Incoterms 2020 for Shipping from China

1. What Incoterms are

Incoterms are international rules that define the responsibilities of the seller and the buyer in the sale of goods. Their purpose is to clearly state where the seller’s responsibility ends and where the buyer’s begins.

In real life, Incoterms affect who pays for freight, insurance, customs clearance, and where the risk lies at each step. That is why they are especially important when trading with China, where the logistics chain often has many stages and several different parties involved.

2. Incoterms by group

Incoterms are grouped according to how costs and responsibilities are shared between the seller and the buyer.

3. Seller and buyer obligations

Within these groups, the responsibilities of the seller and the buyer are broken down into 10 standard categories. For each category, the seller’s obligation has a matching obligation on the buyer’s side.

In other words, for each Incoterms rule (EXW, FOB, CIF, DAP, DDP, etc.), it is clearly defined:

– Whether the seller (A) must arrange transport or not. – Whether the buyer (B) must arrange transport or not. – Who pays which cost. – At which point the risk transfers to the buyer.

4. Detailed explanations of Incoterms rules

Below is a practical overview of the key Incoterms rules, what they mean, and how they work in real life.

5. EXW – Ex Works in practice

In practice, EXW is used when the seller wants to keep their responsibilities to a minimum – the goods sit in their warehouse, and the buyer organises everything else. For imports from China, that usually means the buyer has to arrange domestic transport, export customs clearance, and loading onto the vessel, which can be challenging for beginners.

That is why EXW is often not the best choice if you do not have a reliable logistics setup in China or a partner who can handle that part of the job for you.

6. FCA – Free Carrier in practice

FCA is more flexible and practical for most importers because the seller handles export formalities and hands the goods over to the carrier at the agreed place. From that point, the buyer has more control over the main transport and can choose their own freight forwarder.

In trade with China, FCA is often a better compromise than EXW – it reduces risk at the start of the chain, but still does not hand over the entire transport to the supplier, as can happen with CIF or DAP/DDP terms.

7. FOB, CFR and CIF – the most common sea freight terms

FOB is typically used when the buyer wants to organise sea freight themselves, but the seller pays costs and bears the risk until the goods are loaded on board the vessel. CFR and CIF go one step further – the seller also pays the freight to the destination port, and under CIF additionally pays for basic cargo insurance.

Many importers choose CIF because it looks like an “all‑in” solution, but that is rarely the case – local charges at the destination port are still for the buyer’s account. That is why you need to know exactly what is included in the price and which charges will appear once the goods arrive.

8. DAT, DAP and DDP – delivery at destination

These rules mean a higher level of responsibility for the seller. Under DAT (now DPU in the 2020 rules), the seller delivers to a terminal, under DAP to an agreed place, and under DDP the goods arrive duty paid at the buyer’s address.

Although these options sound easiest for the buyer, in practice they often cause confusion about local taxes, VAT, and country‑specific import rules. With DDP in particular, it is crucial to define clearly who is actually taking on which obligations and exactly which costs are included in the price.

9. How to choose the right term

The best Incoterms rule for you depends on your product, volume, mode of transport, and how much logistics responsibility you want to take on. For beginners, terms that clearly split responsibilities and give you control over the main transport are usually the most practical.

Instead of looking only at the product price, focus on where the seller’s responsibility ends and from which point all costs and risks are on you. With imports from China, that difference often decides whether the shipment is profitable or unexpectedly expensive.

10. The most common mistakes

Many importers make mistakes simply because they accept the Incoterms clause suggested by the supplier without really analysing what it means in practice.

• Choosing the term just because it is what the supplier “always uses”.
• Not checking who exactly bears which costs and risks at each stage.
• Not clearly defining the place of delivery and the exact risk‑transfer point.
• Mixing up the price of the goods with the total landed cost.
• Ignoring local charges, customs obligations, and taxes.

Once Incoterms are clearly agreed and you understand what each abbreviation stands for, it becomes much easier to negotiate with suppliers and avoid unpleasant surprises.

11. Conclusion

Incoterms are not just a technical line in your contract – they are the foundation for understanding responsibilities and costs in international trade. When importing from China, they help you see what is included in the price, who pays for which part of the transport, and when the risk passes to you.

If you use them correctly and align them with your logistics strategy, it becomes much easier to compare quotes, control your costs, and avoid expensive misunderstandings with suppliers and logistics partners.