Shipping, Customs & Incoterms Explained Simply
2026-08 · Intermediate · Logistics
The quoted factory price is almost never all you pay. Freight, insurance, customs duties, and taxes all quietly add up. The Incoterms on your sales contract determine exactly who pays for what — and misunderstanding them is a classic way for first-time importers to get hit with surprise bills.
The four Incoterms you'll actually see
- EXW (Ex Works): You pay everything from the factory gate onward — trucking, export clearance, ocean freight, import duties. The cheapest-looking quote, but the most you'll manage.
- FOB (Free On Board): The supplier covers costs up to loading the goods onto the ship at the port of origin. From there, freight, insurance, and customs are yours. The most common term for Chinese imports.
- CIF (Cost, Insurance & Freight): The supplier pays for freight and insurance to the destination port. You still handle import duties and clearance at your end.
- DDP (Delivered Duty Paid): The supplier handles everything, including import duties, and delivers to your door. Easiest for you, but the supplier will build all those costs into the price — and you may lose visibility into what you're paying.
Air freight vs. ocean freight vs. express
- Courier/express (DHL, FedEx, UPS): Fast (days), best for samples and small parcels. Expensive per kilo.
- Air freight: Medium cost, good for urgent or high-value goods. Charged on actual or volumetric weight.
- Ocean freight (LCL/FCL): The cheapest per unit for anything substantial. LCL means you share a container; FCL means you book a full one. Full containers are often more cost-effective once you exceed roughly half a container's worth of goods.
Customs duties & taxes — the surprise you must plan for
Import duties and VAT are based on the declared value and your country's tariff schedule. A few things to remember:
- Duties are usually calculated on the CIF value (cost + insurance + freight), not just the product price.
- Your goods' HS (Harmonized System) code determines the duty rate. Get it right — the wrong code means the wrong duty, or worse, customs delays.
- Under-declaring to save duty is fraud, and it voids your insurance and causes problems if goods are damaged or lost.
- Some countries have de minimis thresholds — small shipments under a value limit may be exempt from duty. It varies by country and can change.
How to avoid delays and disputes
- Confirm the exact Incoterm and destination in writing before you order.
- Ask the supplier for a breakdown of costs at each stage so there are no surprises.
- Use a freight forwarder you trust — they handle documentation and can catch costly mistakes.
- Buy cargo insurance, especially for ocean freight. It's cheap relative to the value of the goods.
- Get all shipping documents (invoice, packing list, bill of lading) reconciled before the goods arrive.