Demystifying Shipping Incoterms: Your China Source's Guide to Smooth Imports from China

Ever felt like you’re drowning in a sea of acronyms when dealing with your Chinese suppliers? EXW, FOB, CIF – these three-letter terms can be incredibly confusing. What do they really mean for your shipments? What are you, the buyer, responsible for, and what falls on your supplier’s shoulders? And with so many options, which one should you actually choose?

It's a common dilemma. In the world of international trade, the practical application of Incoterms can also be quite flexible. Adding or removing a single responsibility in your contract can shift your entire agreement from one term to another.

If you’re looking for a clear, no-nonsense guide to Incoterms 2020, you’ve landed on the right page. At Your China Source, we believe in empowering Indian businesses with the knowledge to make smart, confident decisions. This guide will walk you through everything you need to know about these crucial trade terms:

• What Exactly Are Incoterms?

• The 11 Incoterms Explained (No Jargon!)

• Choosing the Right One: When to Use EXW, FOB, CIF, and DDP

• Understanding "Freight Collect" vs. "Freight Prepaid"

• Deciphering Alibaba's Trade Terms

Let's break it down!

What Exactly Are Incoterms in International Trade?

Simply put, Incoterms stands for International Commercial Terms. These are a set of globally recognized rules published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers for the delivery of goods under sales contracts.

Think of them as a universal language for trade. In global trade, various ways of shipping goods exist, and for each way, the buyer and seller have different duties, which naturally affect the product's final quoted price. Incoterms provide a clear, internationally unified explanation for these different trade modes.

They spell out:

• Tasks: Who does what – from packing goods to loading them onto a ship.

• Costs: Who pays for what – including transportation, insurance, and customs fees.

• Risks: Who bears the risk of loss or damage to goods at each stage of the journey.

Incoterms also clarify what’s included in a product's price – whether it's just the product itself, or if shipping costs, insurance, and other fees are also factored in. That’s why you might hear them called international trade terms, price terms, shipping terms, or delivery terms.

Using Incoterms directly in your negotiations with Chinese suppliers simplifies the entire process. And if any disputes unfortunately arise, these terms make it much easier to determine who is accountable. This clarity is precisely why Incoterms are so vital for your business.

What Are the 11 Types of Incoterms?

The ICC regularly updates Incoterms, with Incoterms 2020 being the latest version. It outlines 11 different trade terms, categorized into rules specifically for sea and inland waterways, and rules applicable to any mode of transport. Let's explore each one.

(Imagine a helpful chart here, similar to the one in the original blog, visually categorizing the Incoterms.)

Incoterms for Sea and Inland Waterways

These terms are specifically designed for bulk cargo or goods that primarily travel by sea or waterways.

• FOB (Free On Board): Your Most Common Choice for Sea Freight! FOB is hands down the most popular trade term for sea freight. It means your Chinese supplier is responsible for getting the goods to the designated port (e.g., Shanghai, Ningbo, Shenzhen) and loading them onto the vessel. Once the goods are safely on board, all subsequent tasks, costs, and risks transfer to you, the buyer.

  Example: Let's say you're buying goods under FOB from a factory in Yiwu, China, destined for Mumbai, India.

  
  

  Your Seller's Responsibilities:

  • Getting your cargo to the Port of Ningbo (Yiwu's nearest major port) and loading it onto the ship.

  • Paying all shipping costs from their factory to the Port of Ningbo.

  • Handling the export customs declaration in China and paying those fees.

  • Bearing the risk of damage or loss until the goods are loaded onto the vessel.

  
  

  Your Responsibilities (Once on Board):

  • Booking the shipping space, arranging all transportation from Ningbo Port to Mumbai, and paying the sea freight.

  • Going through customs clearance when the goods arrive in Mumbai and paying all applicable import duties and taxes in India.

  • Bearing all risks after the goods are loaded onto the vessel.

    
    

  Pro Tip from Your China Source: You can always empower your trusted Indian freight forwarder to manage the shipping and customs clearance for you. This saves you a lot of hassle, especially with those unpredictable random customs checks!

  
  

  Understanding the FOB Price: Since your supplier covers all expenses until the goods are on the vessel, their quoted FOB price will include these costs: FOB Price (Ningbo) = Product Price + Shipping Cost to Port of Ningbo + Export Customs Declaration Fees

  
  

• FAS (Free Alongside Ship): Less Common, More Hands-On Under FAS, your supplier doesn't even need to load the goods onto the ship. They just need to place them alongside the vessel at the designated port (e.g., right next to the ship at Port of Ningbo). From that point, you take on all risks. Other responsibilities are similar to FOB. FAS isn't used as frequently in practice.

