Why Incoterms Matter More Than Most Importers Realise

Every international trade transaction involves a moment when responsibility for the goods transfers from the seller to the buyer. Incoterms define exactly where that moment is, and the choice of Incoterm also determines who pays for freight, insurance, and the various costs involved in getting goods from the factory to the destination. For NZ importers sourcing from China, the three Incoterms most commonly encountered are FOB, EXW, and CIF.

EXW — Ex Works

Under EXW terms, the seller's obligation ends at their factory gate. The buyer is responsible for all costs and risk from the moment the goods are available for collection at the seller's premises — including local transportation from factory to export port, export customs clearance in China, ocean freight, insurance, and all destination costs.

EXW gives maximum control over the logistics chain. However, export customs clearance in China requires an entity with Chinese export rights — most foreign importers do not have this and need a freight forwarder or agent in China. For businesses new to importing from China, EXW is rarely the most practical choice. It is most appropriate when you have an established freight forwarder in China, want maximum cost visibility, or are consolidating shipments from multiple suppliers.

FOB — Free on Board

Under FOB terms, the seller delivers the goods to the named port of shipment and loads them onto the vessel. Once on board, risk and responsibility transfer to the buyer. FOB is the most commonly used Incoterm for China-NZ trade and the starting point for most supplier price quotes.

FOB means the seller handles local transportation to the port and Chinese export customs clearance. The buyer is responsible for international freight, insurance, and all destination costs. One important nuance: although FOB technically transfers risk at loading, many buyers arrange marine insurance from when goods leave the factory. This is good practice regardless of Incoterm, as damage and theft during internal transportation in China do occur.

FOB gives you the best combination of seller accountability for Chinese logistics and buyer control over international freight. You can compare freight quotes from multiple forwarders, choose your preferred carrier, and ensure your goods travel with insurance you control. For most NZ importers sourcing from China, FOB is the recommended default.

CIF — Cost Insurance and Freight

Under CIF terms, the seller arranges and pays for freight and insurance to the named destination port. On the surface CIF looks attractive — it simplifies the buyer's responsibilities and gives a single landed price at the destination port.

In practice, CIF is generally less advantageous for buyers. The seller uses their own freight forwarder and insurer — the freight rate typically includes a margin, and CIF only requires minimum insurance coverage (110% of invoice value, basic risks only). You have no control over carrier, routing, or insurance terms. Under CIF, risk transfers at the destination port, not when goods are loaded. If something goes wrong during the voyage, the insurance policy is in the seller's name, not yours, which complicates claims.

CIF can work for buyers new to importing who want simplicity, or for lower-value orders. For regular, significant import volumes, FOB is almost always preferable because it gives you control and transparency over one of your largest cost components.

A Comparison That Actually Matters: Total Cost

The most useful way to compare Incoterms is to get quotes under different terms and calculate total landed cost under each. When a supplier offers CIF pricing to Auckland, ask for their FOB price and separately get freight quotes from a reputable forwarder for the same cargo. Compare the totals. In many cases, the buyer can source freight more competitively than the seller, making FOB cheaper on a total landed cost basis despite the additional coordination. This exercise also makes your cost structure transparent — when you accept CIF, you accept the seller's freight cost without visibility into what they actually paid.

Other Incoterms Worth Knowing

DDP (Delivered Duty Paid) means the seller is responsible for all costs through to the buyer's named destination, including import duty and GST in NZ. DDP gives a fully inclusive price but is complex to execute, requires the seller to have import rights in NZ or work through an agent, and the all-in price may include significant margins on every cost component. DAP (Delivered at Place) is similar but stops short of duty paid — the seller delivers to a named place while the buyer handles import customs. DAP can work well for buyers with a trusted customs broker who want the seller to manage international freight.

How Epic Sourcing Advises on Incoterms

Getting Incoterms right affects your total importing cost without requiring any negotiation on product price. At Epic Sourcing, we help NZ importers understand which Incoterm structure makes sense for their specific situation — their volume, freight forwarder relationships, risk tolerance, and supply chain visibility requirements. If you are structuring a new import relationship and want advice on Incoterms and freight logistics, get in touch with our team.