Incoterms (International Commercial Terms) are a set of standardized rules, published by the International Chamber of Commerce, that define the responsibilities of buyers and sellers in an international shipment. They specify who arranges and pays for each leg of transport, who handles export and import clearance, and exactly where the risk of loss or damage passes from seller to buyer. They are the shorthand that makes a quote like FOB or DDP mean the same thing to both parties.
Andrew Erickson is the founder of Inventory Hero. He has spent years working with Amazon FBA sellers on demand forecasting, restock planning, and the cash flow side of running a private-label brand. Inventory Hero exists because every spreadsheet-based inventory system he tried eventually broke — usually right before Q4.
They mark different points where cost and risk pass to you. EXW (Ex Works) means you take over at the seller's door and arrange everything, so the price is lowest but you do the most work. FOB (Free On Board) means the seller gets the goods onto the ship and you take over from there. DDP (Delivered Duty Paid) means the seller delivers to your destination with duties paid, so it is the most hands-off but the highest price and the least control.
Which Incoterm is best for Amazon FBA sellers?
There is no single best; it depends on your experience and how much control you want. FOB is the common middle ground for importers, giving you control of the ocean freight and a clear cost handoff. DDP is popular with newer sellers who want a single door-to-door price and less paperwork, at a higher cost. EXW gives the most control and lowest sticker price but the most responsibility. Compare on total landed cost, not the term alone.
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Incoterms are the standardized international shipping terms that define who pays and who bears risk at each step of a shipment, and they are the shorthand every quote from an overseas supplier is written in. The short version: they decide where cost and risk pass from seller to buyer, anywhere from the factory door (EXW) to your door with duties paid (DDP), and for Amazon importers the ones you will meet most are EXW, FOB, and DDP. This is a practical overview, not legal or customs advice. Below is what Incoterms are, the terms that matter, and how to choose.
Incoterms, short for International Commercial Terms, are a set of rules published by the International Chamber of Commerce (the current set is Incoterms 2020). They exist so that a term like "FOB Shanghai" means exactly the same division of responsibility to a factory in China and a seller in the US. Each term specifies three things:
Who arranges and pays for each leg of transport (inland, ocean or air, destination).
Who handles clearance, both export from the origin country and import into yours.
Where risk passes, the precise point at which loss or damage becomes your problem instead of the seller's.
That last one matters as much as cost: if a container is damaged at sea, the term decides whose insurance claim it is. Incoterms are the backbone of the importing from China process, and misreading them is how sellers get surprised by a bill or a loss they did not expect.
The clean way to hold the eleven Incoterms is as a spectrum of how much the seller does. At one end, you do almost everything; at the other, the seller does:
Term
Seller's responsibility ends
You handle
EXW (Ex Works)
At their factory door
Everything: export, freight, import, delivery
FCA (Free Carrier)
Handed to your carrier
Main freight, import, delivery
FOB (Free On Board)
Loaded onto the ship
Ocean freight, import, delivery
CIF (Cost, Insurance, Freight)
Freight and insurance to your port
Import clearance, duties, delivery
DAP (Delivered At Place)
Delivered to your named place
Import duties and taxes
DDP (Delivered Duty Paid)
Delivered to your door, duties paid
Nothing further
Move down the table and the seller takes on more, the sticker price rises, and your workload and control both fall. The art is picking the point on that spectrum that fits your experience and your appetite for handling logistics.
Two cautions the table cannot show. First, it lists who arranges and pays each leg, which is not always the same as who bears the risk. Under CIF, for example, the seller pays freight and insurance all the way to your port, but the risk of loss actually passes to you at the origin port when the goods are loaded, the same point as FOB. So if a CIF container is lost at sea, it is your claim, on insurance the seller bought to a minimum standard; confirm the cover is adequate rather than assuming CIF protects you door to door. Second, for containerized cargo (most FBA freight) some forwarders prefer FCA over FOB, because FOB's risk-transfer point maps awkwardly to containers; ask your forwarder which they recommend.
EXW (Ex Works). Lowest sticker price, most work. You (or your freight forwarder) collect from the factory and manage export, ocean freight, import, and delivery. Maximum control, maximum responsibility. Good once you have a forwarder you trust.
FOB (Free On Board). The common middle ground. The supplier handles everything up to loading the goods onto the ship, including export clearance; you own the ocean freight, import, and delivery. Clear handoff, and you control the biggest cost (the freight). See FOB vs EXW for that specific comparison.
DDP (Delivered Duty Paid). The most hands-off. The supplier delivers all the way to your door (or your prep center, or FBA) with duties paid. One price, little paperwork, but the highest cost and the least control. Popular with newer sellers. See DDP shipping for the details and cautions.
