Incoterms Guide for OEM Shipping

When you buy OEM sheet metal parts from China, the price on the quote is rarely the final price you’ll pay. Hidden inside the Incoterms code on your purchase order is a question of who pays for what — and getting it wrong can mean surprise charges, customs delays, or even a 20% jump in your landed cost. After 10 years of shipping containers to the US, UK, Korea, Europe, Japan, and the Middle East from our Ningbo factory, here’s the plain-English guide.

What are Incoterms, really?

Incoterms are 11 standardized international trade terms published by the International Chamber of Commerce. They define three things between buyer and seller:

1. Who is responsible for transport at each stage
2. Who pays for insurance and freight
3. Who takes the risk of damage or loss at each point

The current version is Incoterms 2020. The 11 terms are EXW, FCA, FOB, FAS, CFR, CIF, CPT, CIP, DAP, DPU, and DDP. For OEM manufacturing from China, only 4–5 of these come up in practice. Here they are, ranked from “you do everything” to “we do everything.”

EXW (Ex Works) — You do everything

What it means: The factory’s responsibility ends when the goods are placed at your disposal at our premises. You arrange pickup from our factory, you arrange export clearance, you arrange shipping, you arrange insurance, you arrange import clearance.

Best for: Buyers with their own Chinese logistics team, freight forwarder, or import operation. Buyers who want maximum control over the shipping process.

Watch out for: Export clearance from China is harder than it sounds. You need a Chinese customs broker, an export license or VAT handling, and familiarity with Chinese export documentation. Most overseas buyers underestimate this and pay dearly for it. We’ve seen buyers with EXW terms who end up paying $1,500+ just for the Chinese side of export clearance, on top of the freight they expected to pay.

Landmark recommendation: Only choose EXW if you have a real Chinese logistics operation. Otherwise, the savings are illusory.

FOB (Free On Board) — The standard for most buyers

What it means: The factory delivers the goods on board the vessel at the named port of shipment (typically Ningbo or Shanghai). We handle Chinese export clearance and loading onto the ship. You arrange ocean freight from that port, insurance, and import clearance in your country.

Best for: Most B2B buyers. You get a defined handover point (our goods on the ship), we handle everything on the Chinese side, you handle everything on your side. Risk transfers at the ship’s rail.

Watch out for: FOB doesn’t include insurance. If the goods are damaged in transit, neither of us is automatically covered. Most buyers add their own marine cargo insurance — it’s cheap (typically 0.3–0.5% of cargo value) and essential.

Our recommendation: FOB Ningbo is the default we quote for most customers. It’s a clean, well-understood term that gives you control over the ocean freight (where you can often negotiate better rates than we can).

CIF (Cost, Insurance, and Freight) — We arrange shipping, you take risk

What it means: We arrange and pay for ocean freight and insurance to your named destination port. Risk still transfers at the port of loading (like FOB), but we handle the freight booking. You handle import clearance and last-mile delivery.

Best for: Buyers who don’t have a freight forwarder relationship and want us to handle the ocean shipping. Buyers new to importing from China. Smaller shipments where the freight savings from a bulk contract aren’t significant.

Watch out for: “CIF” sounds like “we deliver to your door” but it absolutely isn’t. We deliver to the destination port, not to your warehouse. The “C” in CIF is for cost; the “I” is for insurance. The freight is paid by us, the risk is yours from the moment it’s on the ship.

Our recommendation: Choose CIF if you want a single point of contact and don’t have a strong freight forwarder relationship. Choose FOB if you do. The price difference is small, but CIF can be 5–10% more expensive if we have to mark up the freight.

DDP (Delivered Duty Paid) — We do everything

What it means: We deliver the goods, cleared for import, to your named destination (your warehouse, your job site, etc.). We pay for freight, insurance, import duties, and last-mile delivery. You pay nothing beyond the unit price we quoted.

Best for: Small shipments, sample orders, first-time buyers who want a single all-in price, buyers in countries where import is complex (some Middle East and South American destinations).

Watch out for: DDP is the most expensive Incoterm for the buyer in many cases, because we have to mark up the freight, insurance, duties, and last-mile to cover our admin overhead. Also, if there’s a customs problem at the destination, it can delay your delivery significantly because we’re dealing with your customs broker (or arranging one) instead of you.