  
  

• CFR (Cost and Freight): When Your Seller Handles the Sea Freight Too Building on FOB, if your supplier also takes on the responsibility of booking the shipping space, arranging the sea journey to a port in India, and paying for that international freight, then it's a CFR (Cost and Freight) term.

  
  

  Example: In our Yiwu to Mumbai scenario, your supplier would also cover the sea freight from Ningbo to Mumbai. CFR Price = FOB Price + Sea Freight

  
  

• CIF (Cost, Insurance, and Freight): Added Peace of Mind with Insurance If you want your supplier to go one step further and also purchase marine cargo insurance to protect against damage and loss during the sea transportation, then you're looking at CIF (Cost, Insurance, and Freight).

  CIF Price = FOB Price + Sea Freight + Insurance

  Many buyers often wonder about CIF vs. FOB. As the price formula shows, the main difference is that under CIF, your supplier is responsible for both the international sea freight and the cargo insurance.

  
  

  Important Note: While FOB, FAS, CFR, and CIF are officially for sea freight, in real-world scenarios, FOB and CIF are sometimes also used for air freight, although FCA and CIP are generally more appropriate.

  
  

Trade Terms for Any Transport Modes

These Incoterms are versatile and can be used regardless of how your goods are transported – by air, road, rail, or sea.

• EXW (Ex Works): Maximum Control, Maximum Responsibility EXW means your supplier simply makes the goods available to you at their own location – be it their factory, warehouse, or office. As the buyer, you shoulder all costs and risks involved in moving the goods from your supplier's premises right to your doorstep in India. Among all Incoterms, this gives you the most control but also the most responsibility.

  
  

  Example: If your supplier's factory is in Yiwu, you'll need to:

  • Handle the export declaration in China.

  • Arrange all transportation from Yiwu to your location in India.

  • Manage import customs clearance and pay all duties and taxes in India.

  • Pay for every single expense incurred along the way.

  • Bear all responsibility if your goods are damaged or lost during transit.

    
    

  Understanding the EXW Price: Since your supplier pays no costs after the goods leave their location, the EXW quotation is essentially the original product price, without any additional fees.

  
  

• FCA (Free Carrier): Seller Delivers to Your Forwarder Under FCA, your supplier delivers the goods to your designated carrier (typically your freight forwarder) at an agreed-upon location – this could be their factory, a terminal, a dock, or a container yard. Crucially, your supplier also handles the export customs declaration in China.

  Example: Your freight forwarder has a warehouse in Yiwu. Your Seller's

  Responsibilities:

  • Sending the goods to your freight forwarder's warehouse.

  • Handling the export customs declaration.

  • Bearing risks until the goods are delivered to your freight forwarder.

    
    

  Understanding the FCA Price: Your supplier will include these initial costs in their quotation: FCA Price = Product Price + Shipping Cost to Delivery Place + Export Declaration Fees

  Once the goods are handed over to your carrier, all subsequent tasks, costs, and risks become your responsibility.

  
  

• CPT (Carriage Paid To): Seller Pays Freight to Destination Building on FCA, if your supplier also takes on the responsibility of arranging and paying for the freight costs all the way to your destination in India, that's CPT (Carriage Paid To).

  CPT Price = FCA Price + Freight Costs

  Under CPT, you bear all risks and costs after the cargo is handed over to your forwarder, except for the main transportation cost to your destination, as your supplier has already paid that.

  
  

• CIP (Carriage and Insurance Paid to): CPT with Added Insurance If you want your supplier to also purchase cargo insurance for you, building on CPT, then it's CIP (Carriage and Insurance Paid to).

  CIP Price = FCA Price + Freight Costs + Insurance

  
  

  A Quick Comparison: You'll notice that the price compositions and responsibilities under FOB and FCA, CFR and CPT, CIF and CIP are quite similar. The main distinction lies in the delivery point and when the risk of loss or damage transfers. Generally, if you're shipping by sea using FOB, CFR, or CIF, you'd use FCA, CPT, or CIP respectively for air freight.

  
  

• DAP (Delivered At Place): Delivered to Your Door, Excluding Customs Under DAP, your supplier handles the export customs declarations, ships the goods all the way to your specified destination in India (e.g., your warehouse in Gurugram), and hands over the cargo to you there.

