FOB, CIF, EXW, DDP — Incoterms directly affect your freight costs and landed cost calculations. Here’s a plain-English guide for Australian importers sourcing from China or Vietnam.
If you've ever received a supplier quote and stared blankly at the letters FOB, CIF, EXW, or DDP wondering what you just agreed to — you're not alone. Incoterms are one of the most misunderstood parts of international trade, and getting them wrong can cost Australian importers thousands of dollars in unexpected freight charges, customs headaches, or worse — lost shipments.
I've seen smart Aussie business owners get caught out by this more times than I can count. They lock in what looks like a great unit price from a Chinese factory, only to discover the CIF quote from their supplier was quietly padding the freight margin by 20–30%. Or they accept EXW terms without realising they're now responsible for moving goods through a Chinese factory town with no local logistics partner.
Let's cut through the confusion.
Incoterms — short for International Commercial Terms — are a set of 11 internationally recognised trade terms published by the International Chamber of Commerce (ICC). Last updated in 2020 (Incoterms® 2020), they define who is responsible for freight costs, insurance, export clearance, import clearance, and the risk transfer point between a seller and buyer.
In plain English: Incoterms tell you who pays for what, and who's responsible if something goes wrong.
For Australian importers sourcing from China or Vietnam, the most commonly encountered Incoterms are:
Let's break down each one.
Under EXW terms, the seller (your Chinese factory) simply makes the goods available at their premises — their factory or warehouse. Everything from that point is your responsibility: arranging a local Chinese freight forwarder to collect the goods, export customs clearance in China, loading onto the vessel, ocean freight, Australian import customs clearance, and final delivery.
Who controls freight: You (the buyer)
Risk transfers: At the factory gate
Best for: Experienced importers with established China-side logistics partners
Pros: Maximum transparency — you see and control all freight costs. You can negotiate better freight rates through your own forwarder. No hidden markups from the supplier on freight.
Cons: You're responsible for export formalities in China — which can be complex. Requires a trusted Chinese freight forwarder on the ground. Not recommended for first-time importers.
FOB is the most popular Incoterm for Australian businesses importing from China, and for good reason. Under FOB, the seller handles export clearance and loads the goods onto the nominated vessel at the Chinese port (Shanghai, Ningbo, Guangzhou, etc.). Once the goods are loaded on board, responsibility transfers to you.
From that point, you arrange and pay for international ocean freight, marine insurance, and Australian import customs clearance.
Who controls freight: You (from Chinese port onwards)
Risk transfers: When goods are loaded at the origin port
Best for: Most Australian SMEs with a freight forwarder in place
Pros: Clear risk transfer point — you know exactly when you take on responsibility. You control international freight costs — no supplier markup. The FOB value is what the Australian Border Force (ABF) uses to calculate import duty, making your customs calculations straightforward.
Cons: You need an Australian freight forwarder to handle the ocean leg and customs clearance. More admin than CIF if you're just starting out.
Tip for Aussie importers: FOB is the basis for calculating import duties in Australia. The ABF applies the customs tariff to the FOB value of your goods — not CIF, not landed cost. Keep this in mind when estimating your total cost per unit. For a full breakdown of what goes into a landed cost, check out our comprehensive guide to importing products from China to Australia.
With CIF, the seller arranges and pays for ocean freight and cargo insurance to your nominated port of destination (e.g., Sydney or Melbourne). You take over responsibility once the goods arrive at the Australian port, handling import customs clearance and final delivery yourself.
Who controls freight: Seller (to destination port)
Risk transfers: At the destination port
Best for: New importers who prefer simplicity over cost control
Pros: Less logistics complexity for the buyer. One less thing to coordinate when you're starting out.
Cons: Suppliers often mark up freight costs by 15–30% under CIF. You lose visibility into actual freight costs. CIF value is higher than FOB value — can affect how some markets calculate duties.
The reality: I've seen Chinese factories quote CIF prices that looked competitive, but after stripping out their freight markup, the FOB equivalent was actually better sourced through an independent freight forwarder. Always ask suppliers for the FOB price so you can compare apples with apples.
DDP is the most seller-friendly Incoterm. The supplier handles absolutely everything: export from China, international freight, insurance, Australian import customs clearance, import duties, and delivery to your Australian address or warehouse.
