Incoterms When Shipping from China: A Complete Guide

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An Incoterm is a three letter code (i.e., FOB or CIF), defines when the cargo is transferred from the buyer to the seller. Incoterms is the main pillar of international shipping, and without a basic understanding of them, you may end paying a lot more for your shipments, than you should.

In this comprehensive guide, you will learn what Incoterms are, and which code you should select, when importing products from China (and elsewhere in Asia).

In addition, you will also learn which Incoterms to avoid, and how the ‘wrong incoterm’ can cost you a fortune.

An introduction to shipping Incoterms

Incoterms may look a bit confusing at first sight, but they are not hard to get at all. Basically an incoterm consists of two components: a three letter code and a city name. Let’s begin with the first part.

The three letters incoterm code specifies “how far” the supplier shall ship the cargo. Basically, how much of the shipping you pay the supplier to handle. Based on the incoterm you select, you can let the supplier handle the shipping of products to a nearby port in China or all the way to your front door.

A price quoted by a Chinese supplier is always based on an incoterm. Without an incoterm you have no idea how far the supplier will ship your cargo.

Neither can you compare the pricing between two or more Chinese suppliers if you don’t know which Incoterms the quotes are based on.

For natural reasons a quote based on the incoterm EXW is going to be a lot cheaper than a quote based on CIF.

Why? Because the former (EXW) includes no shipping whatsoever, not even from the supplier’s factory location, while the latter (CIF) includes shipping all the way to the port of destination in your country.

That shipping costs money, and this certainly makes a difference in the price tag.

However, in the end you’ll need to have your products shipped from China to somewhere. If you feel insecure about how shipping works, then you might as well ask your supplier to quote you a price based on a more “far reaching” incoterm.

Just avoid making the old mistake of assuming that EXW is automatically cheaper than FOB or CIF.

It’s time to look into the second component of an incoterm, the location. This specifies where, as in which city, the transfer between the supplier and the importer takes place.

It could be in Shanghai or in New Jersey, depending on where you want the cargo transfer to be made. Keep in mind that it’s up you to order shipping from the location where the transfer has been made, to the final destination.

I recommend inexperienced importers to select an incoterm that takes the cargo as far as possible.

This excludes EXW and FOB since the cargo doesn’t leave China. It’s always easier to manage with the shipping if it’s done with people in your own country.

incoterms

Incoterm Overview

It’s time to dig a bit deeper and actually explain what these strange Incoterms actually means. Below I explain the basics behind five commonly used Incoterms.

EXW (Ex Works)

EXW price is the factory price for the products with no shipping is included. The buyer must arrange transportation all the way from the factory floor in China to the final destination.

  • Export clearance: No
  • Transport to Port of Loading in China: No
  • Sea Freight charges: No
  • Port of discharge charges: No
  • Inland transport: No

FOB (Free on Board)

The supplier in China delivers the cargo to the Port of Loading (Port of Loading) and takes care of the export clearance. The latter is of high importance since the Chinese Customs Authorities have the right to hold cargo that has not been properly cleared for export.

  • Export clearance: Yes
  • Transport to Port of Loading in China: Yes
  • Sea Freight charges: No
  • Port of discharge charges: No
  • Inland transport: No

CIF (Cost Insurance Freight)

The supplier arranges delivery to the Port of Destination in the importer’s country. However, Cost Insurance Freight does not include unloading, LCL charges, CSIF or other fees added by the Destination Agent in the Port of Destination.

  • Export clearance: Yes
  • Transport to Port of Loading in China: Yes
  • Sea Freight charges: Yes
  • Port of discharge charges: No
  • Inland transport: No

DAT (Delivered at Terminal)

The supplier is responsible for delivery from the factory floor in China to a specified, inland or port, terminal in the buyer’s country. DAT includes all charges added in the Port of Destination and inland transportation to your nearest terminal. Unlike Delivered at Place (DAP), DAT does not include inland transport to a specified address such as your home or warehouse.

  • Export clearance: Yes
  • Transport to Port of Loading in China: Yes
  • Sea Freight charges: Yes
  • Port of discharge charges: Yes
  • Inland transport: Yes (To port / inland terminal only)

DAP (Delivered at Place)

The supplier is responsible for delivery from the factory floor to a specified address and unlike DAT, where the cargo is delivered to the freight warehouse within the freight forwarder supply chain network, Delivered at Place (DAP) includes inland transport to a specified address such as your home or warehouse

  • Export clearance: Yes
  • Transport to Port of Loading in China: Yes
  • Sea Freight charges: Yes
  • Port of discharge charges: Yes
  • Inland transport: Yes (To your location)

From time to time new Incoterms are added while others are phased out. If you want to stay informed on this subject I recommend you to visit the official website of the International Chamber of Commerce.

