Alibaba Trade Terms You Should Use – EXW, FOB, DDP, CIF?

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If you want the best and most cost-effective shipping options when ordering from Alibaba, I suggest you read this article to avoid many of the traps unsuspecting beginners face when shipping products from China.

There are various trade terms you will encounter when ordering goods from a supplier in China. These trade terms are commonly known as “Incoterms” which is simply a trade agreement as to which party will perform each service and absorb each risk and cost throughout the logistical process.

Incoterms Chart 2023

I’ve created a table below to easily understand which services you will be responsible for depending on the trade term you choose.

Services	EXW	FOB	DDP	CIF
Packaging	Seller	Seller	Seller	Seller
Loading Fees	Buyer	Seller	Seller	Seller
Delivery to Port	Buyer	Seller	Seller	Seller
Terminal Fees	Buyer	Seller	Seller	Seller
Insurance	Buyer	Buyer	Seller	Seller
Loading on Vessel	Buyer	Seller	Seller	Seller
Freight	Buyer	Buyer	Seller	Seller
Destination Fees	Buyer	Buyer	Seller	Buyer
Duties, Taxes & Customs	Buyer	Buyer	Seller	Buyer
Destination Delivery	Buyer	Buyer	Seller	Buyer

Incoterms 2023 – Responsibilities and Liabilities

There are many trade terms that can be agreed upon but these are the main options when ordering goods from Alibaba suppliers. Other trade terms include;

FCA (Free carrier place)
FAS (Free alongside ship)
CFR (Cost & Freight)
CPT (Carriage paid to)
CIP (Carriage & insurance paid)
DAP (Delivery at place)
DPU (Delivery at place unloaded)

For a fully downloadable Incoterms chart, I suggest you read this article on Incodocs.

Alibaba EXW Trade Terms Meaning

EXW stands for “Ex Works” and is a very straight forward option. It means the buyer is 100% responsible for the entire shipping process. This includes;

Picking up the product from the seller’s factory
Undertake some of the paperwork including insurance and customs clearance
Take care of all shipping and logistics processes and fees associated with each step
Absorbs all risks during transit including damage or loss of goods
Import and export duties, taxes and customs clearance

This means as a buyer you will have to organize all of the shipping and logistics yourself. This may sound like a lot of unnecessary work, however, if you understand how logistics work in China it can be advantageous to your business.

If a factory is managing much of the process for you they will obviously take a cut and work with freight forwarders and shipping carriers that benefit them. With Ex Works, you choose your shipping carrier and your freight forwarder which can save you a lot of money in the long run.

Alibaba FOB Trade Terms Meaning

FOB stands for “Freight on Board” and is one of the more common options between the buyer and seller on Alibaba. It is a shared agreement where the seller is responsible for the shipment from their factory to the port. The buyer then takes care of all responsibility and fees from the port to the desired destination.

In this scenario, the buyer is responsible for;

All customs clearance documentation
The transit and freight from the Chinese port
All lost and damaged goods
Import duties, taxes and customs clearance

FOB is the same as Ex-Works except the buyer takes responsibility for the shipment from the Chinese port rather than the factory.

Although as a seller you are still responsible for the majority of the shipping process, it is still a preferred option over Ex-Works. You are not required to organize an agent or freight forwarder to pick up the goods from the factory and organize paperwork and package labeling in some situations.

Alibaba DDP Trade Terms Meaning?

DDP stands for “Delivered Duty Paid” and is the opposite of how Ex-Works operate. With DDP, the seller of the goods takes on complete responsibility for the entire shipping process from their warehouse in China to the arranged final destination.

So what is the buyer responsible for with DDP trade terms;

Unloading of goods at their arranged destination
Transit from destination to the customer’s address

DDP is an option if you’re a complete beginner to sourcing products from China and are a little new and uneducated on how the logistical side of China shipping works. It can also save you a lot of time organizing freight forwarders and shipping carriers.

The downside is the factory you’re working with will most likely make a considerable profit at your expense. They will most likely choose the shipping companies that will offer them the most money, not the company that will offer the fastest shipping at the best prices.

Alibaba CIF Trade Terms Meaning?

CIF stands for “Cost, Insurance and Freight” and operates very similarly to FOB. The only major difference is with CIF the seller is liable for the goods during transit and with FOB the seller shifts all responsibility over to the buyer once the goods reach the shipping carrier.

The main responsibilities of the buyer with CIF are;

Customs clearance documents
The transit and freight from the Chinese port
Import duties, taxes and customs clearance

Although CIF requires less responsibility and removes the need for organizing insurance, it can often cost more. Sellers will often not source the most cost-effective insurance options as their main priority is ensuring the goods are shipped safely and not with saving you money.

Which Trade Terms Should You Use on Alibaba?

Unfortunately, there is no exact trade option that is best and it will differ depending on several factors. This includes your experience level, the type of products you’re shipping and whether the time it takes to organize each step of the shipping process is worth it for your business.

My Related Articles:

Difference between a trading company and a manufacturer on Alibaba

How to order samples on Alibaba

Letter templates to contact Alibaba suppliers

Below is a table I created to help you decide which trade term would be most beneficial to you and which is the best for you to avoid.

Incoterm	Best for	Worst for
EXW	Experienced merchants who have a deep understanding of logistics in China and have several connections.	Inexperienced buyers who are yet to fully understand how to maximize profits with shipping from China.
FOB	Buyers who still want to choose their shipping lines to save money without full responsibility.	Buyers who either want either full responsibility or no responsibility for the shipping process.
DDP	Beginners who don’t fully understand logistics and are not looking to maximize profits by organizing freight forwarders and shipping carriers themselves.	Experienced sellers who want to organize and manage the shipping and insurance themselves.
CIF	A better option for buyers than FOB if you are shipping more complicated and fragile goods as the seller will be liable for damaged items.	Shipping goods that are less likely to be broken during transit as the seller will not choose the most cost-effective insurance.

A chart of the best Incoterms to use for Alibaba

About the author

Thomas Sleeth

Hello! I’m Thomas, the proud creator of Dropshipping Hustle. Since 2016, I’ve been making a full-time income from dropshipping and e-commerce, managing several successful stores along the way. Dropshipping Hustle is my platform to pass on the knowledge and insights I’ve gained. Each article and recommendation is drawn from my personal 8-year experience in the industry. My aim? To help you achieve financial freedom. If my content has contributed to your success, I’d love to hear your story!