What Are Incoterms and Why They Matter
Incoterms are globally standardized rules defining buyer and seller responsibilities in international transactions. Choosing the right Incoterm determines who pays for shipping, insurance, and customs clearance — a wrong choice can cost thousands in unexpected fees.
EXW (Ex Works) — Factory Gate Pickup
The seller makes goods available at their factory. The buyer handles everything from that point. Best for experienced importers with their own freight forwarder. Budget $400-800 extra for domestic trucking and export customs fees not included in the EXW price.
FOB (Free On Board) — Most Popular
The seller delivers goods to the named port (FOB Shenzhen or FOB Ningbo) and loads them. The buyer handles ocean freight, insurance, and everything after. FOB is the industry standard for China trade, providing a clean split of responsibility.
CFR and CIF — Seller-Managed Ocean Freight
CFR means the seller pays freight to destination port but risk transfers at origin. CIF adds insurance. Best for new importers who want minimal complexity. Note: CIF insurance is usually minimum coverage (110% of CIF value).
DDP (Delivered Duty Paid) — Full Door-to-Door
The seller handles everything including customs clearance and duties. The buyer simply receives the goods. DDP typically costs 15-25% more than FOB but provides total cost certainty. Ideal for first-time importers and B2C buyers.
Which Incoterm Should You Choose?
First-time importer: DDP or CIF for simplicity. Small business owner: FOB for best balance. Experienced importer: EXW or FOB for full control. High-volume buyer: FOB with your own forwarder for better rates.
How Payment Terms Work with Incoterms
FOB terms are most compatible with LC (Letter of Credit) payment because shipping documents create a clean payment trigger. CSMG Supply Chain's LC credit sales program works seamlessly with FOB shipments, providing bank-guaranteed payment to suppliers while you defer payment.
Conclusion
FOB remains the industry standard for good reason. Discuss your Incoterm options with CSMG Supply Chain to find the structure that optimizes your total landed cost.