Let’s continue with two basic incoterm examples::

Case Study A: FOB Shanghai

  1. The supplier delivers the cargo to Shanghai
  2. The cargo is ready for exporting (but not yet exported)
  3. The importer must book shipping from Shanghai
  4. The importer pays for ALL expenses that occur after the cargo leaves Shanghai. This includes, but is not limited to sea freight charges, customs, VAT, inland transportation and port duties

Case Study B: CIF Amsterdam

  1. The supplier delivers the cargo to Amsterdam
  2. The cargo is ready for importing (but not legally imported)
  3. The importer pays for ALL expenses that occur upon arrival in Amsterdam. This includes, but is not limited to customs, VAT, inland transportation and port duties

Case Study C: FOB Shenzhen + DAP Los Angeles

  1. The buyer order the goods from the supplier, according to FOB terms
  2. The supplier books transportation from the factory, to the buyers freight forwarder in Shenzhen. They also take care of the export clearance process, and fill out the documents.
  3. The cargo arrives in the forwarders warehouse in Shenzhen. The buyer book a DAP shipment, and freight insurance.
  4. The forwarder invoice the buyer for the freight cost, port charges in Los Angeles, insurance and inland transportation – all the way to the buyer’s address. Hence, the buyer is aware of the full cost before the goods depart China.
  5. The forwarder ships the cargo to Los Angeles, where the goods are cleared for customs. The import duties and other taxes are paid via the forwarder.
  6. The cargo is finally delivered to the buyers address in the US.

What is the best Incoterm when importing from Asia?

To simplify the process, while at the same time getting maximum transparency and cost control, order according to FOB terms from your supplier – and then a DAP shipment from your forwarder.

Hence, the supplier will manage transportation from the factory, to the port of loading. Further, they are also taking care of the export clearance procedures.

Your forwarder handles the shipping from the port of loading, and customs clearance and transportation in the target market.

Should I avoid any Incoterm?

Avoid CIF terms as often as possible, as you don’t get the know the final shipping cost. CIF only includes shipping to the port of destination, but not the local charges.

When shipping FCL, the local charges (or port charges, are normally set around $300 to $600. However, when shipping according to LCL terms, the port charges may be as high as $1000 to $1500.

This may look like a contradiction, as LCL shipping should, in theory, cost less than FCL. LCL does cost less than FCL shipping, however, the administrative workload for the forwarder is the same, regardless of the volume of the cargo.

Hence, the fixed costs are more or less the same, resulting in a much higher average freight cost when shipping according to LCL terms.

Let’s get back to CIF again. Many forwarders deliberately ‘hide’ the port charges from the customer, by not informing them about it.

Technically, they do nothing wrong, as long as the customer requested a CIF quote – which by definition only includes the shipping cost, while it excludes the port charges.

Then there are also kickback rates, which set the freight cost very low, say $200, while the port charges are closer to $1000.

This is what I refer to when I say that you get more cost control when buying according to DAP terms.

Can I save money by ordering according to Ex Works (EXW) terms?

The EXW price is lower than any other incoterm, simply because it includes no transportation whatsoever. It’s up to the buyer to arrange transportation, all the way from the factory warehouse.

In addition, the supplier will not help out with the export clearance process, which is required before the goods can even leave the country.

While many forwarders can arrange transportation from the factory, and fill out the export clearance documents, they will not do so free of charge.

In fact, you may even pay more than you would if you just ordered according to FOB terms from the very beginning.

There are no loopholes or shortcuts in international freight.

Which Incoterms include insurance?

CIF includes insurance by default. That said, you can book insurance when ordering according to any incoterm.

That said, it’s your responsibility to instruct your forwarder to book insurance. Unless instructed to do so, they will not insure your cargo.

What Incoterm is suitable if I ship directly to a fulfillment center?

Amazon.com is not acting as the Importer of record, or in any other way taking part in the shipping and customs procedures. That said, you can book a DAP shipment directly to a fulfillment center.

Do you need help with shipping and customs?

