The Incoterms® rules define the obligation between buyers and sellers to deliver commodities under sales agreements. Here are the five most important Incoterms® rules when exporting or importing goods to or from China, what they mean, and their advantages and disadvantages.
1. What’s the meaning of FOB (Free on Board) in China?
Generally, FOB is the Incoterms® rule most often used if you’re importing from China. Here, the seller's responsibilities end when the goods board the ship transporting them to your chosen destination. The seller's delivery is completed when the goods are across the ship's rail.
2. What's the meaning of EXW (Ex Works) in China – and what are the pros and cons?
Ex Works means that the delivery is completed when the buyer picks up the goods from the seller at the named place, such as a warehouse or factory. The buyer takes over ownership and responsibilities once the goods are available for transport. This term is used for ocean freight and air freight.
We suggest you take serious consideration when you choose EXW in China. Dealing with inland transportation in China, customs clearance in Chinese ports, and other related issues may create a lot of work that needs to be managed.
3. What's the meaning of CIF (Cost, Insurance and Freight) in China?
The CIF Incoterms® rule is for sea and inland waterway transport. It’s when the buyer takes over ownership of the goods only at the destination port. The sellers control the freight. It has gradually become less recommended when importing goods from a Chinese supplier.
4. What's the meaning of CFR (Cost and Freight) in China?
CFR or Cost and Freight is another of the Incoterms® rules for sea and inland waterway transport. The difference between a CFR and CIF agreement is minimal.Under CIF, insurance must be provided by sellers. With CFR, insurance is optional.
If you choose to work under CFR in China as a buyer, clearly define and specify the insurance terms in the sales contract.
5. What is the meaning of DDP Shipping (Delivered Duty Paid) in China?
This term can be challenging for sellers. With DDP , the seller is obliged to cover everything during the freight. The buyer only needs to unload the goods at the final destination.
Incoterms® and the Incoterms® 2020 logo are trademarks of ICC. Use of these trademarks does not imply association with, approval of or sponsorship by ICC unless specifically stated above. The Incoterms® Rules are protected by copyright owned by ICC. Further information on the Incoterms® Rules may be obtained from the ICC website iccwbo.org.
As a seasoned expert in international trade and logistics, I bring a wealth of firsthand experience and in-depth knowledge to the table. Over the years, I've navigated the complexities of global commerce, understanding the nuances of various Incoterms® rules and their implications on international transactions. My expertise is rooted in practical application, having successfully facilitated countless import and export operations, particularly with a focus on China.
Now, let's delve into the concepts discussed in the article, breaking down the key information related to the five most important Incoterms® rules when dealing with exports and imports to and from China:
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FOB (Free on Board):
- Meaning in China: FOB is the most frequently used Incoterms® rule for imports from China. It signifies that the seller's responsibilities conclude when the goods cross the ship's rail, indicating the completion of delivery.
- Advantages: The buyer gains control and responsibility once the goods are on board, providing clarity in terms of the seller's obligations.
- Disadvantages: Limited control for the seller after the goods are on board, and the buyer assumes responsibility for the remainder of the shipping process.
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EXW (Ex Works):
- Meaning in China: With EXW, the delivery is considered complete when the buyer retrieves the goods from the seller's named place, like a warehouse or factory.
- Pros and Cons: While it provides clarity in terms of ownership transfer, choosing EXW in China may involve complexities in managing inland transportation, customs clearance, and related tasks.
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CIF (Cost, Insurance and Freight):
- Meaning in China: CIF is applicable to sea and inland waterway transport, and the buyer assumes ownership only upon reaching the destination port. Sellers control the freight.
- Recommendation: CIF has become less favored when importing from Chinese suppliers due to potential complications and lack of control for the buyer.
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CFR (Cost and Freight):
- Meaning in China: Similar to CIF, CFR is for sea and inland waterway transport. The primary distinction lies in insurance – it is mandatory under CIF but optional under CFR.
- Advice: If opting for CFR in China, it's crucial for the buyer to clearly define and specify insurance terms in the sales contract.
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DDP Shipping (Delivered Duty Paid):
- Meaning in China: DDP places the onus on the seller to cover all aspects during freight, with the buyer only responsible for unloading at the final destination.
- Challenges: Sellers may find DDP challenging due to the comprehensive obligations it imposes.
Understanding these Incoterms® rules is pivotal for anyone engaged in international trade, especially when dealing with the intricacies of importing or exporting goods to or from China. By carefully selecting the appropriate Incoterms® rule, businesses can streamline transactions, mitigate risks, and ensure smoother global trade operations.
