Incoterms for small importers: who pays, and when it becomes your problem
Updated October 2026 · 7 min read
Three letters on a pro forma invoice don't look like much. But "FOB Ningbo" or "EXW Shenzhen" decides who books the ship, who pays for the truck to the port, who deals with export paperwork, and at what moment a dropped pallet stops being your supplier's loss and starts being yours.
Incoterms® are a set of standard trade terms published by the International Chamber of Commerce. The 2020 edition is the one most contracts name today. Always check which edition your contract refers to, because the rules differ slightly between editions.
One thing Incoterms don't do: they don't decide who owns the goods, when you pay, or what happens if the supplier sends the wrong thing. That's your sales contract. Incoterms only cover delivery, cost and risk.
The six you'll actually see
There are eleven rules. As a small importer bringing goods into the US, you'll mostly meet these six.
Who does what under each term (Incoterms® 2020, simplified)
| Term | Who books the main freight | Who handles export clearance | Where risk passes to you | Who handles US import clearance and duties |
|---|---|---|---|---|
| EXW Ex Works | You | You | At the supplier's premises, once the goods are made available | You |
| FCA Free Carrier | You | Supplier | When the supplier hands the goods to your carrier at the named place | You |
| FOB Free On Board | You | Supplier | When the goods are on board the vessel at the origin port | You |
| CIF Cost, Insurance & Freight | Supplier (and buys minimum insurance) | Supplier | When the goods are on board the vessel at the origin port | You |
| DAP Delivered At Place | Supplier | Supplier | At the named destination, ready for unloading | You |
| DDP Delivered Duty Paid | Supplier | Supplier | At the named destination | Supplier |
FOB and CIF are sea and inland waterway terms only. For air freight or containerized cargo handed over before it reaches the ship, FCA and CIP are the ones the ICC recommends.
What EXW really means for you
EXW looks like the cheapest price on the quote, and on paper it is. The supplier's only job is to have the goods ready at their door. Everything after that is yours: loading the truck (strictly, even that), the trip to the port, export clearance in the supplier's country, origin port charges, the ocean freight, US customs, and delivery.
The awkward part is export clearance. Under EXW, the buyer is responsible for clearing goods for export in a country where they probably have no legal presence. In practice the supplier usually does help, but it's not their obligation, and if they don't, your forwarder has to find a way. That costs time and sometimes money.
If your supplier offers EXW, ask what FCA or FOB would cost instead. The difference is often small, and you get export clearance handled by the party who's actually in that country.
FOB vs CIF for a first-time importer
These two get compared a lot because the price difference looks like "the cost of freight". It's more than that.
Under FOB, you choose and pay for the ocean freight. You know who's booking it, what the rate is, and you can see the destination charges coming. Risk passes to you once the goods are on board at the origin port, so if you want insurance for the ocean leg, you arrange it.
Under CIF, the supplier books the freight and buys insurance, and the price looks tidier. Two catches. First, risk still passes to you when the goods are loaded at the origin port, even though the supplier booked the ship. Second, CIF only requires minimum insurance cover (Institute Cargo Clauses C, for 110% of the contract value). That's limited cover and may not include common types of damage. And the supplier's forwarder will bill you destination charges at the US end, at whatever rate they choose. Low CIF prices sometimes come back as high destination fees.
For most small importers, FOB with your own freight booking (and your own insurance if the goods matter) gives you more control and fewer surprises.
DDP: who is the importer of record?
DDP sounds ideal. The supplier delivers to your door, duties paid, and you don't touch customs.
The question to ask is who's acting as importer of record with US Customs. Under DDP, that's meant to be the seller or someone they appoint. A foreign company can't always do that simply, and some DDP offers are arranged in ways that put the duty and compliance risk back on you without you noticing. If the declared value or classification is wrong, CBP doesn't care whose idea DDP was.
If you're offered DDP, ask in writing who the importer of record will be, whose customs bond is used, and how duties will be calculated. If the answers are vague, treat that as an answer.
Ask your supplier this before you agree a term
Before you sign the purchase order
- Which Incoterm, and which edition (2020 unless they say otherwise)?
- What's the exact named place or port? "FOB China" isn't a place. "FOB Shenzhen (Yantian)" is.
- Who clears the goods for export, and who pays for origin port and terminal charges?
- If they're booking freight (CIF, DAP, DDP): which forwarder, and what will the destination charges be at the US end?
- If CIF: what insurance exactly, and can they send you the certificate?
- If DDP: who is the importer of record, and whose bond?
- When will the cargo be ready, and who sends the ISF data? (On ocean shipments it has to reach the filer in time to be filed 24 hours before loading.)
- Will they send photos of the goods packed and loaded?
Where we fit
On FOB, FCA and EXW terms, you're the one booking freight, so that's where we're most useful. We arrange the ocean or air freight with licensed carriers through FMC-licensed forwarders (for ocean), and your ISF and customs entry are filed by licensed customs broker partners. If your supplier needs export packing or crating, we can arrange that too.
We'll also happily look at a CIF or DDP offer and tell you what questions it leaves open. That doesn't cost anything, and it often saves a nasty destination invoice.
Incoterms® is a registered trademark of the International Chamber of Commerce. This guide is a plain-English summary, not the rules themselves. Read the official ICC text before you rely on a term in a contract.
General information, not legal, customs or tax advice. Rules change; check the official source or a licensed customs broker before you rely on it.
Buying FOB? Let's price the freight.
A few details about the cargo and where it's going. We reply within one business day, Mon–Fri 9:00–18:00 ET, with a written quote or the questions we need answered first.
No online payment · Written quote first