Incoterms 2020 Explained: The 11 Rules for China Importers

Incoterms are the shorthand of international trade. Two or three letters on a purchase order decide who pays for freight, who arranges insurance, and where risk transfers from seller to buyer. For China importers, choosing the wrong rule can add unexpected costs, customs headaches, and supplier disputes.

This guide explains all 11 Incoterms 2020 rules, groups them by transport mode, and shows how to pick the right term for your China shipment. If you are comparing specific rules, our DDP vs FOB guide breaks down two of the most common choices.

Table of Contents

• What Are Incoterms 2020
• The Four Groups of Incoterms
• All 11 Rules at a Glance
• FOB, CIF, DDP, and EXW Compared
• Common Mistakes
• Expert Recommendations
• FAQ
• Conclusion

What Are Incoterms 2020

Incoterms are a set of international commercial terms published by the International Chamber of Commerce. The latest version, Incoterms 2020, defines the responsibilities of buyers and sellers in international contracts. They cover transport, insurance, export and import clearance, and the point at which risk passes from seller to buyer.

Importantly, Incoterms do not define ownership of goods, payment terms, or breach-of-contract remedies. Those must be addressed separately in your purchase order and sales contract.

The Four Groups of Incoterms

The 11 rules are organised into four groups. The first letter tells you how much responsibility the seller keeps.

• C terms. The seller pays for carriage to a named destination, but risk transfers earlier when goods are handed to the carrier.
• D terms. The seller bears almost all cost and risk until goods arrive at a named destination.
• E term. EXW places maximum obligation on the buyer. The seller only makes goods available at its premises.
• F terms. The seller delivers goods to a carrier nominated by the buyer. Main carriage is paid by the buyer.

All 11 Rules at a Glance

FOB, CIF, DDP, and EXW Compared

Four rules dominate China trade. Here is how they differ in cost, risk, and control.

FOB remains the default for experienced China buyers because it gives control over the ocean freight and keeps the supplier responsible for export clearance. DDP is attractive for simplicity but hides freight and duty margins inside the product price. For import compliance specifics, see our US import compliance and labelling guide.

Common Mistakes

• Using FOB for air freight. FOB only applies to sea and inland waterway transport. Use FCA for air or multimodal shipments.
• Assuming Incoterms cover everything. They do not govern payment terms, title transfer, or quality disputes.
• Writing just “FOB China.” Always name the port, such as FOB Ningbo or FOB Shenzhen, to avoid ambiguity.
• Ignoring insurance under CIF. CIF only requires minimum marine insurance. High-value goods usually need additional cover.
• Letting the supplier choose DDP without scrutiny. DDP quotes can include unknown duty and freight markups.

Expert Recommendations

• Name the exact location in every Incoterm. Vague terms create disputes when cargo is delayed.
• Pair Incoterms with a clear payment schedule. Risk transfer and payment milestones should be aligned but separate.
• Confirm who arranges cargo insurance and to what value. Minimum CIF cover is rarely enough.
• Document the agreed Incoterm in the purchase order, proforma invoice, and sales contract.
• Train your purchasing team on the 2020 changes, especially the shift from DAT to DPU and the new FCA bills-of-lading option.
• For market-level trade context, consult the U.S. International Trade Administration country commercial guides.

FAQ

What are Incoterms 2020?

Incoterms 2020 are internationally recognised trade terms published by the International Chamber of Commerce. They define buyer and seller responsibilities for delivery, risk, insurance, and customs clearance.

How many Incoterms are there in 2020?

There are 11 Incoterms in the 2020 edition: EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAP, DPU, and DDP.

Which Incoterm is best for first-time China importers?

FOB or CIF are usually the safest starting points. Both require the seller to handle export clearance and define a clear risk point at the origin port.

Does FOB apply to air freight?

No. FOB applies only to sea and inland waterway transport. For air freight, use FCA or another multimodal term.

What is the difference between CIF and FOB?

Under FOB the buyer pays for ocean freight and insurance. Under CIF the seller pays for freight and minimum insurance, but risk still transfers to the buyer once goods are on board the ship.

What does DDP mean for importers?

DDP means Delivered Duty Paid. The seller is responsible for all costs and risks until goods are delivered to the buyer’s named destination, including import duties and clearance.

Do Incoterms include payment terms?

No. Incoterms define delivery and risk. Payment terms such as T/T or L/C must be negotiated separately.

Conclusion

Incoterms 2020 give China importers a clear framework for dividing cost, risk, and responsibility. The best term depends on your experience, your freight forwarder relationships, and how much control you want. Start with FOB or CIF if you are new, move to FCA for multimodal control, and use DDP only when you understand the full landed-cost breakdown. Document every term clearly, and your imports will run smoother.

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