Three letters on the invoice decide who pays the freight, who clears the cargo through customs, and who loses money if the container is damaged in transit. Getting the Incoterms term wrong costs real money: you either pay for delivery twice, or you cannot file the customs declaration on time, or you discover that the insurance covers only a small fraction of the shipment's value. Below — without unnecessary theory — is what FOB, CIF, EXW and DDP mean when importing from China, where the traps lie, and which term to choose for a container shipment.
What Incoterms 2020 Are and Why an Importer Needs Them
Incoterms (International Commercial Terms) are a set of international rules published by the International Chamber of Commerce (ICC). The current edition, Incoterms 2020, took effect on 1 January 2020 and contains 11 terms. Each term clearly divides two things between the seller (the Chinese factory) and the buyer (you):
- Transfer of costs — up to which point the seller pays for transport and related expenses.
- Transfer of risk — the moment at which responsibility for damage to or loss of the cargo passes to you.
These two points do not always coincide — and that is exactly where importers get confused. All 11 terms fall into two groups: universal (for any mode of transport) and sea-only. In practice, Chinese suppliers most often propose four terms — let's go through each one.
The Four Terms Most Often Proposed from China
EXW (Ex Works) — Minimum Seller Responsibility
Under EXW, the seller merely makes the goods available at its own warehouse or factory. It is not even obliged to load them onto your transport, and it does not handle export clearance. Everything else — loading, export customs clearance in China, freight, insurance and import — falls on you.
The main problem with EXW when importing from China: a foreign buyer effectively cannot complete Chinese export clearance on its own — that requires a Chinese exporting company and local documents. As a result, "pure" EXW from China hardly works in practice; it is usually replaced with FCA, where the seller at least takes on export clearance.
FOB (Free On Board) — The Classic of Sea Shipments
FOB is the most common term for importing from China by sea. The seller delivers the goods to the port of shipment, handles export clearance, and loads them on board the vessel. From that moment the risk passes to you: the main freight, insurance and import clearance in Ukraine are your area of responsibility.
FOB gives the buyer control over the freight: you choose the forwarder and the route yourself, and therefore manage cost and timing better. That is exactly why experienced container-scale importers usually work on FOB. But there is an important nuance — FOB is technically not intended for containers (more on this below).
CIF (Cost, Insurance, Freight) — Freight and Insurance on the Seller
CIF is FOB plus the seller's obligation to pay the main sea freight to the port of destination and to arrange cargo insurance. At first glance this is convenient: most of the logistics sits with the seller. But there are two traps.
First, under CIF the risk passes to the buyer at the same moment as under FOB — when the goods are on board the vessel, not when they arrive at the port of destination. In other words, the seller pays for delivery, but you are responsible for damage in transit. Second, CIF only obliges the seller to arrange minimum insurance coverage (Institute Cargo Clauses C) — which is usually insufficient for valuable or fragile cargo.
DDP (Delivered Duty Paid) — "Turnkey" and Why It Is a Risk
DDP places the maximum on the seller: it delivers the goods to the named place in Ukraine, clears them for import, and pays all duties and taxes. It is the only Incoterms term that requires the seller to handle import clearance.
For the buyer this looks the most convenient, but this is exactly where the risk hides. A foreign seller mostly cannot legally be the declarant and VAT payer when importing into Ukraine — the importer of record usually has to be a resident. In practice, "DDP from China" often means a grey cargo scheme in which the real customs value and payments are opaque, and you do not control how exactly your shipment is cleared. For "white" (fully compliant) imports, a more transparent option is DAP: the seller delivers the cargo, and you officially clear it yourself.
Who Is Responsible for What: A Comparison Table
A brief summary of the areas of responsibility across the four terms (for a typical import from China into Ukraine):
- EXW: export clearance (China) — buyer; main freight — buyer; insurance — buyer; import clearance — buyer; risk passes to the buyer at the seller's factory / warehouse.
- FOB: export clearance (China) — seller; main freight — buyer; insurance — buyer; import clearance — buyer; risk passes to the buyer when the goods are on board the vessel.
- CIF: export clearance (China) — seller; main freight — seller; insurance — seller (minimum); import clearance — buyer; risk passes to the buyer when the goods are on board the vessel.
