Incoterms 2020 Complete Guide

Essential for commercial importers: how 11 trade terms divide responsibilities, freight, insurance, risk transfer, and practical consolidation scenarios.

Contents

  1. What are Incoterms, and why do they matter?
  2. The 11 terms in 4 categories
  3. EXW, Ex Works, explained
  4. FOB, Free On Board, explained
  5. CIF, Cost, Insurance, and Freight, explained
  6. DDP, Delivered Duty Paid, explained
  7. Responsibility comparison for all 11 terms
  8. 3 practical consolidation scenarios
  9. FAQ

What Are Incoterms, and Why Do They Matter?

Incoterms, short for International Commercial Terms, are standard trade terms published by the International Chamber of Commerce. Each three-letter term defines how buyer and seller responsibilities are divided in a cross-border transaction.

They answer five core questions:

  • Who handles export customs clearance?
  • Who handles import customs clearance?
  • Who pays international freight?
  • Who pays for insurance?
  • At what point is delivery completed and risk transferred?
Incoterms 2020 is the current version

It took effect in January 2020 and includes 11 terms. This guide follows the official ICC grouping.

The 11 Terms in 4 Categories

CategoryTermTransport ModeSeller Responsibility
E group: departure deliveryEXWAnyLowest
F group: main carriage unpaidFCAAnyLow
FASSea freightLow
FOBSea freightLow
C group: main carriage paidCFRSea freightMedium
CIFSea freightMedium
CPTAnyMedium
CIPAnyMedium
D group: destination deliveryDAPAnyHigh
DPUAnyHigh
DDPAnyHighest

For Taiwan forwarding and commercial import customers, the four most common terms are EXW, FOB, CIF, and DDP.

EXW, Ex Works, Explained

EXWEx Works

Meaning: The buyer collects the goods from the seller's factory or warehouse. This gives the seller the least responsibility.

Seller responsibilities: 1. Prepare the goods at the factory 2. Issue the invoice 3. Provide product packaging
Buyer responsibilities: 1. Pick up from the factory 2. Handle and pay export clearance 3. Pay international freight 4. Arrange insurance 5. Handle import clearance 6. Pay import tax 7. Arrange final delivery

Best for: 1. Buying directly from 1688 factories in China 2. Yiwu small-commodity market sourcing 3. Bulk industrial materials

In practice: Many 1688 factories quote EXW prices, meaning factory-gate prices. All onward freight, customs clearance, and taxes are handled by the buyer. With HowBridge Logistics forwarding and AEO customs handling, you can buy from the supplier while we handle logistics and clearance.

FOB, Free On Board, Explained

FOBFree On Board

Meaning: The seller delivers the goods to the named port and loads them on board the vessel. The buyer takes over transport risk once the goods are on the vessel.

Seller responsibilities: 1. Export customs clearance 2. Transport goods to the port 3. Load goods on board
Buyer responsibilities: 1. International ocean freight 2. Insurance 3. Import customs clearance 4. Import taxes 5. Unloading 6. Final delivery

Best for: 1. Bulk ocean exports, the most common use case 2. 1688 wholesale sourcing 3. Standard factory quotations from Yiwu, Guangzhou, or Shenzhen

In practice: "FOB Shenzhen USD$10,000" means responsibility transfers to you after USD$10,000 worth of goods are loaded on the vessel in Shenzhen. Ocean freight, insurance, and Taiwan import clearance are then your responsibility.

CIF, Cost, Insurance, and Freight, Explained

CIFCost, Insurance, and Freight

Meaning: The seller pays freight and insurance to the destination port. The buyer takes over from the destination port.

Seller responsibilities: 1. Export customs clearance 2. International freight 3. Minimum insurance 4. Transport to the destination port
Buyer responsibilities: 1. Import customs clearance 2. Import taxes 3. Unloading 4. Final delivery

Best for: 1. Mid-sized wholesale imports 2. Established trading relationships 3. Buyers who want a single price to the destination port

In practice: "CIF Keelung USD$10,500" means USD$10,500 includes freight and insurance to Keelung Port. However, the included insurance is minimum coverage under ICC(C), usually covering only major events such as war or fire. Buyers of high-value goods should purchase additional coverage.

CIF insurance is minimum coverage

CIF includes ICC(C) insurance, the minimum level of coverage. If you need all-risk protection, buy ICC(A) insurance separately, often about 0.3% to 0.5% of cargo value.

DDP, Delivered Duty Paid, Explained

DDPDelivered Duty Paid

Meaning: The seller handles everything, including import taxes. The buyer only receives the goods. This is the highest seller responsibility.

Seller responsibilities: 1. All transport 2. Export and import customs clearance 3. Import duty and VAT 4. Delivery to the buyer's specified address
Buyer responsibilities: Sign for the shipment

Best for: 1. Direct-shipping ecommerce with tax included 2. Cross-border ecommerce promotions 3. Premium brand official websites offering to-your-door service

In practice: "DDP Taipei USD$1,200" means USD$1,200 includes Taiwan import tax and delivery. The buyer does not need to handle anything. DDP quotes are usually 10% to 30% higher than CIF because the seller prices in all taxes plus a risk premium.

DDP is the easiest option for forwarding users

When overseas brand websites such as Apple, Nike, or Sephora offer "ship to Taiwan, tax included", that is effectively DDP. It costs more, but removes the need to handle import declarations, EZWay confirmation, and tax payment yourself.

