Who is responsible for customs clearance and freight under different Incoterms?
Direct Answer
Incoterms 2020 assign responsibility with three letters. Under EXW the buyer handles everything from the factory door, including export clearance. Under FOB the seller delivers goods on board the vessel and clears export, while the buyer arranges and pays ocean freight, import clearance, and duties. Under CIF the seller also pays freight and minimum insurance to the destination port — but risk still passes to the buyer the moment the goods are loaded. RND SOURCING helps you choose the term that keeps cost and risk visible and books the right freight forwarder for your lane.
Detailed Explanation: Cost, Risk, and Customs Are Three Different Lines
An Incoterm is not one number — it answers three questions at once: who pays the freight, who clears customs (export and import), and exactly where risk transfers from seller to buyer. The trap is assuming 'who pays' and 'who bears risk' are the same line. They rarely are.
Incoterms 2020, in force since 1 January 2020, has 11 rules. Four are sea-only (FAS, FOB, CFR, CIF); the rest work for any mode. The three most common for China sourcing are EXW, FOB, and CIF.
- EXW — Ex Works Seller's minimum: goods available at their door. Buyer does everything, including export clearance.
- FOB — Free On Board Seller loads on board and clears export; buyer pays freight, insurance, import, and duties.
- CIF — Cost, Insurance, Freight Seller adds freight and minimum insurance to destination port, but risk passes on loading.
Real-World Example: The CIF Insurance That Wasn't Enough
A US buyer purchased on CIF and assumed 'the seller handles everything.' Mid-voyage, a container was water-damaged. Because risk transfers to the buyer on loading, the loss was the buyer's — and the seller had only bought the minimum ICC-C cover (CIF standard), which paid a fraction of the claim.
RND SOURCING moved the next order to FOB, placed the buyer's own all-risk (ICC-A) cover, and used a forwarder the buyer controlled end to end.
Key Data: Who Pays What (EXW / FOB / CIF / DDP)
| Responsibility | EXW | FOB | CIF | DDP |
|---|---|---|---|---|
| Export clearance | Buyer | Seller | Seller | Seller |
| Main freight | Buyer | Buyer | Seller | Seller |
| Insurance | Buyer | Buyer | Seller (min) | Seller |
| Import clearance & duties | Buyer | Buyer | Buyer | Seller |
| Risk transfers at | Seller's door | On board, origin | On board, origin | Buyer's door |
DDP (Delivered Duty Paid) is the seller's maximum: delivery to your door with import duties paid. Note CIF's seller only carries minimum insurance while the buyer carries the risk — a gap worth closing with your own cover.
Step-by-Step: Choose the Right Incoterm
Match the term to your control, experience, and cargo type.
Score your control
If you have strong forwarder rates, FOB or EXW give visibility; if not, CIF or DDP keep it simple.
Watch the container trap
FOB/CFR/CIF were written for bulk cargo loaded on board. For containers, prefer FCA, CPT, or CIP.
Separate cost and risk
Under CIF the seller pays freight but you own the risk from loading — buy your own all-risk insurance.
Confirm import readiness
Only use DDP if the seller can truly clear import and pay duties in your country.
Write it in the PO
State the exact Incoterm and named port/city so there is no ambiguity at the border.
Common Mistakes at the Border
These are the Incoterm errors RND SOURCING corrects most often.
- Assuming CIF = full cover CIF only requires minimum insurance; the buyer bears the sea risk.
- Using FOB on containers For boxed cargo, FCA/CPT/CIP match reality better than FOB.
- Forgetting destination charges FOB and FCA still owe terminal handling, import clearance, duties, and last-mile.
- Leaving the term vague An unnamed port after 'FOB' creates disputes over who pays local origin costs.
How RND SOURCING Protects You
RND SOURCING treats the Incoterm as a cost-and-risk contract, not a line item. We confirm the term in your purchase order, recommend FCA/FOB plus your own all-risk cover for containers, and coordinate a freight forwarder who reports to you — so the destination charges never surprise you.
You see the full landed cost before the container sails, not after it docks.
Plan your Incoterms with RND SOURCINGRelated Questions
- What duties and taxes apply when importing from China to the US?
- How can I verify a Chinese supplier's business license and avoid scams?
- What quality control steps should a China order include?
- When should I hire a China sourcing agent, and who should pay them?
- How long does sea freight from China to the US take?
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