- DDP: export clearance (China) — seller; main freight — seller; insurance — as agreed; import clearance — seller; risk passes to the buyer at the place of destination in Ukraine.
Note: under both FOB and CIF the risk passes to you in the same way — at the moment of loading on board, regardless of who pays the freight.
The Main Trap: FOB and CIF Are Not for Containers
This is the point that logistics-only companies and the suppliers themselves often skip over. Under the rules of Incoterms 2020, the terms FOB and CIF are intended only for non-containerized sea cargo (bulk, oversized, break-bulk goods loaded directly over the ship's rail).
A container, however, you hand over to the carrier at the terminal — several days and kilometres before it is actually loaded onto the vessel. If the contract says FOB, a "grey zone" arises: the seller is formally still responsible for the goods at the terminal, even though it no longer has any control over them. For container shipments, the ICC recommends the universal terms:
- FCA — the correct container equivalent of FOB (risk passes upon handover to the carrier).
- CPT / CIP — the equivalents of CFR / CIF, when the seller takes on the freight (and, for CIP, the insurance).
Practical takeaway: if you are shipping a container and the invoice says FOB Shenzhen or CIF Odesa — that is a reason to clarify the terms, not to accept them automatically.
Insurance: Why CIF Can Be Insufficient
A separate reason not to relax with CIF is the level of insurance coverage. CIF only requires the seller to provide minimum insurance under Institute Cargo Clauses (C): it covers a limited list of events and often does not compensate for the real losses when a shipment is damaged.
For machinery, electronics, solar panels or any valuable cargo, the more logical choice is CIP, which in the 2020 edition obliges the seller to arrange full coverage under Institute Cargo Clauses (A). If you do stay on CIF, you should arrange insurance yourself for the full value of the shipment rather than rely on the seller's minimum.
Which Term to Choose for a Container B2B Shipment
There is no universal answer — the choice depends on who controls the freight, how prepared you are to handle logistics and customs clearance yourself, and what level of insurance the cargo requires. A reference point for wholesale container-scale importers:
- Container, you control the freight — FCA (port or warehouse) — the correct container equivalent of FOB.
- Container, you want freight and insurance in the price — CIP — unlike CIF, it requires full insurance coverage (ICC A).
- Non-containerized sea cargo (bulk, oversized) — FOB or CIF to the named port — exactly the case these terms were created for.
- You want door-to-door delivery but transparent customs clearance — DAP — the seller delivers, and you officially clear customs in Ukraine.
General rule: the more control over the freight you take (FCA instead of CIF), the more transparent and often lower the final price — but the more logistics work falls on your side. DDP saves your time but deprives you of control over customs clearance.
What Incoterms Do Not Do — and Where the Main Risk Hides
Incoterms allocate the costs and risks of transport — and that is all. They do not verify whether the factory is real or just a middleman; they do not guarantee that the shipment will match the approved sample; they do not protect you from making a prepayment to a fraudster's account. The right delivery term protects you on paper, but it does not protect the contract itself.
This is exactly where the line runs between a full sourcing cycle and a "logistics only" service. Before agreeing on FOB or FCA, it is worth closing the basic risks:
- How to find and verify a manufacturer in China — to make sure you are working with a manufacturer at all, and not a shell company.
- How to tell a manufacturer from a trader — a middleman on FOB still remains a middleman with a markup.
- Supplier verification checklist before prepayment — the cheapest insurance, even before you choose your Incoterms.
A full cycle — factory search, supplier verification, production control, quality inspection and logistics — closes exactly those risks that Incoterms leave outside the brackets.
Summary
Incoterms 2020 is the language in which you and the Chinese supplier agree on the boundaries of responsibility. EXW is rarely used because of Chinese export clearance; FOB gives control over the freight but is not intended for containers; CIF is convenient but provides only minimum insurance; DDP saves time at the cost of control and transparency of customs clearance. For container B2B shipments, the rational baseline choice is FCA (or CIP, if you need insurance in the price), and instead of risky DDP — DAP with your own customs clearance.
Preparing a container shipment from China? Send us the specification and the supplier — we will vet the factory, agree on the correct Incoterms for your cargo, and calculate the logistics to your warehouse. Write to contact@silkwaysourcing.com or on WhatsApp +380 97 883 4765.
