SOURCING 101 | IMPORT GUIDE

Incoterms Explained: A Plain-English Guide for Global Importers

Published: 19 May 2026 | Reading time: ~8 min | Topic: Sourcing 101

What Are Incoterms — And Why Should You Care?

If you have ever received a supplier quote saying "FOB Guangzhou" or "DDP your warehouse" and wondered what on earth it meant — you are not alone. Incoterms are one of the most misunderstood parts of international trade, yet they directly affect your cost, your risk, and who is responsible if your cargo gets damaged at sea.

Incoterms — short for International Commercial Terms — are a standardised set of 11 trade terms published by the International Chamber of Commerce (ICC). They define exactly where the seller's responsibility ends and the buyer's begins: who pays for freight, who arranges customs clearance, and critically, at what point the risk of loss or damage transfers from supplier to buyer.

The latest version, Incoterms 2020, came into force in January 2020 and is now the global standard. Whether you are importing electronics from Shenzhen, textiles from Dhaka, or furniture from Ho Chi Minh City, these same 11 terms apply worldwide.

Getting Incoterms wrong can cost you thousands. A first-time importer who accepts EXW pricing thinking it is "cheaper" often discovers too late that they are now responsible for truck pickup from the factory, export customs filing, origin charges, ocean freight, import customs, and local delivery — costs that can easily double the headline price. This guide cuts through the jargon so you know exactly what you are agreeing to.

The 11 Incoterms 2020 at a Glance

Incoterms are divided into two groups: those usable with any mode of transport, and those specific to sea and inland waterway freight.

For Any Mode of Transport (including Air, Rail, Road, Sea)

• EXW — Ex Works
• FCA — Free Carrier
• CPT — Carriage Paid To
• CIP — Carriage and Insurance Paid To
• DAP — Delivered at Place
• DPU — Delivered at Place Unloaded
• DDP — Delivered Duty Paid

Sea and Inland Waterway Only

• FAS — Free Alongside Ship
• FOB — Free on Board
• CFR — Cost and Freight
• CIF — Cost, Insurance and Freight

The Five Incoterms Every Importer Must Know

1. EXW — Ex Works (Most Risk for the Buyer)

Under EXW, the seller's job is done the moment your goods are ready and packaged at their factory gate. Everything from that point — booking a truck, obtaining export licences, paying terminal handling fees, arranging ocean freight, clearing customs at both ends, and delivering to your warehouse — falls on you (or your freight forwarder).

2. FOB — Free on Board (The Global Importer's Favourite)

FOB is the most widely used Incoterm in Asia-to-global trade. Under FOB, the supplier is responsible for all costs and risks up to the point the goods are loaded on board the vessel at the named port of origin. From that moment, risk transfers to you. Most Epic Sourcing clients begin on FOB terms.

3. CIF — Cost, Insurance and Freight (Convenient but Watch the Numbers)

CIF means the supplier quotes you a price that includes cost of goods, ocean freight to your destination port, and cargo insurance. Risk still transfers when goods are loaded at origin, but the supplier has already arranged and paid for the freight and insurance on your behalf.

4. DAP — Delivered at Place (Door-to-Door Without Import Duty)

Under DAP, the supplier delivers the goods to a named place in your country. The supplier is responsible for all freight and transit risk right up to that delivery point. However, you as the importer are responsible for paying import duties and customs clearance in your country.

5. DDP — Delivered Duty Paid (The All-Inclusive Option)

DDP is the most comprehensive Incoterm for buyers. The supplier takes responsibility for everything: manufacturing, export clearance, freight, import customs clearance, import duties and taxes, and final delivery to your named address.

Which Incoterm Should You Use as a New Importer?

• First shipment, small order (under $10,000 USD): Consider DDP or CIF.
• Growing importer with a freight forwarder: Move to FOB.
• Experienced importer with on-the-ground operations: EXW or FCA.
• Dropshipping or small parcel (express courier): DDP.

Common Incoterms Mistakes

Mistake 1: Comparing Quotes on Different Incoterms

A supplier quoting $8 FOB Shanghai and another quoting $9.50 CIF Los Angeles may be offering the same total landed cost. Always convert all quotes to the same basis before comparing.

Mistake 2: Assuming CIF Includes Import Duties

CIF only includes cost, freight, and insurance to the destination port. Import duties, customs clearance fees, and local delivery are still your responsibility.

Mistake 3: Not Checking What Insurance Is Actually Included

Under CIF, the minimum insurance is just 110% of goods value under Institute Cargo Clauses (C) — the most basic level. For fragile or high-value goods, always arrange your own All Risks marine insurance.

How a Sourcing Agent Helps You Navigate Incoterms

When you work with a professional sourcing agent, they can advise you on which terms best suit your order volume, destination, and risk tolerance — and help ensure your supplier is quoting on a like-for-like basis.

Learn more: What Is a Sourcing Agent? The Complete Guide for Global Product Brands

Your Next Step

Epic Sourcing works with product businesses around the world helping them source confidently from China, Vietnam, and the wider Asia-Pacific region.

Further reading: How to Source Products from China — A Complete Step-by-Step Guide