Our recommendation: Use DDP for sample orders and shipments under about 1 m³. Above that, FOB or CIF is usually cheaper and faster.

CFR (Cost and Freight) — Like CIF but no insurance

What it means: We arrange and pay for ocean freight, but not insurance. Risk transfers at the port of loading. Almost no one uses this term in practice because insurance is so cheap — you might as well go CIF.

A real shipping cost example: 40HQ from Ningbo to Long Beach

To make this concrete, here’s what a 40-foot high-cube container of sheet metal parts (about 65 m³, ~$80,000 of product) from Ningbo to Long Beach looks like in mid-2026:

Cost Component	EXW	FOB Ningbo	CIF Long Beach	DDP Your Warehouse
Product cost (factory)	$80,000	$80,000	$80,000	$80,000
Chinese export clearance	$1,500*	included	included	included
Local transport to port	$800*	included	included	included
Ocean freight	$6,000*	$6,000*	included	included
Marine insurance	$400*	$400*	included	included
US import duty (~3.5% on steel)	$2,800*	$2,800*	$2,800*	included
US customs broker	$350*	$350*	$350*	included
Last-mile to warehouse	$1,200*	$1,200*	$1,200*	included
Incoterm admin markup	$0	$0	$1,500	$3,000
Total landed cost	$93,050	$90,750	$85,850**	$83,000**

* Buyer pays directly. ** Includes markup.

Notice: the FOB price looks cheapest, but only because the buyer is paying for the freight, duty, and last-mile directly. The CIF and DDP prices include our markup on those services, which is why they look “more expensive” but are actually a wash — you pay the same either way, just to different parties.

How to choose: a simple decision tree

1. Are you importing from China for the first time? → DDP. Yes, it costs 5–10% more, but it removes every customs and logistics variable you don’t yet understand. Worth it.
2. Are you a regular importer with a freight forwarder? → FOB Ningbo. Standard, clean, gives you control of the ocean freight.
3. Are you importing small quantities (under 1 m³)? → DDP or even air freight DDP. The savings from FOB don’t justify the admin.
4. Do you have a Chinese logistics operation? → EXW. You know who you are.
5. Is your destination a complex customs market (e.g., Saudi Arabia, Brazil)? → DDP. Let the factory deal with the customs broker.

What about FCA, FAS, CPT, CIP, DAP, DPU?

These are real Incoterms but they come up rarely in OEM sheet metal from China. The most relevant notes:

• FCA (Free Carrier): Like FOB but for any mode of transport, not just sea. Sometimes used for air freight or containerized road transport from a Chinese inland point.
• CIP (Carriage and Insurance Paid To): Like CIF but for any mode. The 2020 update requires higher insurance coverage by default.
• DAP (Delivered at Place): We deliver to your country, you handle import. Less common for OEM China because the factory usually prefers CIF or DDP, but useful for buyers who want to handle their own customs.

If someone proposes one of these terms, ask why they want to use it instead of FOB/CIF/DDP. There’s usually a good reason or a misunderstanding.

Three things people get wrong about Incoterms

1. “CIF includes insurance automatically so I don’t have to think about it.” CIF insurance is minimal by default — 110% of the contract value under ICC C clauses, which is a low level of coverage. You can request higher coverage (ICC A, “all risks”) but you’ll pay for it. Read the fine print or ask.

2. “FOB means the seller is responsible until the goods arrive.” Wrong. FOB means the seller is responsible until the goods are on the ship. Once they’re on the vessel, risk is on the buyer. This matters in practice: if the container is lost at sea, the buyer’s insurance pays, not the seller’s.

3. “DDP means the seller handles everything in my country, including selling to my customer.” Wrong. DDP is about import and delivery. Sales, marketing, installation, after-sales service — none of that is in any Incoterm. DDP just means the goods arrive at your warehouse cleared for use.

The bottom line

Incoterms are not as complicated as they look. For 90% of OEM sheet metal orders from China, the answer is one of three terms: FOB (most common), CIF (we arrange shipping), or DDP (we do everything).

Choose based on your experience, your freight forwarder relationship, and your destination country. Once you’ve chosen, the rest is just paperwork.

If you want help choosing or have a destination market that’s giving you trouble, send us a message. We’ve shipped to 20+ countries and can usually tell you in 5 minutes which term is right for your situation.