What are Incoterms and why do they matter?
Incoterms (International Commercial Terms) are an internationally standardized set of three-letter rules published by the ICC. They specify, for every shipment, exactly which party — buyer or seller — pays for which step and where responsibility transfers. For a machinery import, getting the Incoterm wrong can mean $2,000–$8,000 in unexpected charges or weeks of customs delay.
The six Incoterms you'll actually use
EXW — Ex Works (Factory)
Seller's only job: make the machine available at their Chinese factory. Buyer arranges and pays for everything else: pickup, export clearance, freight, insurance, import duties, delivery.
When to use: Rarely. Only if you have a Chinese logistics partner and don't want the seller anywhere near the freight chain. Cheapest sticker price, highest buyer hassle.
FOB — Free On Board (Port)
Seller's job: deliver to the nominated port and load on the vessel. Pays for inland transport in China and export clearance.
Buyer's job: take over from the moment cargo crosses the rail — pay for sea freight, insurance, import clearance, duties, and final delivery.
When to use: Most common Incoterm for machinery from China. Best if you have a freight forwarder and want control over carrier choice.
CFR — Cost & Freight
Seller's job: everything FOB requires, PLUS pay sea freight to destination port. Buyer pays insurance, customs, duties.
When to use: Same as CIF below but if you want to arrange your own marine insurance.
CIF — Cost, Insurance & Freight
Seller's job: deliver to destination port with sea freight AND marine insurance prepaid. Buyer pays import clearance, duties, and inland delivery.
When to use: Good first-import Incoterm. Seller bundles all overseas costs into one number. You take over at the destination port.
DAP — Delivered at Place
Seller's job: handle everything including delivery to your facility — except import duties and taxes. Buyer clears customs and pays duty.
When to use: When you want the seller to manage logistics but you handle customs yourself (sometimes cheaper due to local broker relationships).
DDP — Delivered Duty Paid
Seller's job: 100% door-to-door including export, freight, insurance, import clearance, duties, taxes, and final delivery.
When to use: First-time importers, hands-off operations, single-line accountability. Most expensive but lowest hassle. Beware: not all sellers are equipped to handle import clearance in your country.
Decision matrix for plastic machinery buyers
| Your situation | Recommended Incoterm |
|---|---|
| First import, no logistics team | DDP or CIF |
| Have a clearing agent, want full price control | FOB |
| Want seller to handle overseas freight but you clear customs | CIF |
| Multiple shipments, sophisticated logistics | FOB or EXW |
| Tight budget, willing to manage everything | EXW |
Common mistakes
- Comparing FOB quotes against DDP quotes. They're not the same — FOB is "machine at port", DDP is "machine in your factory + duty paid". Always normalize to landed cost.
- Assuming "CIF" includes import duty. It does not. Insurance and freight only.
- Choosing DDP from a seller without Pakistan-side capability. The seller will sub-contract a third party — same hassles, worse rates.
- Not specifying which port in FOB / CIF. "FOB China" is meaningless — needs to be "FOB Ningbo" or "FOB Shanghai".
Need help choosing the right Incoterm?
We use FOB Ningbo and CIF Karachi as defaults for Pakistani clients. For first-time importers we recommend our DDP-equivalent end-to-end managed service.
Talk to a Trade Specialist →