cheapest insurance you will ever decline by accident.

5. Tariff-change risk on a DDP quote. Sea freight from China to the US West Coast runs roughly 25–40 days door to door. If the duty rate moves mid-transit, somebody eats the difference. Decide who, and write it into the PI, before you pay.

The Bottom Line

• Start on DDP if you are new or small. Move to FOB the moment your order value justifies hiring your own forwarder.
• Never accept EXW unless you have a consolidation partner in China who owns the export declaration.
• Treat CIF as a red flag unless the supplier names the destination agent and you approve their charge sheet first.
• Compare every quote on landed cost per unit, and always get the Incoterm plus the named place written onto the proforma invoice.

An Incoterm is one line on a proforma invoice. It is also the difference between a margin you calculated and a margin you discovered in a warehouse, six weeks later, with a cheque to write.

If you want a landed-cost number before you commit rather than after the cargo arrives, get in touch. Send me the product, the quantity and your delivery address, and I will come back with the FOB price, the DDP price, and every charge that sits between them.