Incoterms Explained: EXW, FOB, and DDP Simply Defined

You found a supplier on Alibaba. They quoted you $5.00 per unit. Great deal, right?

Not necessarily. If that quote is "EXW" (Ex Works), you might end up paying $10.00 per unit once you factor in shipping, duties, and port fees.

If you don't understand Incoterms (International Commercial Terms), you cannot accurately calculate your profit margin. These three letters determine who pays for shipping and, more importantly, who is liable if the ship sinks.

In this guide, we will demystify the legal jargon and tell you exactly which term you should use for your business stage.

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The Big 3 for E-commerce Importers

There are 11 Incoterms in total, but you only need to worry about three: EXW, FOB, and DDP.

1. EXW (Ex Works) - "The Factory Price"

What it means: The supplier manufactures the product, puts it in a box, and leaves it at their factory door. Their job is done.

Your Responsibility: You must hire a freight forwarder to pick it up from the factory, drive it to the port, clear Chinese export customs, load it on the ship, and get it to your country.

• Pros: This is the absolute lowest product price. You have full control over the shipping process.
• Cons: Maximum hassle. If the truck crashes on the way to the port in China, it's your problem, not the supplier's.

Verdict: Only use EXW if you have a trusted Freight Forwarder and you are consolidating shipments from multiple factories.

2. FOB (Free On Board) - "The Industry Standard"

What it means: The supplier pays to get the goods to the port (e.g., Shanghai) and clear them for export. Once the crane lifts the container onto the ship, liability transfers to you.

Your Responsibility: You pay for the ocean freight, insurance, and arrival customs in your country.

• Pros: Balanced risk. The supplier handles the messy local logistics in China (which they are good at), and you handle the international leg.
• Cons: You still need to manage a freight forwarder for the ocean journey.

Verdict: This is the standard for experienced importers. It allows you to shop around for the best ocean freight rates while avoiding local headaches in China.

3. DDP (Delivered Duty Paid) - "Door to Door"

What it means: The supplier handles everything. They hire the shipping company, they pay the import taxes (Duties), and they deliver the goods directly to your warehouse or Amazon FBA center.

Your Responsibility: Pay the invoice and wait.

• Pros: Zero headache. The price is "All-In." You know exactly what your landed cost is upfront. No surprise bills from customs.
• Cons: It is usually more expensive. The supplier will markup the shipping cost to cover their risk. You have zero control over how fast it ships.

Verdict: Best for beginners. Even if it costs 10% more, the peace of mind is worth it.

Scenario: Calculating the Real Cost

Let's compare quotes for 1,000 widgets.

In this scenario, the "Expensive" DDP quote is actually cheaper because the supplier has a better shipping contract than you do. Always calculate the Landed Cost.

Hidden Risks: Customs Exams

Even with DDP, things can go wrong.

Occasionally, Customs will flag a container for an X-Ray exam. This costs money (approx $300) and delays the shipment by a week.

• If DDP: The supplier usually eats this cost (or has built a buffer for it).
• If FOB/EXW: The freight forwarder sends YOU the bill.

FAQ

Can I send DDP straight to Amazon FBA?

Yes. This is very common. Just make sure your supplier puts the Amazon FBA labels (FNSKU and Box Labels) on the cartons before they ship. Ask for photos of the labeled boxes to confirm.

What is DDU (Delivered Duty Unpaid)?

It's like DDP, but YOU pay the taxes when it arrives. Avoid this if possible. It creates friction. Sometimes the carrier (DHL/UPS) will hold your package hostage until you pay a "Disbursement Fee" on top of the tax. DDP is cleaner.

Should I buy shipping insurance?

ALWAYS. It costs peanuts (usually 0.3% of value). If a container falls off the ship (it happens) or gets water damaged, the carrier's standard liability is often just $500 per container. Insurance covers the full value.

Conclusion

Don't be intimidated by the acronyms.

• Beginner? Ask for DDP. Pay a premium for simplicity.
• Intermediate? Ask for FOB. Hire a US-based Freight Forwarder (like Flexport or Freightos) to handle the shipping. You'll get better service and tracking than relying on your supplier's random shipping partner.

Action Step: Go back to your supplier today and ask: "Can you quote me DDP to this address?" Compare it to your FOB quote + estimated shipping. The math will tell you which to choose.