Incoterms for China Buyers: FOB, CIF and DDP Explained

FOB, CIF and DDP are the three letters that decide who pays freight, who bears the risk of loss in transit and who clears customs. Getting the term wrong on a China order is one of the most common — and most costly — mistakes a buyer can make, because the gap between 'the supplier handles it' and 'the supplier is responsible if it goes wrong' is exactly where disputes are born.

What Incoterms do — and what they do not

Incoterms are published by the International Chamber of Commerce; the current version is Incoterms 2020. They allocate three things between buyer and seller: which party arranges and pays for carriage, which party arranges insurance, and the point at which the risk of loss or damage passes from seller to buyer. They do not transfer ownership of the goods, and they do not set the price or payment terms — those belong in your contract.

FOB (Free On Board): risk passes when goods are on the vessel

Under FOB, the seller delivers the goods on board the vessel nominated by the buyer at the named port, and risk passes to the buyer once the goods are on board. The buyer arranges and pays for the main carriage and any insurance. In Chinese export practice the seller still handles the export declaration, so the day-to-day flow feels simple — but from the moment the cargo is on board, transit risk is yours. FOB is the most common term for China exports and generally suits buyers who have their own forwarder.

CIF (Cost, Insurance and Freight): seller pays freight and insurance, but risk still passes on board

CIF looks like the supplier 'takes care of everything' to the destination port, but the risk position is the same as FOB: risk passes when the goods are on board at the port of loading. The seller pays freight and arranges insurance, but the insurance is usually the minimum level of cover (Institute Cargo Clauses C), which may not cover your full exposure. If the goods are damaged in transit, you claim under insurance the seller bought — and you may find the cover is thinner than you assumed.

DDP (Delivered Duty Paid): maximum obligation on the seller

DDP is the opposite end of the spectrum. The seller delivers the goods to the named place, cleared for import, and bears all costs and risks — including import duties and taxes. It is convenient for the buyer because the price is effectively a landed cost, but it only works if the seller can lawfully act as importer of record in your country, clear customs and pay the duties. If the seller cannot, the arrangement collapses at the border — and the buyer, as the real importer, is usually the one left holding the problem.

How to choose for a China order

• FOB suits experienced buyers with their own freight forwarder who want control over the main carriage.
• CIF suits buyers who want the supplier to manage freight but who understand the insurance may be minimal.
• DDP suits buyers who want a single landed-cost price — but verify the seller can actually clear your country's import formalities.
• Whatever the term, put the named port or place in writing — 'FOB Shenzhen' and 'FOB Ningbo' are different deals.

Pair Incoterms with payment terms and a written contract

Incoterms do not transfer title, so they must sit alongside a contract that states when ownership passes and how payment works. A common failure is pairing DDP with a deposit paid to an unverified party and no written contract — the buyer then has neither control over the goods nor a clear counterparty when something goes wrong. For more on structuring the contract itself, see our guide to China supply contracts.

This content is general information about trade terms and is not legal advice. Incoterms 2020 definitions should be confirmed against the ICC text, and your contract should be reviewed for your specific transaction.

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