Incoterms for NZ and AU Importers: EXW, FOB, CIF and DDP Explained

When a Chinese supplier sends you a quote, somewhere in that document there will be a three-letter code. It might say ‘FOB Ningbo’, ‘EXW Factory’, ‘CIF Auckland’ or ‘DDP Sydney’. That code is not a footnote. It decides who pays for each leg of the freight journey, where the risk of loss or damage shifts from the supplier to you, and who handles customs clearance at both ends. Get this wrong and a quote that looks competitive turns out to be the more expensive option once you add in everything you have to organise yourself.

This guide walks NZ and AU buyers through the four Incoterms they will encounter most when sourcing from China, explains what each one actually means for your wallet and your workload, and helps you choose the term that suits your situation.

What Incoterms Actually Decide

Incoterms are a set of internationally recognised trade terms published by the International Chamber of Commerce. They are not contracts on their own, but when a quote names a specific term and a named location, both parties have an agreed shorthand for three practical questions.

First, who pays for which leg of the journey? The factory floor, the domestic Chinese trucking to port, the export port fees, the ocean or air freight, the insurance, the destination port handling, and the final delivery to your door are all separate cost items. Each Incoterm draws a line through that list and says: supplier pays up to here, buyer pays from here.

Second, where does risk transfer? Risk is separate from cost. Under some terms the supplier is still paying for freight but the goods are already at your risk. This matters when cargo is damaged at sea or goes missing in transit.

Third, who handles customs? Export clearance out of China and import clearance into New Zealand or Australia are both real tasks requiring documentation, lodgement, and payment of any duties. Some terms leave that entirely to you; others hand it to the supplier.

Understanding these three questions for each term is what lets you read a quote accurately. Without that, you are comparing numbers that do not represent the same thing.

EXW (Ex Works): The Cheapest-Looking Quote

EXW is the term that produces the lowest headline number on a quote, which is precisely why it catches buyers out. Under Ex Works, the supplier’s obligation ends at the factory gate. They make the goods available at their premises and everything else, from that moment forward, is your problem.

That means you are responsible for arranging a truck to collect from the factory, organising export clearance in China, getting the goods to the port, booking the vessel, arranging marine insurance, handling import clearance when the shipment arrives in New Zealand or Australia, and paying all the associated costs at each step.

For an experienced importer with a trusted freight forwarder in China and a customs broker at the destination, EXW is manageable. For most NZ and AU SMEs sourcing from China, it is the wrong starting point. Export clearance inside China requires either a licensed Chinese freight agent or a supplier willing to act as the declared exporter, and many suppliers who quote EXW are not set up to assist beyond the factory gate. If something goes wrong between the factory and the port, you have limited leverage and no built-in support from the supplier.

The practical takeaway: if a supplier quotes EXW and you do not have a trusted China-side freight agent already in place, ask them to re-quote on FOB before you try to compare numbers. The EXW price and the FOB price are not the same product.

FOB (Free On Board): The Common Middle Ground

FOB is the term most experienced NZ and AU importers default to for sea freight, and for good reason. Under Free On Board, the supplier is responsible for getting the goods to the named Chinese port, clearing them for export, and loading them onto the vessel. Risk transfers to the buyer once the goods are on board the ship.

From that point, the buyer controls the main freight leg. You choose your own freight forwarder, negotiate the ocean freight rate yourself, arrange marine insurance at a level you are comfortable with, and manage the import clearance into New Zealand or Australia through your own customs broker.

The advantage of FOB is that it puts the buyer in control of the most expensive single cost item in the shipment: the ocean freight. It also means you choose who handles your cargo at sea, which matters for things like cargo tracking, communication, and claims handling if something goes wrong.

For most buyers sourcing from Chinese factories, FOB at a major Chinese port, whether that is Ningbo, Shanghai, Guangzhou, Shenzhen, or another port, is the sensible default. Your freight forwarder can often beat the rates a supplier would bundle into a CIF quote, and you retain full visibility of the booking.

If you are comparing quotes from different suppliers and they have all quoted FOB at the same or comparable ports, you can make a meaningful cost comparison. If one has quoted EXW and another FOB, you cannot compare them directly. See our article on how to compare China supplier quotes for a practical method to get all quotes onto the same basis.

CIF and CFR: When the Supplier Books the Freight

CIF stands for Cost, Insurance and Freight. CFR is Cost and Freight, the same arrangement without the insurance component. Under both terms, the supplier books and pays for the ocean freight to the named destination port, and under CIF they also arrange marine insurance on your behalf.

On the surface, this sounds convenient. The supplier handles the freight booking and the quote gives you a single landed number to the destination port. For a first-time importer who has not yet established a freight forwarder relationship, the simplicity is appealing.

The first thing to understand is that CIF and CFR do not change where risk transfers. Despite the supplier booking and paying for the freight, risk still moves from supplier to buyer at the port of origin in China, once the goods are on board the vessel. If cargo is lost or damaged at sea under a CIF arrangement, you have a claim against the insurance policy the supplier arranged, not a straightforward supplier liability.

