Incoterms 2020 for CNC Parts: EXW, FOB, DDP and Who Pays What

What Incoterms actually define

I have seen a 12,000 USD order nearly double in total cost because a new buyer accepted EXW without understanding what that meant. Incoterms 2020 rules define three things between buyer and seller: where delivery happens (the point of risk transfer), who arranges and pays for transport at each leg, and who handles export/import clearance and duties. They do not define payment terms, product quality standards, or transfer of title. Those live in your purchase contract.

For CNC parts sourced from China, three terms cover nearly all real-world orders: EXW (Ex Works), FOB (Free On Board), and DDP (Delivered Duty Paid). Knowing exactly where your responsibility starts and stops is the difference between a clean landed cost and a freight bill that wipes out your unit-price savings.

EXW: buyer handles everything

Under EXW (Ex Works), the seller makes the goods available at their factory gate. That is it. The buyer is responsible for everything from that point forward: trucking to the port, export clearance in China, ocean or air freight, import clearance in the destination country, duties and taxes, and final delivery to the warehouse.

• Risk transfers when goods are made available at the sellers premises
• Buyer arranges and pays for all transport legs, both export and import
• Buyer handles both Chinese export clearance and destination import clearance
• Lowest unit price on the quote, but highest logistics responsibility and risk

EXW looks cheap on the quotation because the seller strips out all logistics cost. It is a legitimate option if you have an established freight forwarder who handles China pickup well, but for a first-time order it puts a lot of moving parts on your plate.

FOB: the default China shipping term

FOB (Free On Board) means the seller delivers the goods onto the vessel at the named Chinese port. The seller pays for inland trucking to the port, Chinese export clearance, and all charges up to and including loading. Risk transfers from seller to buyer the moment the goods cross the ships rail at the port of origin.

• Risk transfers when goods are loaded on board the vessel at the named port
• Seller covers inland transport in China, export clearance, and loading charges
• Buyer covers ocean/air freight from that port onward, insurance, import clearance, duties, and last-mile delivery
• Most commonly quoted term for sea freight from Shenzhen, Guangzhou, or Hong Kong

FOB is the practical default for most CNC parts orders because it splits responsibility cleanly: the supplier handles what they control (Chinese-side logistics), and the buyer controls the international leg where freight rates and routings matter.

DDP: door-to-door with no customs hassle

Under DDP (Delivered Duty Paid), the seller delivers the goods to the buyers named destination, with all duties, taxes, and import clearance paid. Risk transfers at the destination point. The buyer simply receives the goods at their warehouse.

• Risk transfers when goods are made available at the buyers named destination
• Seller arranges and pays for all transport, export and import clearance, duties, and taxes
• Buyer has zero customs involvement; the shipment arrives door-to-door
• Highest unit price on the quote, but most predictable total landed cost

DDP is the least hassle for the buyer. TruPart offers DDP delivery to most destinations, meaning import clearance and duty payment are handled before the parts reach the dock. It is especially useful for small-to-medium orders where arranging your own freight forwarder costs more in time than the freight savings are worth.

EXW vs FOB vs DDP at a glance

Choosing the right term for your order

For repeat production orders in container quantities, FOB gives the best balance of control and cost. You can negotiate freight directly with forwarders and have full visibility on routing. For prototype runs, low-volume orders, or if you simply do not want to deal with customs paperwork, DDP is the better pick. The unit price is higher but the landed cost is predictable and you spend zero time on logistics. Avoid EXW unless you already have a reliable China-side forwarder who can pick up from the factory door.

Frequently Asked Questions

• Is FOB only for sea freight?

  FOB is technically designed for sea and inland waterway transport. For air freight, FCA (Free Carrier) is the Incoterms 2020 equivalent, but many suppliers quote FOB for air shipments loosely. Confirm the named place and loading point in writing.

• Who pays for shipping insurance under FOB?

  Neither party is obligated to insure under FOB in Incoterms 2020. Risk transfers at the vessel, so the buyer bears the risk during ocean transit and should arrange cargo insurance from that point.

• Does DDP include VAT or GST in my country?

  DDP requires the seller to pay import duties and taxes, which typically includes VAT/GST. However, confirm this explicitly: some DDP quotes cover duties but not local sales tax, leaving you with a bill on delivery.

• Can I switch from FOB to DDP mid-order?

  You can renegotiate, but once production is underway or goods are at port, switching terms is difficult and may incur fees. Agree on the Incoterm before paying the deposit.

• Which Incoterm is cheapest overall?

  EXW has the lowest unit price but does not account for the logistics costs you pay separately. FOB usually gives the lowest total cost for full-container orders. DDP has the highest unit price but the fewest surprises. The cheapest depends on whether your time and risk tolerance are worth more than potential freight savings.