Incoterms: What They Are, Which Are the Most Used and Their Importance When Importing from China

What are Incoterms and why are they essential in international trade? 

Incoterms (International Trade Terms) are standardized rules created by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in global transactions, such as imports from China. These terms, such as EXW (Ex Works), FOB (Free on Board) and CIF (Cost, Insurance and Freight), determine key aspects such as the point of delivery, transport costs and risk coverage, ensuring clarity in negotiations and avoiding misunderstandings in international trade.

At SPARX, we understand that the proper selection of the Incoterm is crucial to optimize costs and reduce risks in every logistics operation. Incoterms clearly define the responsibilities between the seller and the buyer, which directly influences aspects such as the cost of transportation and insurance. For example, with an Incoterm FOB, the seller covers the costs until the goods are on board the ship, while with CIF, they also take on the insurance until the port of destination.

In contrast, with EXW, the buyer is responsible for all costs and risks from the supplier's factory. Mastering terms such as EXW, CPT, FAS, FCA, and DPU is essential to achieving efficient import management, especially when working with markets such as China. Here's how these Incoterms work and how they can impact your logistics and business operations. 

What is the main function of Incoterms in import and export operations? 

The main function of Incoterms in import and export operations is to establish clear rules on the responsibilities in international trade between buyers and sellers. These terms, such as EXW (Ex Works), FOB (Free on Board), and CIF (Cost, Insurance and Freight), define who bears the costs, transportation, and risks at each stage of the shipment. For example, with an Incoterm FOB, the supplier takes care of the transport until the goods are on board the vessel, while with CIF, it also covers insurance to the port of destination.

At SPARX, we are a global company with a deep understanding of the Chinese market and international regulations. Thanks to our experience, we help optimize imports from China, selecting the  most suitable Incoterm for each operation.

If the importer is looking for greater control, EXW (Ex Works) may be an option, while terms such as FCA, CPT, or DPU may facilitate delivery to specific locations. By correctly applying Incoterms, companies can avoid unforeseen costs and ensure efficient management in international trade. 

What are the most common Incoterms and how do they differ? 

Some of the  most commonly used Incoterms include:

• EXW (Ex Works): The buyer assumes all costs and risks from the supplier's factory.

• FOB (Free on Board): The seller covers the costs until the goods are on board the vessel.

• CIF (Cost, Insurance and Freight): Includes transport and insurance to the port of destination.

• DDP (Delivered Duty Paid): The seller assumes all costs and taxes until final delivery.

These are the most commonly used, each Incoterm varies in terms of costs, risks and control over the goods. With our experience in SPARX, we help our customers choose the best option for their imports from China, ensuring efficiency and safety in each shipment.

Why is it crucial to choose the right Incoterm when importing from China? 

Selecting the  right Incoterm when importing from China is critical to optimizing costs, establishing clear responsibilities, and reducing risks related to regulatory compliance in international logistics. For example, a term like FOB gives the buyer control over ocean freight, while CIF includes both insurance and transportation to the destination port.

Making the wrong decision can lead to additional costs, problems with transportation and insurance of the goods, as well as delays in deliveries. That's why choosing the right Incoterm is essential to ensure efficient management of your imports.

How to select the most suitable Incoterm for an import from China? 

For an effective selection of Incoterms when importing from China, follow our recommendations below:

1. Evaluate the desired control:

   • If you prefer to manage the entire process, EXW (Ex Works) gives you complete autonomy.

   • Optimizes import costs: FOB (Free on Board) is ideal if you are looking to negotiate better freight rates.

   • Minimise risks: CIF (Cost, Insurance and Freight) includes insurance and transport to the port of destination.

   • Consider taxes and paperwork: DDP (Delivered Duty Paid) simplifies delivery by including all customs costs.

2. Consult with experts: At SPARX, we analyze your operation to recommend the most efficient Incoterm in terms of cost optimization and logistics.

If you want to optimize your next import from China, consult with an international trade expert  and choose the  ideal Incoterm for your business.

Conclusion 

Incoterms are essential in international trade, as they clearly define the responsibilities of the buyer and seller in key aspects such as transportation, insurance, costs, and risks. Choosing the right Incoterm for each operation helps avoid inconveniences, optimizes logistics, facilitates communication and ensures compliance with international regulations. In addition, it minimizes risks such as unforeseen costs and customs problems, improving efficiency in global trade.

If you need advice on selecting the right Incoterm for your imports, contact us: https://www.sparxlogistics.com/en/contact-us