Incoterms 2020 for people who buy from China

They allocate cost. Who pays for packing, inland transport, export clearance, loading, the main carriage, unloading, import clearance, duties and delivery to the final place. Each rule draws that line somewhere different.

They allocate risk. The precise moment at which loss or damage stops being the seller's problem and starts being the buyer's. It is not always at the same point as the cost line, and the difference between those two points is where the most expensive misunderstandings live.

They do not transfer ownership. Title passes according to your contract and the applicable law, not according to three letters. A buyer who has taken risk has not necessarily taken title, and a seller who retains title has not necessarily retained risk.

They are not a contract of carriage and not insurance. A rule may oblige a party to arrange carriage or insurance, but the terms of that carriage and the scope of that insurance are separate agreements that you should read separately.

And they do not say who is responsible for a delay. Demurrage, detention, a missed vessel, a customs hold — these are contract and carriage questions. If the sales contract is silent, the Incoterm will not fill the gap.

Which is why the useful mental model is narrow: the rule answers "who pays for what, and where does risk pass". Everything else you care about has to be somewhere else in the paperwork.

Every Incoterms rule is written to be followed by a place, and the place is what makes it operative. Without it, two parties can genuinely agree the term and still disagree about where their obligations end.

So the minimum acceptable form in a quotation, a purchase order and a proforma invoice is: the three-letter rule, the named place, and the version of the rules being used. All three, every time. It costs nothing and it removes the entire class of argument that follows from ambiguity.

Be precise about which place. A port, a terminal, an address — they are different points and they change both the cost line and the risk point. "The port" in a country with several is not a named place.

And be consistent across documents. The rule on the proforma invoice, the purchase order, the commercial invoice and the instructions to the forwarder should be identical. Where they differ, somebody will later have to decide which document governed, and that is a discussion nobody wins cheaply.

This page does not reproduce the eleven rules or a cost-allocation matrix. The definitive text is a published work with a precise wording, and a paraphrased table in a guide is the kind of confident summary that is subtly wrong in the case that matters. Use the published rules, and have your forwarder confirm the reading for your route.

Who is better placed to arrange the main carriage? A buyer with freight volume and a forwarder relationship usually gets a better rate and better visibility than a supplier arranging it as a courtesy. A first-time buyer with neither may genuinely be better served by the supplier arranging it — as long as the price is visible rather than buried.

Where do you want risk to pass? Earlier risk transfer means you insure and manage more of the journey; later means you rely on the seller's arrangements for longer. Neither is right in the abstract; what matters is that you know which you have chosen and that your insurance matches it.

Who can lawfully and practically clear customs at each end? This is the one that catches people. A rule that makes the seller the importer in your country requires them to be able to act as importer there — registration, tax treatment, liability — and many suppliers cannot, which turns an attractive-looking quotation into an impossible one.

What is actually included in the price? A headline unit price under a rule where the buyer carries everything from the factory gate is not cheaper than a delivered price; it is unbundled. Compare quotations by building both to the same point rather than by comparing the numbers on the page.

And run the rule you intend to use at volume on your pilot order. Discovering that your customs broker needs a document nobody mentioned is cheap on a pilot and expensive on a container.

Export clearance. Goods leaving China need an export declaration, and a rule that puts export clearance on the buyer requires the buyer to be able to do that — which a foreign buyer generally cannot do directly. In practice the supplier or their agent handles it, so a rule that formally assigns it to you needs an explicit answer to "who is actually doing this".

Delivered-duty arrangements. A rule under which the seller delivers with duties paid puts your supplier in the position of importer in your market, with the obligations that carries. Some suppliers offer it via an agent; check what that means for your import records, your duty payment evidence and your ability to reclaim any recoverable tax.

And check who is named as importer on the declaration. It affects duty liability, product compliance obligations and, in several markets, whether you are the party the authorities will contact. A cheap delivered price with somebody else's name on the entry is not a bargain.

Consolidation changes the picture. Where goods from several suppliers are combined, each supplier's rule ends at a different point and the consolidator sits between them. Agree explicitly where each supplier's responsibility stops and who inspects on receipt at the consolidator — that hand-off is where mixed shipments lose things.

The practical minimum: rule, place and version on every document; the same rule on the pilot as at volume; an explicit answer to who clears at each end; and a comparison of quotations built to one common point rather than read off the page.