Who controls freight: Seller (end-to-end)
Risk transfers: At the buyer's premises
Best for: Very new importers, or when testing a supplier relationship with a smaller order
Pros: Total simplicity — one price, door to door. The supplier bears all the risk until delivery.
Cons: You have zero control over freight, insurance, or customs processes. The all-in price almost certainly includes significant supplier margin on freight and duties. If something goes wrong at Australian customs, you're relying on the supplier's agent to sort it.
Important note: True DDP into Australia is logistically complex because the seller must engage an Australian-licensed customs broker. Many Chinese suppliers who offer "DDP" pricing are effectively offering DAP (Delivered at Place) and excluding Australian duties — always clarify exactly what's included before committing.
DAP is becoming increasingly common, especially from Chinese e-commerce and Alibaba suppliers. Under DAP, the seller delivers goods to a named destination in Australia but does not pay Australian import duties or taxes. You handle customs clearance and duty payment on arrival.
Who controls freight: Seller (to destination, excluding customs)
Risk transfers: At the named Australian location, before customs clearance
Best for: When a supplier offers door-to-door service but you want cost clarity on duties
For the vast majority of Australian SMEs importing from China or Vietnam, FOB is the recommended default. It gives you control over your freight costs, keeps your supplier's margin out of your logistics, and aligns perfectly with how Australian customs duties are calculated.
As a simple guide: first-time importers with no freight forwarder yet — use CIF or DAP for simplicity while you learn. Growing importers with a freight forwarder — use FOB for the best balance of control and cost. High-volume importers with China-side logistics — consider EXW for maximum cost visibility. Testing a new supplier with a small order — DDP or CIF for simplicity. High-value goods needing full insurance control — FOB so you manage your own marine insurance.
Your total landed cost isn't just the factory price. Whether you're importing homewares, electronics, apparel, or outdoor furniture, the Incoterm you accept directly affects your margin calculations and pricing for the Australian market.
A typical landed cost breakdown under FOB from China to Melbourne includes: the FOB unit price (what the factory charges, including getting goods to the Chinese port), ocean freight (your forwarder's rate — LCL for smaller orders, FCL for full containers), marine insurance (typically 0.3–0.5% of cargo value), Australian import duty (0–5% of FOB value depending on product category), GST (10% of customs value + duty + a portion of freight costs), customs brokerage fees, and final delivery to your warehouse or 3PL.
If you accepted CIF or DDP pricing from your supplier without asking for the FOB equivalent, you'd be calculating landed cost on an inflated starting figure — and likely underestimating your true cost per unit.
To understand what Australia imports most from China and which categories attract which duty rates, check out our post on what Australia imports from China in 2026.
Freight rates remain volatile in 2026. Fuel surcharges, congestion at Sydney and Melbourne ports, and shifts in global shipping capacity mean that locking in the right Incoterm matters more than ever. Under FOB terms, you can actively shop your freight across multiple Australian freight forwarders — keeping competitive pressure in play. Under CIF or DDP, you're at the mercy of whatever rate your supplier has negotiated (and marked up).
This is one of the reasons experienced importers consistently default to FOB — control over your freight is control over your margins.
Understanding Incoterms is one thing — negotiating them effectively with Chinese and Vietnamese suppliers is another. At Epic Sourcing, we manage supplier negotiations daily across hundreds of product categories, including making sure our clients are always quoted on FOB terms so there are no surprises in the total landed cost calculation.
If you're not sure whether you're getting the right pricing structure from your current suppliers, our OutSource service covers full supplier negotiation, quality control, and shipment management — so you're never left guessing what a "CIF to Sydney" quote actually means for your margins.
You can also read our post on why Australian businesses use a sourcing agent to understand how having the right team behind you simplifies every step of the import process — Incoterms included.
Incoterms aren't just shipping jargon — they directly affect your cost structure, your risk exposure, and how accurately you can price your products for the Australian market. Getting this right from your very first order sets you up to import smarter, not just cheaper.
Quick recap: EXW — maximum control, maximum complexity. FOB — best default for most Aussie importers. CIF — simpler but often more expensive. DDP — all-inclusive but zero visibility. DAP — door-to-door without duties.
Give us a bell at gday@epicsourcing.com.au if you've got questions about your next shipment, or want to know which Incoterm structure makes sense for your business. We're here to help Aussie businesses source smarter.
Epic Sourcing Australia helps Australian businesses source products from China, Vietnam, and across Asia. Visit epicsourcing.com.au to learn more.
