Incoterms 2020 Explained: EXW, FOB, FCA, DAP and DDP

Incoterms® decide where your supplier's responsibility ends and yours begins: who pays the main freight, who clears export and import customs, and at what point the risk of loss or damage passes to you. When buying from China, suppliers most often quote FOB or EXW; FCA usually fits air freight and consolidated shipments better, and DAP or DDP give you a delivered price.

The rules are published by the International Chamber of Commerce (ICC). The current edition, Incoterms® 2020, has eleven of them. A term only works with a named place, such as "FOB Yantian" or "DAP Hamburg", and the contract should name the edition too, for example "FCA Shenzhen warehouse, Incoterms® 2020".

What do Incoterms® 2020 cover?

Each rule answers three questions: where the seller delivers the goods, who pays for which part of the transport, and who handles customs on each side. The rules do not set the price of the goods, transfer ownership or say when and how you pay; those belong in the sales contract.

Seven rules work for any mode of transport: EXW, FCA, CPT, CIP, DAP, DPU and DDP. Four are only for sea and inland waterway: FAS, FOB, CFR and CIF. That split matters more than most buyers expect, as the sections below show. Our glossary has a one-line definition of each.

The terms you will meet when buying from China

In the C-terms (CFR and CIF, and their any-mode versions CPT and CIP) the seller pays the main freight, yet the risk passes to you at origin, once the goods are on board or handed to the first carrier. CIF obliges the seller to buy only minimum insurance cover (Institute Cargo Clauses C); CIP requires the broader Clauses A. If the goods matter to you, check that cover or arrange your own.

Why is FOB so common, and when does FCA fit better?

FOB is the term most Chinese factories quote: they truck the goods to the port, clear export customs and load them on board, while you or your forwarder book and pay the sea freight. It suits a full container that the factory loads and seals.

FOB was written for cargo loaded onto a ship, however. For air freight, express and LCL consolidation, the goods change hands long before anything is loaded: at an airline terminal, a container freight station or a forwarder's warehouse. FCA describes that handover correctly. The seller delivers export-cleared goods to your nominated carrier at a named place, such as our Shenzhen warehouse, and the risk passes there. For an air or LCL shipment, ask for FCA instead of FOB.

EXW: the lowest price on paper

With EXW the seller only makes the goods available at its premises. You pay for loading, inland trucking, export clearance and everything after. In China, export declarations are filed in the name of a registered exporter, so agree in writing who will declare the goods, and that the supplier will provide the invoice, packing list and other papers the declaration needs, before you accept an EXW price. Without that, a low ex-works price can turn into a shipment that cannot leave.

EXW still makes sense when several suppliers deliver to one warehouse for consolidation. We can collect from each factory or receive their deliveries, check and combine the goods, and handle the export declaration through our customs team.

DAP and DDP: delivered prices

Under DAP the seller pays to bring the goods to a named place in your country, ready for unloading; you clear import customs and pay the duty and import VAT. Under DDP the seller also clears import customs and pays the duties and taxes, so the goods arrive without a separate tax bill.

DDP is the easiest term for a buyer, but it only works when the party clearing the goods can act as importer in your country, and the price has to cover duties the seller must estimate in advance. Our China–Europe rail line is priced DDP: export declaration, about 16–19 days by rail, import clearance with duties and taxes paid, then UPS delivery, at about a third of the air price. Our LCL sea freight to Europe is DAP: delivered to your door, with clearance and import taxes charged separately. The China–Europe route page sets out both.

Which term should you ask your supplier for?

1. A full container loaded at the factory: FOB at the port of loading (for example FOB Yantian), or FCA at the factory.
2. Air freight, express or LCL: FCA at the supplier's door or at your forwarder's warehouse.
3. Several suppliers, one shipment: FCA or EXW to the consolidation warehouse, with the export declaration agreed.
4. A delivered price, with import clearance done by you: DAP to your address or warehouse.
5. No customs work on arrival: DDP, or a DDP line such as China–Europe rail.
6. In every case, name the place and the edition, and match the term to the transport that will actually be used.

How does the term change your freight quote?

Tell us the Incoterm and the named place when you ask for a quote. With FOB or FCA we price from the port or our warehouse; with EXW we add pickup and export clearance; for DAP and DDP we price to the door and state whether duties and taxes are included. For the duty side, our guide to HS codes and landed cost shows how to estimate what you will pay on arrival.