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a. Tutorials, Video Walkthroughs and Task Lists that guide you step-by-step through the entire shipping and customs process

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In addition, you can also book quality inspections, lab testing and shipping directly from the platform. Click here to learn more.

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    36 Responses to “Incoterms When Shipping from China: A Complete Guide”

    1. Jason July 24, 2014 at 4:42 am #

      Hello,

      I recently purchased 5 electric scooters from a manufacturer in China. The total cost came to 1925 USD and the terms were CNF to Phoenix, Arizona (Obviously not close to a Seaport)

      What should I expect I have to do when the goods arrive here in the desert?

      Thanks for your wonderful website. Best on the web BY FAR.

      -Jason

      • Fredrik Grönkvist July 24, 2014 at 12:49 pm #

        Hello Jason,

        Glad to hear you like our content! First of all, the cargo will arrive in the Port of Destination. Which port that is, shall be specified on the Bill of Lading. The Bill of Lading, together with other shipping documents, shall be sent out by the supplier 2 weeks after the shipment – at latest.

        Upon arrival in the Port of Destination, you shall be notified by the port agent, which shall also be able to send you an invoice covering import duties and other taxes. When this is paid, they shall deliver the cargo to a warehouse in Phoenix (CNF Phoenix shall include delivery to the city, but excludes port fees in the Port of Destination).

    2. Boris July 31, 2014 at 6:39 pm #

      Hi Fredrik

      Which Incoterms include customs clearance? When should I check with customs broker the fee he charges for customs clearance?

      Thanks

      • Fredrik Grönkvist August 1, 2014 at 3:27 am #

        Hello Boris,

        That would be DDP, but I still think the cargo must be declared. I cannot recall ever using DDP (Delivery Duty Paid). However, if you choose another incoterm you may still manage the customs clearance yourself and letting a freight forwarder usually doesn’t cost more than US$100.

        • Boris August 1, 2014 at 9:54 am #

          Hello Fredrik

          What did you mean by cargo being declared?

          – About DAT. This is where customs clearance is done? At least that’s what I thought and that customs clearance are not included up to this point. I thought it’s only DAP is where customs clearance is included in shipping quote.

          – I also wanted top clarify something about DDP by supplier. I think it was on this blog that I read that customs clearance and duties are paid with pre-paid shipping by supplier. However other fees like VAT are not paid. Are there only VAT that is not paid or other fees as well like Harbor Maintenance fee, Merchandize Processing Fee etc.?

          If this doesn’t take care of all fees, why not let freight carrier clear customs and invoice me all the fees in one place instead of separating fees between supplier and freight carrier?

          Thanks!

          • Fredrik Grönkvist August 4, 2014 at 4:04 am #

            Hello Boris,

            a.) A formal customs clearance document shall be filled in and submitted to relevant authorities

            b.) No, DAT includes no such clearance

            c.) That’s right, VAT (EU) is not included in DDP shipping. Honestly I am not 100% about Harbor Maintenance fee and Merchandize Processing Fee, but I am assume these could be included upon request to the shipping company.

            d.) Yes, and that is what most importers are doing.

            • Boris August 25, 2014 at 2:25 pm #

              a.) A formal customs clearance document shall be filled in and submitted to relevant authorities

              Formal customs clearance is declared with consignment exceeding $2500 or if there’s specific reason for it , correct?

              There’s an importer on one forum who’s consignment required informal customs clearance and was air shipped by DHL, yet they asked to have someone in US to do customs clearance. They refused to respect his inquiry to do customs clearance.

              Do you have idea why would DHL refuse to do customs clearance? There was another story with importer where air courier claimed him as 3rd party and not importer and required someone in US to pay customs duties to release consignment.

              I heard that due to unpredictability of DDP, supplier charges above approximated fees to make up for unexpected fees. What if DDP is less than importer has paid supplier? That’s where he makes profit on importer?

    3. Asra September 15, 2014 at 1:40 pm #

      Hello! I live in Armenia.I have my warehouse in Beijing,China,which brings the product to my country for which I pay myself.If I order a product from a different province in China,to be delivered UPTO my warehouse in Beijing,which incoterm do I need to use?
      It should just include the product price and delivery cost to Beijing from the factory in a different province in China.

      • Fredrik Grönkvist September 15, 2014 at 7:45 pm #

        Hello Asra,

        As Beijing is not a port city, I am not sure if FOB Beijing could work. Perhaps you could order FOB Tianjin, but only have the supplier deliver the cargo to Beijing. However, as FOB is not only about transportation, but also export clearance, I think the actual Port of Loading must be declared on the export clearance documents.

