Incoterms 2020: what they are and which to choose when importing from China

Negotiating an import without a clear Incoterm is like signing a contract without reading the fine print. Incoterms determine who pays each leg, who bears the risk and where responsibility transfers. Choosing the right one can save you extra costs and disputes.

We explain what they are, which are most used when importing from China and how to choose the right one for your operation.

What Incoterms are

Incoterms (International Commercial Terms) are a set of rules standardised by the International Chamber of Commerce, last revised in 2020. In an international sale they define, with a three-letter code, how costs, risks and obligations are split between seller and buyer throughout the transport.

The 11 Incoterms, grouped

There are 11 terms: four are exclusive to sea transport (FAS, FOB, CFR, CIF) and seven work for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP). When importing from China, these are the ones you'll see most.

The most used when importing from China

• EXW (Ex Works): the supplier only makes the goods available at its factory; you take on everything else, including the inland logistics in China. It looks cheap, but loads you with management.
• FOB (Free On Board): the supplier delivers the goods loaded on the ship and handles export clearance; you take on the freight and the destination. It's the most common and gives the best cost control.
• CIF (Cost, Insurance and Freight): like FOB, but the supplier also pays freight and minimum insurance to the destination port.
• DDP (Delivered Duty Paid): the supplier delivers to your door with duties included; the most convenient, ideal for those who don't want to deal with logistics.

How to choose the right Incoterm

It depends on how much control and risk you want and whether you have your own logistics operator. With your own logistics and volume, FOB usually gives the best total price. If you prefer convenience and a fixed price, DDP. EXW is only worth it if you control the origin logistics very well; otherwise it exposes you to extra costs in China.

Practical tips

• Always set the Incoterm in writing on the order, with the exact place (for example 'FOB Shenzhen').
• Clarify what the price includes before paying.
• For small volumes or if you're starting out, consider DDP; to optimise cost with volume, FOB.
• Remember that insurance is only included in CIF and CIP; for the rest, arrange it separately.

How R'S WARE helps you

We work with whichever Incoterm suits you best and explain transparently exactly what each price includes. So you compare like for like between suppliers and choose with judgement, not by the lowest number on the quote.