Responsibility Comparison for All 11 Terms

TermExport ClearanceMain FreightInsuranceImport ClearanceImport Tax
EXWBuyerBuyerBuyerBuyerBuyer
FCASellerBuyerBuyerBuyerBuyer
FASSellerBuyerBuyerBuyerBuyer
FOBSellerBuyerBuyerBuyerBuyer
CFRSellerSellerBuyerBuyerBuyer
CIFSellerSellerSellerBuyerBuyer
CPTSellerSellerBuyerBuyerBuyer
CIPSellerSellerSellerBuyerBuyer
DAPSellerSellerBuyerBuyerBuyer
DPUSellerSellerBuyerBuyerBuyer
DDPSellerSellerSellerSellerSeller

Green means seller responsibility; red means buyer responsibility. Seller responsibility increases from EXW, the lowest, to DDP, the highest.

3 Practical Consolidation Scenarios

Scenario 1: 1688 Factory Wholesale, EXW or FOB

Factories on 1688 commonly quote factory prices, EXW, or free-on-board prices, FOB. This means:

  • EXW factory price: you pay all freight, clearance, and taxes. It is the cheapest price but the most complex setup.
  • FOB Shenzhen price: mainland China inland freight and export clearance are included. You still pay ocean freight, insurance, and Taiwan import costs.

Recommendation: Use HowBridge Logistics to turn EXW or FOB supplier pricing into a DDP-like door delivery flow with tax handling, avoiding the operational complexity. See the complete store-sourcing import guide.

Scenario 2: Direct Purchases from Rakuten Japan or Amazon U.S., CIF or DAP

Most ecommerce prices are closer to CIF, including freight and insurance to the destination port, or DAP, including delivery to your address but excluding import taxes. This means:

  • CIF: the seller pays freight to a Taiwan port plus minimum insurance. The buyer pays import tax and final delivery.
  • DAP: the seller pays all freight to the buyer's address. The buyer pays only import taxes.

Recommendation: Read the checkout terms carefully. "Tax not included" usually means you pay tax, similar to DAP. "Tax included" usually means tax is prepaid, similar to DDP.

Scenario 3: Cross-Border Ecommerce Direct Shipping with Tax Included, DDP

Some Taobao, JD Worldwide, Amazon Global Selling, and Rakuten International EXPRESS items support DDP tax-included delivery. Prices are often 10% to 30% higher, but the process is much simpler.

Recommendation: Consider DDP for urgent shipments or single orders over NT$5,000 where the freight is easier to absorb. For multiple orders or regular buyers, consolidation is usually cheaper. For bulk commercial imports, EXW plus your own agent is usually the correct structure.

Incoterms FAQ

Q1. Why do 1688 factories quote EXW instead of giving an all-in total?
There are three main reasons. First, factories focus on production and may not specialize in logistics or customs. Second, the same item can use different routes depending on the buyer, such as sea freight, air freight, or delivery to different countries. Third, bulk buyers in Taiwan, Korea, the United States, and other markets face different tariff structures, so all-in pricing can make negotiation harder. EXW factory pricing is standard practice, and buyers choose the logistics provider that best fits their cost and route.
Q2. What is the difference between CIF and CIP?
The transport mode is different. CIF is only for sea freight and covers delivery to the destination port. CIP can be used for any mode, including air, sea, and land transport. They are similar because the seller pays freight and insurance, but CIP requires ICC(A) all-risk insurance, while CIF only requires ICC(C) minimum coverage. CIP gives the buyer stronger insurance protection.
Q3. Why is DDP 10% to 30% more expensive than DAP?
There are three main reasons. The seller prepays import duty and VAT, often 5% to 30%. The seller also pays customs document handling fees. Finally, the seller takes the risk that tax rates or classification details may change after the quotation. Sellers often add a 5% to 15% safety margin to avoid losses. DDP can be worthwhile for small personal purchases because it saves time, but it is often inefficient for large imports.
Q4. Do personal forwarding customers need to understand Incoterms?
A basic understanding is enough. Most personal forwarding works like this: the seller ships to our partner warehouse, then we handle the onward freight and customs declaration. That is similar to a mix of FCA and DAP. If you buy small parcels, simply check whether the product page says tax included or tax not included. If you are doing commercial imports for Shopee, momo, or bulk sourcing, you should understand all 11 Incoterms.
Q5. Is the ECFA early-harvest list related to Incoterms?
Not directly. ECFA is a cross-strait tariff preference agreement that can reduce duty to 0%, while Incoterms define trade responsibilities. In practice, however, ECFA imports require a Form F certificate of origin. Under EXW or FOB terms, the seller often helps apply for that document. Under DDP, the seller usually handles ECFA treatment automatically. Ask the seller whether Form F is included before ordering. See the complete store-sourcing import guide.
Q6. What term applies when I use HowBridge Logistics forwarding?
It is a combined structure. Your purchase from the overseas seller may be EXW, FOB, or DAP depending on the product and platform, with the seller delivering to our partner warehouse. We then provide a DDP-like service from the partner warehouse to Taiwan, including freight, import clearance, home delivery, and declared-value protection. For you, the process is effectively "buy from the seller, then let HowBridge Logistics handle the logistics", without needing to manage complex Incoterms yourself.

Related Reading

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