Incoterms Explained: FOB, CIF, EXW, DDP and What They Mean for Importers

What Are Incoterms?

Incoterms (International Commercial Terms) are a standardized set of trade terms published by the International Chamber of Commerce (ICC). They define who — the buyer or the seller — is responsible for each stage of an international shipment: arranging transport, paying freight, bearing risk if goods are damaged in transit, handling export clearance, and handling import clearance.

The current version is Incoterms 2020, which defines 11 terms. In practice, ecommerce importers encounter four of them constantly: EXW, FOB, CIF, and DDP. The rest are less common in consumer goods importing.

Incoterms do not govern customs or tax liability — that's set by law. But they do determine your customs value calculation, which is the base on which your duties are calculated.

The Four Terms You Need to Know

EXW — Ex Works

The seller's only obligation is to make the goods available at their facility (the “works” — factory or warehouse). The buyer arranges and pays for everything from that point forward: pickup, export clearance, international freight, import clearance, and delivery to the final destination.

EXW is the term that puts maximum responsibility (and maximum cost) on the buyer. It's rarely used by ecommerce importers because coordinating export clearance in China requires a licensed Chinese export agent — and you can't do that from the US. Factories sometimes quote EXW when they don't want to be responsible for anything beyond the gate.

FOB — Free On Board

The seller is responsible for delivering goods to the named port of shipment and loading them onto the vessel. Once the goods are on board the vessel, risk transfers to the buyer. The buyer pays for ocean freight, insurance, import clearance, and inland delivery in the destination country.

FOB is the most common incoterm for Amazon sellers and DTC importers sourcing from China. It means your supplier handles the logistics within China (including Chinese export customs clearance), and your freight forwarder takes over from the port of origin.

FOB price = factory price + export packing + inland freight within China + export customs clearance costs

CIF — Cost, Insurance, and Freight

The seller pays for freight and insurance to the named destination port. The buyer handles import clearance and inland delivery from the destination port. Risk transfers to the buyer as soon as goods are loaded on the vessel (same as FOB), even though the seller pays for freight.

CIF is common when suppliers offer “delivered to US port” pricing. It simplifies the quote comparison (one price to the port) but reduces your visibility into freight costs and may make it harder to negotiate.

DDP — Delivered Duty Paid

The seller is responsible for everything: freight, insurance, import customs clearance, duty payment, and delivery to the named destination. The buyer receives goods at their door with all costs included.

DDP sounds convenient, but it creates problems for US importers. If the seller (your Chinese supplier) is handling US import customs clearance, they become the importer of record — not you. This means:

• You lose visibility into how your goods are being classified
• Section 301 tariffs and duties are embedded in the price you pay — and you can't audit them
• You have no power of attorney relationship with a CBP-licensed broker
• You can't file a protest or claim a refund if duties were overpaid

Full Incoterms Comparison

How Incoterms Affect Your Customs Value

This is the part most importers miss. US customs duties are calculated as a percentage of the customs value. The customs value is determined under CBP's transaction value rules — and the transaction value depends on your incoterm.

FOB customs value

For FOB shipments, the customs value is generally the FOB price on your commercial invoice — the price you paid at origin, including the seller's costs to load the goods. Ocean freight and insurance from the US port inward are not included in customs value.

CIF customs value

For CIF shipments, the customs value includes the cost, insurance, and freight to the first US port of arrival. This is a higher base number than FOB — which means higher duties on the same goods. If you're comparing a FOB quote and a CIF quote, make sure you're calculating duties on the right base.

DDP and customs value

Under DDP, the customs value should still be the transaction value of the goods — but since the seller controls the entry, you have less visibility into how it's being declared. This is another reason to avoid DDP for commercial shipments.

Which Incoterm Should You Use?

For most ecommerce importers shipping from China by ocean:

• Use FOB. Your supplier handles export from China; your freight forwarder handles the ocean leg; your customs broker handles US entry. You are the importer of record. You control classification, compliance, and audit rights.
• Get all-in freight quotes from your forwarder. Ask for origin charges, ocean freight, destination charges, and drayage separately so you can see exactly where money is going.
• Avoid DDP for any recurring commercial shipments.
• Consider FCA if shipping by air — FCA (Free Carrier) is better suited to air shipments and intermodal transport than FOB, which technically refers to vessel loading.

For a complete picture of landed cost — including how freight, duties, and other fees combine — see our guide to calculating landed cost. For freight cost benchmarks by mode (ocean FCL, LCL, air), see our import freight cost guide. And use our free HTS lookup tool to verify your duty rate on the correct customs value basis.