China sourcing glossary
What Are Incoterms 2020? What a Trade Term Settles With a Chinese Supplier
What does an Incoterms rule decide?
Three things: where delivery happens, when risk passes, and who pays which costs. Delivery here means the point where the seller has finished its part of the shipping. Under most rules that point is in China, long before the goods reach you. Risk of loss passes at delivery, but costs can split somewhere else. Under CIF, for example, the seller pays the freight to your port, yet the risk passed to you when the goods went on board in China.
Each rule also says who clears export and import customs. The table further down shows which side does what.
What doesn't a trade term cover?
It leaves out ownership, payment, quality and disputes. Incoterms don't say when the goods become yours. Under Chinese law, a sale contract can say the goods stay the seller's until you pay (Civil Code art. 641), so if ownership matters, write down when it passes. A trade term also sets no price or payment date, no quality standard or inspection method, and no court or arbitration. Each of these needs its own clause.
How should you write the trade term?
Use three parts: the rule, a precise place, and the edition. "FOB China" has two gaps. It names no port, so nobody can say where delivery happens, and it names no edition. A complete term reads "FOB Ningbo, Incoterms 2020".
You can also change what the standard rule says, for example by asking the seller to load the goods under EXW. Chinese law lets the parties agree the delivery place and the risk point (Civil Code arts. 603 and 604). Write each change out, then check that the cargo insurance starts where the risk now passes.
A clause you can adapt:
Delivery. [Rule] [named port or place, with full address], Incoterms® 2020. [Each change to the standard rule, stated one by one: who loads, who pays which port charges, where risk passes.] Insurance: [who insures, on what cover, from where to where]. This trade term replaces any other trade term in the quotation, proforma invoice or purchase orders.
What if the quote and the contract use different terms?
Fix it in writing before production starts. A Chinese court reads a disputed term by its words, the related clauses, the purpose of the deal, trade custom and good faith (Civil Code arts. 142 and 466). That gives no quick answer on who owes the freight, the duty or the transit loss. Put one term in the contract, say that it replaces the others, and use the same term on every later purchase order.
These examples are based on matters I have handled. Names, products, places, dates, amounts and other identifying details have been removed or changed. They show the kind of work involved. They don't promise any result.
Acting for a buyer
Quote said EXW, the contract annex said DDP
A supplier's quotation used EXW and the contract annex used DDP, and the two sides had different ideas about freight, taxes and where delivery happened. I had the purchasing and logistics people write out the route, leg by leg: who books, loads, clears customs and hands over. Set against the quote, the supplier's door-to-door price turned out to carry exceptions the buyer had missed. I agreed those separately, checked whether the main contract changed the standard risk split elsewhere, and left quality, payment and ownership to their own clauses. The final quote and contract used one delivery arrangement, and logistics booked and prepared documents against it.
Where does each rule put delivery?
Seven of the eleven rules are set out below. The other four are CPT, CIP, DPU and FAS.
| Rule | Transport | Seller delivers, and risk passes | Main freight booked by | Export / import clearance |
|---|---|---|---|---|
| EXW | Any | At the named place, usually the factory, not loaded | Buyer | Buyer / Buyer |
| FCA | Any | Handed to the buyer's carrier at the named place (loaded, if at the seller's premises) | Buyer | Seller / Buyer |
| FOB | Sea, inland waterway | On board the buyer's ship at the named port | Buyer | Seller / Buyer |
| CFR | Sea, inland waterway | On board at the port of shipment | Seller, to the named port | Seller / Buyer |
| CIF | Sea, inland waterway | On board at the port of shipment; the seller also insures | Seller, to the named port | Seller / Buyer |
| DAP | Any | Ready for unloading at the named destination | Seller | Seller / Buyer |
| DDP | Any | Ready for unloading at the named destination, cleared for import | Seller | Seller / Seller |
Questions from overseas buyers
Do I need to write "Incoterms 2020", or is "FOB Ningbo" enough?
Write the edition. Editions differ in places, such as the insurance level under CIP and the bill of lading option under FCA. An older edition still applies if the contract names it.
Which rule fits air freight?
A rule for any transport mode, such as FCA, CPT, DAP or DDP. FOB, CFR and CIF are built for sea and inland waterway transport.
I draft purchase contracts for overseas buyers of standard products from China →
Sources and translations
- Civil Code of the PRC (2020), arts. 142, 466, 603, 604 and 641.
- ICC, Incoterms® 2020 (referred to by name; not quoted).
Translations are mine and unofficial.
Official texts cited in this article.
- Civil Code of the PRC (2020) npc.gov.cn
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