        • Boris C. March 27, 2015 at 5:44 pm #

          What do you think about FCA (Free for All) incoterm in this case?

    4. Darrell February 12, 2015 at 8:57 pm #

      I have recently purchased 1000 coffee cups from china (2000usd) and they say the price I was quoted was CIF shipping to port what total fee estimate should I assume I will pay at the port to receive my purchase so I can be prepared and should I call way ahead to get more info on where and how to pickup

    5. Boris C. March 29, 2015 at 8:58 am #

      You can google “duty calculator” and try their tool for estimate.

    6. Kim Williams June 12, 2015 at 10:49 pm #

      Hello Fredrik,

      I’m hoping you can help me out. A developer has proposed building an industrial solar facility in San Benito County, CA. They will be importing all of the solar panels from China via ocean freight to the Port of Oakland. From your article it seems they could do an FOB and have all fees paid to the final destination. However, the developer has promised the county they can arrange for the import taxes and duties to be paid to San Benito as the Port of Destination. I can find nothing that shows this is possible. The developer says their lawyers are “working on it”. I just ran across your blog while doing research and thought I’d reach out to you for your opinion. Any information you could provide would be most appreciated.

      Many thanks,
      Kim

    7. Rick Marcy June 16, 2015 at 2:42 am #

      thanks for helping/ sharing this info Frederik! Very helpful.

    8. AMY CROOKS October 29, 2015 at 8:30 pm #

      WE ARE LOOKING TO IMPORT LAUNDRY DETERGENT CHEMICALS AND I WAS GIVEN A COST OF $59,250 cnf chicago. What other expenses can I expect to incur after the product arrives in Chicago and do I need to secure a freight carrier to take it from the port to our warehouse? Also what kind of insurance would be included in the shipment if any?

    9. Ann Redgewell November 19, 2015 at 12:29 am #

      Hi Boris
      I want a supplier in China to ship by sea my goods to Los Angeles (I am in the UK) where there is a FBA Inspection warehouse.
      What incoterm should be looking for my supplier to provide?
      Normally, if shipped by air the supplier would organise the customs broker i.e. DHL to take directly to Los Angeles. Is it possible to have the same process but by air?

      Thank you in advance
      Ann

    10. Nathan Koonce January 29, 2016 at 7:57 pm #

      Hey your CIF example above is titled for New Jersey but the bullets reference Amsterdam. Might be worth correcting to avoid confusion.

      Great info, thanks for sharing it with us!

    11. kimmy ware February 18, 2016 at 8:06 am #

      Hello

      My name is kimmy ware

      I recently purchased a TV 55 ” and two cell phone s that all came up to 484.00 US.
      Now he stated to me that there is a custom clearance change of 360.00 US.
      Can customs clearance be so much as this?

      • Fredrik Grönkvist February 22, 2016 at 3:35 am #

        Hi Kimmy,

        Sounds like a scam. Of course you would never pay customs duties to your supplier.

    12. Shay March 4, 2016 at 4:26 am #

      Hi Fredric

      Which incoterm is most suitable for using with container freight station?

      Thanks

      Shay

      • Fredrik Grönkvist March 7, 2016 at 3:12 am #

        Hi Shay,

        Not sure what you mean with container freight station? Do you intend to store cargo in the port of loading, or the port of destination?

    13. Marie June 8, 2016 at 9:15 am #

      Hello
      I recently opened a store in the Caribbean and I wanted to order paper bags from China they are cheaper I wanted to know which way should I go for shipping ? Aptoximately how much does it cost to take out when it arrives at port? Do I need some sort of license? The package contains 5000 bags and I’m purchasing from different suppliers 5000 bags from 5 different suppliers is the payment to retrieve packages by the pound ?? Please advise any help will be gravely appreciated thank you

    14. Jim August 1, 2016 at 12:35 pm #

      Hi
      I have ordered 100 tires from China to come to the UK we done F.O.B. I’ll tires are here but we have been given lots of different hidden extra bills which we were on aware of the supplier did not let us know about it do we have to pay them many thanks

