Incoterms 2020: Complete Guide for Importers
Incoterms (International Commercial Terms) are standardized trade rules that define who pays for freight, insurance, and customs — and when the risk of loss passes from seller to buyer. Choosing the wrong Incoterm can cost thousands of dollars or leave you uninsured during transit.
TL;DR: FOB is the standard for US importers from Asia. DDP is used for duty-inclusive e-commerce. CIF sounds convenient but gives the seller control over your freight costs. EXW gives maximum control but maximum responsibility.
Incoterms affect your customs value
US CBP uses the FOB price as the customs value for duty calculation. If you import CIF, you must subtract freight and insurance from the CIF price to get the correct customs value. Importing at a CIF price without adjusting inflates your duty bill.
The 6 Most Important Incoterms for Importers
Buyer bears all costs from seller's premises
Buyer pays everything — pickup, export, freight, insurance, import
Best for: When you have your own freight forwarder and want maximum cost control
Seller delivers to named carrier/terminal; risk passes then
Seller handles export. Buyer handles freight, insurance, and import
Best for: Container shipments — US CBP recommends FCA over FOB for containerized goods
Risk passes when goods are loaded on the vessel at origin port
Seller handles export and loading. Buyer handles freight, insurance, and import duty
Best for: The most common term for US importers from Asia. Customs value = FOB price
Seller pays freight and insurance to destination port; risk still passes at origin
Seller arranges freight and minimum insurance. Buyer handles import from destination port
Best for: Simpler for buyers, but seller controls freight costs — often inflated
Seller delivers to named destination, not unloaded. Buyer pays import duty
Seller handles freight and delivery. Buyer handles customs clearance and duty
Best for: E-commerce exports — common for international Shopify orders
Seller bears ALL costs — freight, duty, and delivery to buyer's door
Seller handles everything including import duty and VAT
Best for: Dropshippers and e-commerce merchants selling duty-inclusive international prices
FOB vs CIF: Which Should You Use?
FOB and CIF are the two most common terms US importers see from Asian suppliers. Here's how they compare:
How Incoterms Affect Your Landed Cost Calculation
Incoterms directly affect how you calculate landed cost:
Frequently Asked Questions
Are Incoterms 2020 legally binding?
Incoterms are published by the ICC (International Chamber of Commerce) and become legally binding only when explicitly incorporated into a trade contract. Simply writing 'FOB Shanghai' on an invoice is not always sufficient — the contract should state 'FOB [port], Incoterms 2020.'
What Incoterm should I use for my first import from China?
FOB is recommended for most first-time importers from China. It's widely understood, clearly separates your cost from the supplier's, and gives you control over freight booking — so you can compare quotes from multiple forwarders rather than accepting the supplier's rate.
Does the Incoterm affect who is the importer of record?
Not directly — Incoterms don't specify the importer of record (IOR). Typically, the buyer is the IOR for EXW through DAP. Under DDP, the seller acts as IOR, which requires them to have US Customs authority — many foreign sellers will not agree to this.
What is FOB factory vs FOB port?
'FOB Factory' is non-standard Incoterms language sometimes used in domestic US trade. In international trade, FOB should always reference the port of loading (e.g., FOB Shanghai). Be cautious with 'FOB Factory' in international contracts — it does not align with ICC Incoterms definitions.
Related guides
Disclaimer: This guide is for educational purposes. Incoterms are complex commercial terms — consult a freight forwarder, customs broker, or trade attorney when negotiating contracts.