  Your supplier covers all shipping costs, other fees, and risks during transit, except for import customs clearance and any import duties and taxes in India. You are responsible for obtaining any necessary licenses for customs clearance beforehand and paying the clearance fees and duties.

  
  

  Important: Under DAP, your supplier is not obligated to unload the goods from the vehicle.

  
  

• DPU (Delivered At Place Unloaded): DAP, but with Unloading! DPU is exactly like DAP, with one key difference: your supplier is responsible for unloading the cargo at your destination. Everything else remains the same.

  
  

• DDP (Delivered Duty Paid): The Ultimate "Door-to-Door" Service If you want a truly hassle-free experience where your supplier manages import customs clearance and pays all import duties and taxes in India, then DDP (Delivered Duty Paid) is your go-to. This is a complete door-to-door service. Your supplier takes on all tasks, costs, and risks throughout the entire transportation process, delivering your cargo directly to your doorstep. You simply need to provide assistance if required.

  
  

  A Note on DDU: You might still hear the term DDU (Delivered Duty Unpaid) being used, even though Incoterms 2010 and 2020 officially removed it. The core difference between DDU and DDP is that under DDU, your supplier doesn't handle customs clearance or pay duties. In practice, DAP can effectively be used to replace DDU in most business scenarios.

  
  

  Your China Source provides seamless door-to-door shipping solutions, including DDP!

  
  

  A Flexible Approach: Even if you choose a specific Incoterm, remember that you can always negotiate with your supplier to handle additional responsibilities on your behalf. For example, under FOB, your supplier isn't required to book shipping space or buy insurance. However, many Indian buyers prefer to entrust these tasks to their Chinese suppliers or even use their supplier's preferred freight forwarder for convenience.

  
  

When to Use EXW, FOB, CIF, and DDP: A Quick Guide

Among the 11 Incoterms, EXW, FOB, CIF, and DDP are the most frequently used. Here’s a quick guide to help you decide:

• EXW: Best for Indian buyers who are highly familiar with Chinese export procedures and customs declarations, and have strong relationships with freight forwarders in China.

  
  

• FOB: A popular choice for Indian buyers who have some importing experience and prefer to work with their own trusted freight forwarders to manage shipping from the Chinese port to India.

  
  

• CIF: More suitable for new Indian buyers. Your supplier helps ship the cargo all the way to a port in India, leaving you with fewer complexities to handle on arrival.

  
  

• DDP: Incredibly popular with e-commerce sellers in India, especially those using Amazon FBA. With DDP, your Chinese supplier can directly ship your goods to the Amazon warehouse, offering unparalleled convenience.

  
  

Understanding "Freight Collect" vs. "Freight Prepaid" Incoterms

Each Incoterm clearly defines who pays for international shipping costs. We can categorize them based on whether the buyer or seller pays the international freight:

• Freight Collect Incoterms (Buyer Pays upon Receiving Goods): EXW, FCA, FOB, FAS.

• Freight Prepaid Incoterms (Seller Pays Before Shipping): CFR, CIP, CPT, CIF, DAP, DPU, DDP.

  
  

You’ll typically see these freight charge types clearly indicated on your Bill of Lading.

What Are Trade Terms on Alibaba?

As one of the world's largest B2B wholesale platforms, many Indian importers source products from Alibaba.

Generally, sellers on Alibaba will display either EXW price or FOB price on their product profiles. However, these are usually just reference prices. For a specific quotation, or if you need a CIF price or DDP price, you'll need to contact and negotiate directly with the supplier.

Remember, you can use any of the Incoterms mentioned above, as long as your supplier is capable of fulfilling those responsibilities. For instance, if a supplier cannot help you obtain import licenses, handle import customs clearance, or pay duties in India, they won't agree to a DDP term.

We hope this article has given you a much clearer understanding of Incoterms. If you have any questions, or if any part still feels a bit complex, please feel free to leave a comment below.

At Your China Source, we're more than just a sourcing company in India. We not only help you find competitive prices for a wide range of products in China but also meticulously arrange shipping under various trade terms like EXW, FOB, CIF, and DDP. We’ll always offer you the most cost-effective and suitable shipping solution for your specific needs. Beyond that, we provide comprehensive services including product quality inspection, customization, and production follow-up.

Whenever you need assistance with importing from China, don't hesitate to CONTACT US! We're here to be your reliable partner.