Learn these three and you can read almost any supplier quote you will receive.
A common mistake is to read a low EXW price as cheaper than a high DDP price. Often it is not. The term mostly decides who arranges and pays each leg, not whether the leg happens:
Under EXW, the sticker price is low but you pay separately for export, freight, insurance, import, and delivery.
Under DDP, the sticker price is high because all of those are baked in (plus the supplier's markup for handling them).
The real comparison is total landed cost: the all-in cost to get a unit to where you sell it, however the legs are divided. A DDP quote can be cheaper or pricier than an EXW quote plus your own freight; you only know by adding it all up.
Work it with numbers. A supplier quotes 500 units at 10.50 dollars EXW or 11.20 dollars FOB. EXW looks 0.70 a unit cheaper, but under EXW you also owe origin trucking (say 250 dollars) and an export agent (say 150 dollars), a combined 400 dollars, or 0.80 a unit. Your true EXW cost is 11.30 a unit, actually above the FOB quote, and that is before you have booked a single container of ocean freight (which both quotes still leave to you). Add every leg up in the landed cost calculator rather than trusting the sticker; that is the only way to compare terms honestly.
The three above cover most FBA sourcing, but a few others turn up, and it helps to recognize them:
FCA (Free Carrier). The seller clears the goods for export and hands them to a carrier you nominate (often at a named place like a port terminal). For containerized cargo, many freight forwarders actually prefer FCA to FOB, because the risk transfers cleanly when the container is handed over rather than at the ship's rail. If your forwarder quotes FCA instead of FOB, this is why.
CIF (Cost, Insurance, Freight). The seller pays freight and insurance to your destination port. The catch, covered above, is that your risk still starts at the origin port, and the required insurance is only a minimum level, so do not read CIF as full door-to-door protection.
DAP (Delivered At Place). The seller delivers to a named place in your country, but you are responsible for import clearance, duties, and taxes. It is like DDP minus the duty handling, which can be a sensible middle ground if you want delivery arranged but prefer to control (and see) the customs and duty side yourself.
You do not need to master all eleven, but knowing these three by name means a quote using them will not throw you.
A handful of Incoterms errors show up again and again, and each one has a real dollar cost:
Comparing quotes on the sticker, not landed cost. An EXW price looks cheapest because it excludes the most; normalize every quote to all-in landed cost before you compare, or you will pick the wrong supplier.
Ignoring where risk passes. The term sets the exact point loss becomes yours. Under FOB, damage before the goods are loaded is the supplier's; after, it is yours. If you have not arranged cargo insurance for the legs you own, a lost or damaged container is your loss.
Assuming DDP means zero responsibility. You still own the goods and can be exposed if the supplier mishandles customs or under-declares value. Convenience is not immunity.
Not naming the destination precisely. "DAP" or "DDP" to where? The named place changes who pays the last leg. Spell out the exact destination (your prep center, your warehouse) so there is no gap.
Forgetting Amazon will not be your importer of record. Amazon does not clear customs for you, so a term that leaves import clearance to "the buyer at FBA" does not work; the clearance has to happen before the goods reach Amazon. Under DDP, the supplier or their customs broker typically acts as importer of record on your behalf, so confirm that explicitly and get the broker's name; under FOB or EXW, you (through your own forwarder or broker) are the importer of record.
Underestimating tariffs on top of duty. Duty is not the only import charge. Additional tariffs, such as US Section 301 duties on many Chinese goods, can dwarf the base duty rate, and whoever owns the import leg under your term pays them. Confirm the full duty-plus-tariff figure for your product and fold it into landed cost, not just the headline duty.
Most of these come down to reading the term literally and adding up every leg, rather than trusting a headline price or an assumption.
The right term is a function of experience and control:
New to importing? DDP keeps it simple: one price, the supplier handles the complexity, you learn the ropes with less risk. You pay for that convenience.
Have a freight forwarder and some experience? FOB is the sweet spot: you control the ocean freight (the biggest and most negotiable cost) with a clean handoff and export handled for you.
Experienced with a trusted forwarder? EXW gives the most control and the lowest sticker, if you are ready to manage every leg.
A word of caution on DDP: because the supplier handles customs, some cut corners on declared value or duties, which is a risk that can land on you. Understand what you are signing up for, and confirm any customs specifics with a broker.
Incoterms are the standardized terms that decide who pays and who bears risk at each step of an international shipment, running from EXW (you do everything) to DDP (the supplier does). For Amazon importers, fluency in EXW, FOB, and DDP covers almost every quote. Choose by your experience and appetite for control, and always compare on total landed cost, not the term's sticker price. To go deeper, see FOB vs EXW, DDP shipping, and the wider importing from China guide.