    15. Vicky Liu August 2, 2016 at 12:35 am #

      Yes, it is true that to know incoterms is the first step to know import.
      As an international sales, we should know the trade terms very well, and if customers are newbie, we should explain it to him/her. Anyway, it is also neccessary for the buyers to know some basic knowledge of trade terms.
      As per my 6 years sales experience in custom plastic injection molding industry,currently, the most commonly used trade terms are as below:
      1, FOB This is the NO. 1 FOB means Freight On Board or Free On Board. If terms of delivery of a transaction is on FOB means, the cost of movement of goods on board of Airlines or on board of ship is borne by the seller. Rest of all expenses to arrive the goods at buyer’s premise has to be met by the buyer.
      2, CIF – Cost, Insurance and Freight. In this case, the price also includes sea freight charges and insurance to deliver the goods to YOUR nearest port. But only to the port – from that point onwards, you take the shipment into your hands.
      3, CNF – Cost & Freight (or Cost, no Insurance, Freight). Similar to CIF only this time insurance is not included.
      For NO.1, 2 and 3: When the goods arrive, you’ll have to organise customs clearance and delivery to your home/office/warehouse. Keep in mind that there will be other costs involved, such as:
      Customs clearance fee Value Added Tax Import Duty Port security charge Fuel surcharge Docking charge Warehouse storage fee Etc.
      You can ask the manufacturer to estimate the packing details(how many pcs per carton, carton size, gross weight per carton, how many cartons totally) before you make a decision. Then you can consult the above costs from a forwarder.
      For FOB, CNF and CIF, once the cargo pass the edge of the harbor of loading port, the supplier is no longer liable, but they should be responsible for the basic quality. Not liable should be they can not guarantee if the cargo can arrive safely, or they will be stolen? or disappear for something wrong? or some disasters happen that no one can control or expect… CIF vs. FOB, the only difference is the Insurance and Freight should be bough by the seller for the cargo, and then the cargo is insured. The insurance is not very high. You can ask the seller to quote based on CIF if you want the cargo be safer. Almost 99% of the cargos are safe, but… so it is up to you. For the freigt of CIF, it is only the ocean freight, not including other charges like doc/ISF, Customs clearance fee, etc, as mentioned above.
      Somebody would ask: so many parties involved (you, the supplier, the forwarder, etc), it must be quite complex to determine who is liable for the goods at what point?
      Yes, so many parties involved, but if it is goods quality problem, find the reason, if not because of wheather or something that can not be controlled, find the supplier; if lost some cartons, find the forwarder; if Customs clearance too late, and if becuase supplier send documents too late for no reason, find the supplier; if supplier send documents or do telex release too late, but because you paid too late, it is your own fault. _ if Customs broker delays the Customs clearance for no reason, find the Customs broker..
      4, EXW (Ex-Works) – also sometimes referred to as the Ex-Factory price. This basically means the cost of the product and nothing else! No shipping costs or export fees in China are included in this price, never mind local port and custom fees or delivery to your door.
      If your products can be just shipped by courier, ask for EXW price, which not including charges at loading port in China.

    16. Harry December 16, 2016 at 5:43 am #

      I’m buying a pallet of automotive wheels FOBQindao. Entry Port will be Oakland, California.

      Question, I am buying these for personal use, I do not have a business etc. I believe I will be charged all the appropriate fees by US Customs, but I won’t need to have an importer license or have a business to order these items, do I ? Wheels meet all the certification dept of transportation requires. Do I need all the certification, along with all the relative paperwork at the port of entry?

      Do I need a sample for us customs before ordering this pallet?

      Also anyone here know what fees and taxes I will be charged? Value will be under $4000.

      Thanks,
      Harry

      Ps great site

    17. erez May 9, 2017 at 10:24 am #

      hi
      There are two more incoterms I’ve encountered and you have not mentioned them in your article
      What they mean and why you did not mention them:

      DDU or Delivered Duty Unpaid
      DDP or Delivered Duty Paid

      Thanks in advance
      Erez

      • ChinaImportal May 15, 2017 at 3:07 am #

        Hi Erez,

        DDU was phased out and replace with DAP. DDP is still in usage, and is the same as DAP, but also including the import duties. Very few suppliers bother to quote in DDP though, as it takes a lot of work to calculate a DDP price.

    18. LUZ September 18, 2017 at 1:13 pm #

      Hi,
      I have bougth an equipment in china Shaghai as FOB incoterm, my companie is from holand and we need to have it exported by buyer to us and need to import to a chinese company in china to industrialise the equipment.
      Buyer is now telleing me they need to export on a free zone and I should pay for this costs!
      who should bear this costs, if the contract is FOB?

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