By the Waymore Shipping Operations Team | Last updated: October 5, 2026 | 12 min read

Incoterms 2020 Explained: All 11 Rules Made Simple

Incoterms 2020 are 11 internationally recognized trade rules, published by the International Chamber of Commerce, that define who pays for transport, who handles export and import clearance, and the exact point where risk passes from seller to buyer. If your purchase contract from a Chinese supplier says FOB, CIF or DDP, those three letters decide thousands of dollars of cost allocation.

Our operations team in Shenzhen answers Incoterm questions every single day — usually from first-time importers whose factory quoted EXW and who had no idea they would also need to arrange trucking, export customs declaration and terminal handling inside China. This guide explains all 11 terms with one responsibility matrix you can bookmark, plus practical advice on which term to insist on when buying from China.

What Are Incoterms and Why Do They Matter?

Incoterms (short for International Commercial Terms) were first published in 1936 and are revised roughly every decade. The current edition, Incoterms 2020, took effect on January 1, 2020. They do three jobs in one short code:

• Cost allocation — who pays for inland trucking, terminal handling, ocean or air freight, insurance, and duties.
• Risk transfer — the exact point at which loss or damage becomes the buyer's problem, not the seller's.
• Task allocation — who books the transport, who files export customs in China, who clears import at destination.

Two warnings from experience. First, Incoterms only allocate responsibilities between the two contracting parties — they are not a contract of carriage and they say nothing about title transfer or payment terms. Second, an Incoterm is only complete with a named place: "FOB Shenzhen" is valid; "FOB" alone is not, because it does not say which port. According to guidance from FIATA, the international forwarders' federation, most disputes trace back to a vague or missing named place rather than to the term itself.

The Full Incoterms 2020 Responsibility Matrix

This is the table to save. It shows all 11 terms with who is responsible for each cost and task. S = Seller pays/handles, B = Buyer pays/handles, S* = Seller pays if the term requires insurance.

Read the matrix from top to bottom and you will see the seller's obligation grow steadily from EXW (almost nothing) to DDP (everything). The seven "any mode" terms at the top are what you should use for air freight or rail; the bottom four are reserved for ocean container and bulk shipments.

The 4 Terms Chinese Suppliers Quote Most: EXW, FOB, CIF, DDP

EXW (Ex Works) — Be Careful with This One

EXW looks cheapest on the quote sheet because the factory price includes nothing but the goods sitting packed at the factory gate. But as the buyer you must then arrange pickup trucking, China export customs declaration, terminal handling and the whole international leg. A real example from our files: a UK buyer quoted EXW ¥48,000 (~$6,700) for a machinery order discovered that our origin charges from the Dongguan factory to Yantian added about $890 — including the export declaration his factory refused to file. On FOB terms, that entire origin leg is the seller's problem, and factories usually do it cheaper than a foreign buyer's agent can.

EXW makes sense when you have a trusted consolidation partner in China who picks up from multiple factories — which is exactly how our 1688 and Taobao consolidation service works for small orders.

FOB (Free On Board) — The Importer's Default

FOB is the workhorse term for ocean freight from China. The factory delivers the container to your named port (say, FOB Shanghai), clears it through China export customs, and loads it on the vessel. Risk transfers when the goods are on board. From there, the freight, insurance and destination costs are yours. If you use a forwarder like us for the international leg, FOB gives you full control of carrier choice and rate — which is why we recommend it in most FCL vs LCL decisions.

CIF (Cost, Insurance and Freight) — Convenient but Watch the Insurance

Under CIF the seller books and pays the freight and minimum insurance to your port. The catch: risk still transfers when goods go on board at the Chinese port, and the mandated insurance is only Institute Cargo Clauses (C) — the lowest tier, covering roughly major casualties but not theft, handling damage or water damage. If a CIF container arrives with crushed cartons, you own that loss even though the seller "paid for insurance." For anything fragile or high-value, buy your own all-risks cover; our guide on cargo insurance explains the tiers.