The second thing to understand is that the freight rate the supplier builds into a CIF quote reflects their arrangement with their preferred forwarder, not necessarily the market rate. Suppliers are not logistics companies, and the margin built into a CIF freight component is often higher than what a buyer would pay directly. You also lose the ability to specify the carrier, the routing, or the service level.

The third catch is destination charges. CIF and CFR cover freight to the destination port, not to your door. Port handling charges, container detention fees, import customs clearance, biosecurity inspections, and domestic delivery from the port are all still your cost. Buyers new to importing are routinely surprised by the gap between a CIF destination port quote and the actual total cost to get goods into their warehouse.

CIF can work for smaller or lower-value shipments where the simplicity is genuinely worth the trade-off. For regular or higher-volume purchasing from China, the majority of experienced buyers eventually move to FOB and manage their own freight.

DDP (Delivered Duty Paid): Convenience with Blind Spots

DDP is the Incoterm that puts the most obligation on the supplier. Delivered Duty Paid means the supplier handles the entire journey to your door: export from China, ocean or air freight, import customs clearance in New Zealand or Australia, payment of customs duty and GST, and final delivery. You pay one price and the goods arrive.

For a business placing a small first order from China, or buying a category of goods for the first time, DDP removes a lot of complexity. There is no need to appoint a freight forwarder, instruct a customs broker, or understand import duties for the specific product. The supplier manages all of it.

The blind spots are real, though. When a supplier arranges customs entry in your market, that entry is typically lodged in your name as the importer of record. You are the legal importer whether or not you organised the clearance. If the product classification, the declared value, or the documentation is incorrect, the compliance exposure sits with you. You may not even see the customs entry unless you ask for it.

Suppliers arranging DDP to New Zealand or Australia often use a local agent or third-party customs broker that you have not vetted and have no direct relationship with. The total DDP price also tends to bundle in a margin on the freight and duty components, so the all-in convenience price is rarely the cheapest way to land goods.

DDP suits buyers who are testing a new product category in small quantities and prioritise simplicity over cost optimisation. As order volumes grow, most importers move toward FOB to take back control of the freight, the customs entry, and the compliance record.

Choosing the Right Term for Your Order

The right Incoterm depends on your experience, your freight volume, the goods you are importing, and the forwarder and customs relationships you have already established.

If you are placing your first order from China and the shipment is small: DDP gives you the simplest introduction, provided you are aware of the customs visibility trade-off and you ask the supplier for a copy of the import entry once it is lodged.

If you have a freight forwarder and a customs broker in place: FOB is the default for sea freight. You control the main cost, you choose who handles your cargo, and you have full visibility of the clearance process.

If you are doing air freight on a small urgent shipment: DAP (Delivered At Place) or DDP can be practical, though the same visibility caveats apply.

The most important rule is this: you cannot compare quotes from different suppliers if they are on different Incoterms. A supplier quoting EXW at a lower number than another quoting FOB may be the more expensive option once you add Chinese trucking, export clearance, and port charges. Asking a supplier to re-quote on a specific term is completely normal. A supplier unwilling to re-quote on FOB when asked is worth questioning.

Before comparing any quotes from Chinese suppliers, confirm the Incoterm on each one and either convert them to a common basis or ask each supplier to re-quote on the same term. Reviewing how supplier checks integrate with quote comparison is worth doing at this stage, since pricing and supplier credibility need to be assessed together.

How ANZSBS Helps Buyers Read and Set Quote Terms

One of the more common issues ANZSBS sees when working with NZ and AU buyers is that a supplier quote includes an Incoterm but the scope behind it is unclear. A quote might say ‘FOB Shanghai’ but when the buyer asks what is included in that, the answer reveals the supplier has not actually priced port handling or export documentation correctly. Or a DDP quote turns out to assume a freight routing that adds weeks to the transit time without disclosure.

ANZSBS works from China. When you are at the stage of reviewing a supplier’s quote terms and want to confirm what is actually included before you commit, our China-side team can engage directly with the supplier to clarify the scope behind the Incoterm stated. That kind of verification, done in-market and in Mandarin where needed, closes the gap between what a quote implies and what the supplier actually intends to provide.

This sits alongside the broader supplier and goods verification work ANZSBS provides for NZ and AU buyers, including factory verification, business registration checks, and pre-shipment inspection. If you are at the Canton Fair, collecting quotes from Guangzhou or Shenzhen suppliers, or working through an online sourcing platform, understanding the Incoterm on each quote is part of the due diligence process, not a separate step. Pricing and engagement scope are confirmed at the point of contact.

If you are ready to get clarity on a quote or want to understand what ANZSBS can verify on the ground in China before you commit to an order, contact ANZSBS to discuss your sourcing situation. You can also explore the full range of product sourcing support available to NZ and AU buyers.