Incoterms 2020 explained: who pays for what
Incoterms are the standard trade terms, published by the International Chamber of Commerce, that say who pays for each part of a shipment and where the risk passes from seller to buyer. Choose a term below to see what the factory pays for and what you pay for, step by step.
Updated
FOB: Free On Board
Sea and inland waterway · Risk passes: when the goods are on board the ship in china
The factory clears the goods for export and loads them onto your ship at the Chinese port. You pay the sea freight and everything after. The most common term for buying from China.
- 01Export packingFactory
- 02Loading at the factoryFactory
- 03Transport to the port or terminal in ChinaFactory
- 04Export customs clearanceFactory
- 05Loading onto the ship and origin port chargesFactoryRisk passes to you here
- 06Main freight (sea, air or rail)You
- 07Cargo insuranceYou
- 08Unloading and charges at the destination portYou
- 09Transport to your addressYou
- 10Unloading at your addressYou
- 11Import customs clearanceYou
- 12Import duties and taxesYou
All 11 Incoterms at a glance
| Incoterm | Main freight paid by | Insurance bought by | Import duties paid by | Risk passes to you |
|---|---|---|---|---|
| EXW (Ex Works) | You | You, if you want it | You | At the factory, when the goods are ready for collection |
| FCA (Free Carrier) | You | You, if you want it | You | When the goods are handed to your carrier in China |
| FAS (Free Alongside Ship) | You | You, if you want it | You | When the goods are alongside the ship at the Chinese port |
| FOB (Free On Board) | You | You, if you want it | You | When the goods are on board the ship in China |
| CFR (Cost and Freight) | Factory | You, if you want it | You | When the goods are on board the ship in China |
| CIF (Cost, Insurance and Freight) | Factory | Factory | You | When the goods are on board the ship in China |
| CPT (Carriage Paid To) | Factory | You, if you want it | You | When the goods are handed to the first carrier in China |
| CIP (Carriage and Insurance Paid To) | Factory | Factory | You | When the goods are handed to the first carrier in China |
| DAP (Delivered at Place) | Factory | Factory (own risk) | You | At your address, before unloading |
| DPU (Delivered at Place Unloaded) | Factory | Factory (own risk) | You | At your address, after unloading |
| DDP (Delivered Duty Paid) | Factory | Factory (own risk) | Factory | At your address, before unloading |
Which Incoterm should you use from China?
- FOB is the most common term for sea freight from China. The factory delivers onto the ship, and you choose the forwarder and control the freight cost.
- FCA does the same job for air freight, rail and containers handed over at a terminal, and is often the better choice in place of EXW.
- CIF and CFR are convenient, but the factory chooses the freight and you take the risk once the goods are on board. Check what's included at your end.
- DDP means delivered with duties paid. It's simplest for small buyers and Amazon sellers, and is usually arranged through a forwarder.
- EXW sounds cheapest but is hard to use from China, because export clearance must be done by a Chinese exporter.
Common mistakes
- Writing just "FOB" without naming the port. Always write the term, the place and the version, for example "FOB Shanghai, Incoterms 2020".
- Assuming CIF covers costs at your port. Destination port charges are usually paid by you.
- Relying on the seller's minimum insurance under CIF. Ask for broader cover if the goods are valuable.
- Using sea-only terms (FAS, FOB, CFR, CIF) for air freight. Use FCA, CPT or CIP instead.
See how Incoterms fit into the bigger picture in our guide to freight forwarders and sourcing agents, and the official rules from the International Chamber of Commerce.
Common questions
What is the difference between FOB and CIF?
Under FOB, you pay the sea freight and insurance. Under CIF, the factory pays freight and minimum insurance to your port. In both, risk passes to you once the goods are on board in China.
Which Incoterm is best for a first order from China?
FOB is the most common, because it lets you choose your forwarder. If you want the simplest option, DDP delivers to your door with duties paid.
Are Incoterms 2020 still current?
Yes. Incoterms 2020 are the current version published by the ICC. Always state the version in your contract.