DDP (Delivered Duty Paid) — Maximum Convenience, Price Accordingly

DDP is the term behind every "all-in door-to-door" quote: the seller or their agent pays ocean freight, destination clearance, import duty and final delivery to your warehouse. There are no surprise arrival invoices. The trade-off is that DDP quotes bundle every risk premium into one price, so savvy importers compare DDP against FOB-plus-own-freight. Our detailed breakdown of DDP shipping from China shows exactly what sits inside a DDP rate.

What Changed in Incoterms 2020 vs 2010?

Three changes matter for China importers. First, DAT (Delivered at Terminal) was renamed DPU (Delivered at Place Unloaded) and is now the only term where the seller must unload — the destination can be anywhere, not just a terminal. Second, FCA gained an option for on-board bills of lading: the buyer can instruct its carrier to issue an on-board notation to the seller, solving a long-standing letter-of-credit headache where banks demanded on-board BLs but FCA sellers could not obtain them. Third, CIP insurance rose to Institute Cargo Clauses (A) all-risks level, while CIF kept the cheaper (C) minimum. There is also clearer language on carriage with the buyer's own transport under FCA, DAP, DPU and DDP.

How to Choose the Right Incoterm for Your China Order

• New importer, ocean freight, using your own forwarder: FOB named Chinese port. Simple risk line, seller handles Chinese export formalities.
• You want one all-in landed price: DDP to your door. Best for e-commerce sellers without customs brokers.
• Air freight samples or urgent stock: FCA or CPT. Do not let a factory quote FOB on air cargo — it is technically misuse of a sea-only term.
• Consolidating from several small suppliers: EXW with a consolidation partner, or push suppliers to FCA your named warehouse in Guangzhou/Shenzhen.
• Letter of credit deals: CIF or CIP if the seller controls freight; FCA with on-board notation under the 2020 rules otherwise.

Whatever term you choose, make sure the Incoterm, the named place and the "Incoterms 2020" edition are written on the purchase contract and match your freight booking. When the paperwork disagrees, the costliest interpretation usually wins — and it is rarely yours. Official import guidance from Export.gov and US Customs and Border Protection both stress that the declared trade term directly shapes how your entry is valued and what duties are assessed.

Frequently Asked Questions

What are Incoterms 2020?

Incoterms 2020 are 11 internationally recognized trade rules published by the International Chamber of Commerce that define who pays for transport, who handles export and import clearance, and where risk transfers from seller to buyer in an international sale. They are referenced in sales contracts worldwide and were last updated on January 1, 2020.

Which Incoterm is best for importing from China?

For most importers, FOB is the safest term when you control the freight yourself, and DDP is best when you want one all-in price and no customs hassle at destination. EXW is often quoted by Chinese factories but pushes more cost and risk onto the buyer than most beginners expect.

What is the difference between FOB and EXW?

Under EXW the buyer takes risk at the factory door and pays for trucking, export clearance and everything after. Under FOB the seller loads the goods on the vessel at the named Chinese port and clears them for export, so the buyer only pays ocean freight, insurance and destination charges. FOB usually costs you less than arranging origin legs yourself on EXW.

Do Incoterms 2020 apply to air freight?

Yes. Only FAS, FOB, CFR and CIF are designed for sea and inland waterway transport. The other seven terms, including EXW, FCA, CPT, CIP, DAP, DPU and DDP, work for any mode, so air freight from China normally uses FCA, CPT or DAP.

What is the difference between CIF and CIP?

CIF is sea-only and requires the seller to insure cargo at minimum Institute Cargo Clauses (C) coverage, roughly 110% of invoice value. CIP works for all modes and, under Incoterms 2020, requires the higher Institute Cargo Clauses (A) all-risks cover. Buyers receiving CIF goods should upgrade to all-risks insurance for anything fragile or high value.

Does DDP mean the seller pays import duty?

Yes. DDP is the maximum obligation for the seller: it delivers goods cleared for import at the destination address, with import duties, GST or VAT, and destination delivery all paid by the seller. Buyers pay nothing extra at the border, which is why all-in DDP quotes from China are popular but usually priced with a margin buffer.