Look, importing from China isn’t rocket science.
But those three-letter codes? FOB, EXW, DDP? They confuse the hell out of people.
You’re sitting there with a factory quote. Numbers everywhere. Then you see “FOB Shanghai” and think… wait, what does that actually mean for my wallet?
Here’s the thing. These terms decide who pays for what. Who’s responsible when things go wrong. And most importantly—where your money goes.
Let’s break this down. No fancy jargon. Just what you actually need to know.
What Are Incoterms Anyway? (And Why Should You Care)
Incoterms are basically rules. International rules about who does what in shipping.
The International Chamber of Commerce updates them every decade or so. The 2020 version is what everyone uses now.
Think of them as a universal language. A factory in Shenzhen and an importer in Ohio both know exactly what “FOB” means. No confusion. No arguing later about who was supposed to pay for the truck.
Here’s what these terms control:
- Who arranges transportation
- Who pays for what
- When risk transfers from seller to buyer
- Who handles customs paperwork
- Who deals with problems if they happen
Sounds simple. But pick the wrong term and you might end up paying twice for the same thing. Or worse—getting stuck with products you can’t legally import because nobody handled the customs docs.
The Big Three: FOB vs EXW vs DDP Showdown
These three are the heavy hitters for China imports. Each one splits responsibility differently.
Let’s see them side by side first. Then we’ll dig into the messy details.
| What Happens | EXW (Ex Works) | FOB (Free On Board) | DDP (Delivered Duty Paid) |
|---|---|---|---|
| Factory loads truck? | Nope. You do it. | Factory handles it | Factory handles it |
| Gets goods to port? | You arrange | Factory arranges | Factory arranges |
| Export customs in China? | You deal with it | Factory deals with it | Factory deals with it |
| Ocean/air freight? | You book and pay | You book and pay | Factory books and pays |
| Import customs in US? | You handle | You handle | Factory handles |
| Delivery to your warehouse? | You arrange | You arrange | Factory delivers |
| Your involvement | Everything | Moderate | Almost nothing |
EXW: The “You’re On Your Own” Option
Ex Works means you pick up goods at the factory door. Literally.
The factory’s job ends when they make your stuff available. That’s it. You handle everything else.
Sounds cheap on paper. And yes, the quoted price is usually lowest with EXW.
But here’s the catch. You need to arrange:
- Truck from factory to port
- Export clearance in China (good luck doing that as a foreigner)
- Freight forwarder
- Ocean or air shipping
- US customs clearance
- Final delivery
Most US importers can’t handle Chinese export paperwork. You’ll need a local agent anyway. So that “cheap” EXW price? Not so cheap anymore.
Also—risk transfers immediately. If the truck crashes leaving the factory? Your problem. Your insurance better be good.
FOB: The Sweet Spot for Most Importers
Free On Board is where things get reasonable.
Factory handles everything until goods are loaded on the ship. They deal with Chinese trucking, port fees, export customs. All that local China stuff.
Once the container is on the vessel? That’s when it becomes your responsibility.
This is honestly the most popular term for a reason. Here’s why it works:
The factory does what they’re good at. Local logistics in China. You do what you’re good at. Dealing with US side stuff.
You book your own freight forwarder. You arrange US customs. You control the shipping schedule. You pick the carrier.
More control than DDP. Less headache than EXW.
Most experienced importers use FOB. It’s that middle ground where nobody’s doing stuff they’re bad at.
DDP: Easy Button (With Hidden Costs)
Delivered Duty Paid is the full-service option.
Factory handles literally everything. Door to door. They ship it. They clear customs. They pay import duties. They deliver to your warehouse.
You just receive goods and pay one invoice. Sounds perfect, right?
Well. Sometimes.
DDP works great when you’re new. When you’re testing a product. When you don’t want to deal with freight forwarders and customs brokers.
But there are problems:
First—you lose control. Don’t know which forwarder they use. Can’t track things properly. Can’t switch carriers if there’s a cheaper option.
Second—factories usually overprice it. They add margin on top of shipping. On top of duties. You’re paying for convenience.
Third—customs issues? The factory might not handle them well. They’re not experts in US import regulations. Things can get stuck.
Fourth—some factories quote DDP but actually use DDU (Delivered Duty Unpaid). Then surprise! You get a bill for duties anyway.
Which One Should You Actually Pick?
Depends on your situation. Seriously.
New to importing? Start with FOB. It’s the standard. Build relationships with a good freight forwarder and customs broker. Learn the process.
Ordering something small as a test? DDP might make sense. Pay extra for simplicity. See if the product works before you optimize costs.
Experienced importer with volume? Probably FOB. Maybe even FCA (Free Carrier) if you want more control.
Just starting and totally lost? Don’t do EXW. Please. It looks cheap but you’ll mess something up.
Here’s the real talk though. Sometimes factories won’t offer all options. Chinese manufacturers often prefer FOB because it’s standard. They know it. Their freight partners know it. It’s smooth.
Some big factories offer DDP to make things easy for small buyers. They’ve got the systems in place.
Very few offer EXW anymore. Too much hassle for them.
Common Mistakes People Make (Don’t Be That Person)
Mistake one: Comparing prices with different Incoterms.
Factory A quotes $5 FOB. Factory B quotes $4.50 EXW. You think Factory B is cheaper. But then you add your costs for trucking, export docs, everything. Suddenly Factory A is better.
Always compare apples to apples. Ask everyone for the same term.
Mistake two: Not checking what DDP actually includes.
Ask specifically. Does it include import duties? Customs clearance fees? Delivery to your exact warehouse address? ISF filing? Everything?
Get it in writing. Chinese factories sometimes interpret DDP… creatively.
Mistake three: Assuming the factory knows US regulations.
They don’t. Even with DDP, you need to verify import requirements. FDA? FCC? Specific product regulations? That’s on you to know.
Mistake four: Not having insurance sorted out.
Incoterms don’t require insurance for most terms. Only CIF and CIP do. So if you’re doing FOB? You better have cargo insurance. Because if that container falls off the ship, you’re the one losing money.
Quick Tips From Someone Who’s Seen It All
Use FOB for 80% of situations. Seriously. It just works.
If a factory pushes EXW hard, ask why. Sometimes it means they don’t want to deal with export paperwork. Red flag.
With DDP, get a detailed breakdown. What exactly are they charging for each part? This prevents surprises.
Build relationships with freight forwarders who know China-US routes. They’ll save you more money than any Incoterm optimization.
Remember—the cheapest quoted price isn’t always the cheapest total cost. Factor in everything.
And one more thing. As a sourcing agent, we see factories play games with Incoterms all the time. They’ll quote one thing, mean another, then blame “misunderstanding” later.
Get everything confirmed in writing. In the contract. Not just the quote.
Know what you’re signing up for. Because once those goods leave China, changing the terms is basically impossible.
Good luck out there. Importing isn’t complicated once you get past the acronyms.
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