Top Incoterms for China Trade 

Broadly speaking, the three incoterms that present the most practical options when importing goods from China are FOB, EXW, and CIF. Let’s delve into each of these, clarifying the responsibilities they assign to the buyer and seller respectively. Additionally, we’ll provide recommendations on which of these incoterms could be the optimal choice.

Importing from China Under the FOB Incoterm

Let’s kick things off with the most commonly used incoterm for imports from China: FOB, which stands for Free Onboard (or sometimes Freight On Board). This is the oldest incoterm and, along with CIF, it’s frequently used in international ocean shipping. However, it’s not applicable for air freight.

Under the FOB incoterm, the seller’s responsibilities cease once the goods are on the ship bound for your specified destination. The moment the freight ‘crosses the ship’s rail’ is the phrase often used to mark the switch of responsibilities from seller to buyer.

Due to this definition, FOB isn’t always employed for container shipping. This is because many containers are sent to a container warehouse or terminal prior to being loaded onto a shipping vessel.

Therefore, an alternative incoterm—FCA—is used by buyers and sellers who agree to the transfer of responsibility before the cargo crosses the ship’s rail. We’ll delve into FCA incoterms later.

Under FOB, the moment the cargo is on board, the responsibility shifts to you, the buyer. Consequently, if any damage or loss of cargo occurs during transit, you’ll bear the cost.

 

 

With the FOB incoterm, your responsibilities as the buyer include:

• Ocean freight costs and surcharges
• Ocean freight insurance
• Arrival fees
• Customs clearance
• Inland transportation costs from the port of arrival to the destination
• All associated taxes and tariffs

With the FOB incoterm, the seller’s responsibilities include:

• Inland transportation from the warehouse in China to your chosen port of loading
• Provision of certificates required at the port of loading
• Management of customs clearance in China
• Customs fees in China
• Port expenses

Under the principle that the party who pays has control, the FOB incoterm allows you to:

• Select the carrier
• Choose the shipping route
• Negotiate with the freight forwarder
• Negotiate a lower price with the seller
• Lower your costs by reducing taxes, fees, and tariffs

 

Using the EXW Incoterm for Shipping From China

Let’s now consider another incoterm that many shippers view as a safe option when importing from China.

EXW stands for ExWorks. Under this incoterm, the seller’s responsibilities cease once the goods are made available to you at their manufacturing site. Essentially, it’s like saying, “the goods are off the conveyor belt, ready for shipment; now it’s over to you.” The EXW incoterm is used for both ocean and air freight.

As an incoterm with minimal obligations for the seller, the EXW price your China supplier quotes you should be lower than quotes for other incoterms.

Also, if you’re working with a new supplier in China and aren’t comfortable with pricing the transportation and shipping services locally, EXW could be the incoterm for you.

Your Responsibilities With EXW:

• Paying for the cargo
• Ensuring the cargo
• Departure fees
• Arrival fees
• Customs clearance at origin and destination
• Inland transportation at origin and destination
• All associated fees and duties

Your Seller’s Responsibilities With EXW:

• Making the goods available for transportation
• Provision of all certifications and documents ready for export

Challenges to be Aware of With EXW Price Agreements:

As you can see, EXW places the majority of responsibility on you. That gives you a lot of control, but it also means you are responsible for many things that happen in China, which could be beyond your control, including:

• Difficulties loading containers
• Problems transporting the freight from the manufacturer in China to the port of loading
• Issues with customs clearance at a port in China
• Customs inspection costs (if required)
• Shipment delay costs

All of the above can slow your shipment down and add costs that you’ll be liable to pay.

Unless you have significant experience in managing supply chains in China or have a partner or representative in the region, coordinating logistics from thousands of kilometers away can be virtually impossible. Beyond that, you’ll have to deal with cultural differences and language barriers. As a result, you may find that the high degree of control EXW gives you over the shipment simply isn’t worth the hassle.

 

The CIF Incoterm for Imports From China

The incoterm CIF stands for Cost, Insurance, and Freight. It exclusively applies to ocean freight, not air freight. At first glance, it may appear to be the most attractive incoterm for buyers because the division of responsibilities leaves far more for the seller to handle:

Your Responsibilities With CIF:

• Pay for the cargo
• Arrival fees
• Customs clearance at the destination
• Port to warehouse transport fees
• Import taxes

Your Seller’s Responsibilities With CIF:

• Delivery of goods as agreed
• Management of export documentation
• Warehouse to port transportation costs in China
• Charges at the port of origin
• Customs clearance in China
• Customs fees in China
• Ocean freight costs
• Insurance costs

However, remember that in international shipping, control belongs to whoever is paying. The CIF incoterm assigns the seller with responsibilities for freight payments, negotiations, choosing a freight forwarder, and organizing the shipment.

For these reasons, the CIF incoterm is not typically recommended for imports from China. It limits the control you have over costs—especially arrival costs.

Using the CIF incoterm could increase your costs. This is because you’ll need to hire an agent at your cargo’s destination to manage the customs clearance process. Moreover, if your shipment from China on CIF does not include the local charges and customs clearance, you could face an agent charging exorbitant amounts in local charges.

It’s also worth noting that in some countries, the shipping cost is added to the total costs for clearance. The CIF incoterm is one of those terms that depends on the intent of the parties, which is why it’s important to access the contract to back it up.

Some suppliers are aware of this and may transfer responsibility for the shipment to this agent. Your agent then becomes the consignee on the Bill of Lading, with full responsibility for the cargo. Your agent might charge you extra fees which you need to pay before they release the goods to you. Therefore, what seems like a hassle-free incoterm on paper could end up costing you more, placing extra pressure to get your cargo off the agent or face delay fees.

 

 

EX Works vs FOB vs CIF—Which Should You Choose?

Given the factors discussed above, you may want to opt for an alternative incoterm instead of CIF when importing from China. Many experts recommend FOB (Free on Board) due to its balance of seller and buyer responsibilities.

EX Works (EXW), while providing you with a high degree of control, can also expose you to substantial risks and responsibilities, particularly if you’re not familiar with or do not have representation in the local logistics and customs clearance procedures in China.

On the other hand, the downsides of CIF (Cost, Insurance, and Freight) can potentially be very costly. While CIF might initially appear to be a hassle-free option as it puts a lot of responsibilities on the seller, it could end up being more expensive due to the need for hiring a local agent to handle customs clearance and the risk of exorbitant local charges.

Therefore, careful consideration of the various incoterms and their implications for your specific situation is crucial when planning your import strategy from China. Always consider the balance between cost, risk, and control to find the most suitable incoterm for your business needs.

 

Shipping From China With the FCA Incoterm

FCA stands for Free Carrier and can be utilized for any mode of freight shipment—air, ocean, road, or railroad. Similar to FOB (Free on Board), the seller’s responsibilities cease when the cargo—which has been cleared for export— is handed over to your chosen carrier.

Unlike FOB, the goods do not have to cross the ship’s rail for the responsibility to transfer to you. The transfer of responsibility can occur anywhere, such as at a container terminal, where many ocean shipments are delivered before being transferred onto a vessel.

This makes FCA a more flexible incoterm than FOB, and it is popular with buyers shipping from China using containers.

Your Responsibilities With FCA:

• Paying for the cargo
• Arrival fees
• Customs clearance at the destination
• Port to warehouse transport fees
• Import taxes

Your Seller’s Responsibilities With FCA:

• Delivery of goods as agreed
• Management of export documentation
• Local transportation costs to the designated place in China
• Export customs clearance in China

FCA is a useful incoterm for importers who want to maintain control over the main freight charge and want to avoid potential issues or costs related to loading the goods onto the main carrier