Incoterms for Sourcing Industrial Parts from China

EXW, FCA, FOB, CFR, CIF, DAP and DDP decide who pays for what and, more importantly, where risk passes. Get the term wrong and you can own a cargo of castings the moment it leaves the factory gate — or pay duties you never planned for.

What Incoterms Do and Do Not Cover

Incoterms are a set of standard trade terms published by the International Chamber of Commerce. They allocate the costs and risks of moving goods between seller and buyer, and they standardise the paperwork each side must provide. What they deliberately do not cover is equally important: Incoterms say nothing about payment, title or ownership, product quality, delivery deadlines, or governing law. A delivery term is a logistics and risk tool, not a contract of sale on its own.

payment terms rather than treating it as a shipping detail added at the end." data-zh="由于 Incoterms 只移动费用与风险，它们与订单上的其他商务条款密切相关。哪一方持有货物保险、谁凭单付款、货物如何运输路线，都取决于您选择的术语。因此，值得把术语与您的付款条款放在一起考虑，而不是把它当作最后才补充的运输细节。">Because Incoterms only move cost and risk, they interact closely with the other commercial terms on your order. Which party holds cargo insurance, who pays the balance against documents, and how a shipment is routed all depend on the term you chose. For that reason it is worth reading the term alongside your payment terms rather than treating it as a shipping detail added at the end.

The Terms Buyers Use Most

The table below compares the seven terms you will see on most quotes from Chinese suppliers. Read across each row to see where risk passes, who books and pays the main freight, who insures, and who clears export and import. The differences are the source of most freight disputes.

EXW and FCA — The Seller-Light Options

EXW puts the least obligation on the seller, and that is exactly why it causes trouble for overseas buyers. The seller need only make the goods available at its premises. Everything after that — loading, inland transport, and even export clearance — is the buyer's. In practice a foreign buyer cannot easily clear goods for export from China in their own name, so EXW forces the buyer to rely on a forwarder to act on their behalf, and any delay at the factory gate is their risk from the moment the goods are set down.

FCA is the better-designed alternative. The seller handles export clearance and delivers the goods to a carrier you nominate — either at the seller's premises or at another agreed point such as a forwarder's warehouse. Risk transfers at that handover, which matches the way containerised freight actually moves. FCA is the term the ICC recommends in place of FOB for goods packed in containers, and it usually gives the buyer more control of the main leg.

FOB and the Container Trap

FOB is the term most Chinese suppliers quote by default, and for non-containerised cargo — breakbulk, bulk, or roll-on roll-off — it is a clean fit. Risk passes when the goods are on board the vessel, and the buyer books the ocean freight. The trap appears with containerised cargo. A container is handed to the terminal and loaded onto the ship later, so under FOB the seller keeps the risk during the days it sits at the terminal, and the buyer's insurance may not yet attach. If the box is damaged or the vessel is missed before loading, it is not always clear who bears the loss.

The confusion is compounded when suppliers treat FOB loosely as shorthand for 'we ship it all the way'. Watch for the tell-tale sign: a quote that calls itself FOB but adds inland trucking, terminal handling and the ocean freight to a destination port. That is not FOB at all; it is closer to CFR. Naming the term precisely, with the Incoterms version and the named place, removes the ambiguity before it turns into a dispute.

CFR and CIF — Cost and Risk Split

CFR and CIF both have the seller pay the freight to the destination port, yet risk still passes when the goods are loaded at the origin port. That split surprises buyers who assume that whoever pays the freight also carries the risk. It does not. Under CIF the seller also arranges insurance, but only at the minimum level. The default cover — usually Institute Cargo Clauses (C) — protects against major casualties such as total loss, and leaves out theft, water damage and many partial losses.

For high-value machined or stainless parts, that minimum cover is rarely enough. The practical fix is to agree a higher clause such as ICC (A) in the sales contract, or to buy your own cargo insurance from the moment the goods leave the works. Because you can insure goods you do not yet own under a marine open cover, this is often cleaner than negotiating cover with the seller. Note too that under CFR and CIF the seller's obligation ends at the destination port; getting the container to your door is a separate inland leg you arrange.

DAP and DDP — Who Clears Import

DAP and DDP both have the seller deliver to a named destination and bear the cost and risk of getting there. The single difference is import clearance. Under DAP the buyer is the importer of record, clears the goods and pays duty, VAT and local charges. Under DDP the seller takes on that role, clears the goods for import and pays those charges. Everything else about the two terms is the same.

DDP looks attractive because it appears to remove every customs task from your plate. In practice it asks a foreign seller to be the importer of record in your country, which requires the seller to be established there or to appoint an agent — and in some jurisdictions it is simply not permissible for a non-resident to clear goods for import. When DDP is offered without that groundwork, the real risk is a shipment stuck at customs while nobody can act. DAP is usually the more honest choice: you keep control of import and the seller stays responsible for delivery.

Common Misuse to Watch For

• FOB used as if it were DDP. A supplier quoting FOB but including door delivery and duty is mislabelling the term. Reconcile the quote against the definition before you accept it.
• EXW used to dodge export paperwork. If the seller will not handle export clearance, the buyer inherits a task they may not be able to complete in China. Prefer FCA.
• Assuming CIF insurance is comprehensive. The default minimum cover excludes theft and many partial losses. Agree ICC (A) cover or insure the cargo yourself.
• Omitting the version and named place. A term without the Incoterms year and a named port or place is open to interpretation. Write it out in full on every quote and PO.
• Confusing risk transfer with cost transfer under CFR and CIF. The seller pays the freight, but you carry the risk from the origin port. Insure accordingly.

How to Choose by Cargo and Route

Start with the cargo, then the route, then who you trust to act on the ground. Containerised parts moving port to door generally do best on FCA or FOB with your own forwarder, giving you visibility of the main leg. Bulk and breakbulk cargo sent on a chartered vessel fits FOB, CFR or CIF because loading is the natural risk boundary. If you want the seller to hand over at your nominated destination and you are happy to be the importer, DAP is a clean fit. Only choose DDP when the seller genuinely can act as importer of record and the duty arrangement is confirmed in writing.

Conclusion

material certificates, supplier audits and the rest of the blog." data-zh="Incoterms 2020 为您提供了一套精确的词汇，但前提是您精确地使用它。请在每份报价和订单上写明版本与指定地点，在心中把费用与风险分列成两栏，并让术语与货物的实际流转方式相匹配。集装箱货物通常 FCA 优于 FOB，CIF 保险只是最低保障而非全面覆盖，只有卖方确实能担任进口方时 DDP 才安全。请审慎选择，并把交货术语与您的检验和付款里程碑挂钩。欲了解更全面的图景，请参阅我们关于材质证明书、供应商审核以及博客其他内容的指南。">Incoterms 2020 gives you a precise vocabulary, but only if you use it precisely. Write the version and the named place on every quote and order, keep cost and risk in separate columns in your mind, and match the term to how the cargo physically moves. FCA usually beats FOB for containers, CIF insurance is a minimum and not a blanket, and DDP is only safe when the seller can really act as importer. Choose deliberately, and tie the delivery term to your inspection and payment milestones. For the wider picture, see our guides on material certificates, supplier audits and the rest of the blog.