How to Choose Between EXW, FOB and DDP Shipping Terms
Selecting the right Incoterms can significantly impact your supply chain costs, risk exposure, and operational control. Understanding the practical implications of EXW, FOB, and DDP helps you make informed decisions that align with your business capabilities and risk tolerance.
Core Responsibility Comparison
EXW (Ex Works) – Maximum Buyer Control
Your Responsibility Starts: At manufacturer’s loading dock
Cost Control: You pay for all transportation and handle all arrangements
Risk Transfer: You assume risk immediately upon factory pickup
Best For: Experienced importers with strong logistics capabilities
FOB (Free On Board) – Balanced Responsibility
Your Responsibility Starts: Once goods are loaded on vessel at origin port
Cost Control: You manage main transportation but seller handles export clearance
Risk Transfer: Risk shifts to you at origin port
Best For: Most small to medium businesses importing from China
DDP (Delivered Duty Paid) – Maximum Seller Convenience
Your Responsibility Starts: When goods arrive at your warehouse
Cost Control: Seller quotes all-inclusive price, but you pay premium for convenience
Risk Transfer: Seller bears risk until destination
Best For: New importers or those wanting predictable costs
Cost Structure Analysis
EXW Cost Breakdown
Total EXW Cost = (Product Cost + Factory Loading + Domestic China Transport +
Origin Port Charges + International Freight + Insurance +
Destination Port Charges + Customs Clearance + Final Delivery)Hidden Costs: Often underestimated domestic China transportation
Budget Risk: Multiple unexpected charges can appear
Control Benefit: You manage and optimize each cost component
FOB Cost Transparency
Total FOB Cost = (Product Cost + International Freight + Insurance +
Destination Port Charges + Customs Clearance + Final Delivery)Cost Certainty: Known costs until origin port
Common Choice: Balanced control and convenience
Industry Standard: Most common for China exports
DDP Cost Simplicity
Total DDP Cost = (All-Inclusive Price)Budget Certainty: Single price covers everything
Cost Premium: Typically 15-30% higher than managing separately
Surprise Protection: No unexpected charges at destination
Regional Application Scenarios
Shenzhen Electronics – EXW Advantages
Scenario: High-volume importer with existing logistics relationships
Recommended Approach: EXW for cost control and flexibility
Implementation:
Use trusted local trucking from Shenzhen factory to Yantian port
Negotiate directly with carriers for best rates
Manage own customs brokerage for consistency
Savings Potential: 18-25% vs DDP for experienced operators
Guangzhou Furniture – FOB Balance
Scenario: Medium-volume importer wanting some control without full complexity
Recommended Approach: FOB for balanced responsibility
Implementation:
Seller arranges delivery to Guangzhou port
You manage ocean freight and destination handling
Use specialized furniture handlers at destination
Operational Advantage: Control main transportation while avoiding China domestic logistics
Yiwu Consumer Goods – DDP Convenience
Scenario: New importer or small business focusing on sales, not logistics
Recommended Approach: DDP for simplicity and predictability
Implementation:
Supplier provides all-inclusive price per item
Single point of contact for all shipping issues
Fixed costs for accurate pricing calculations
Business Benefit: Focus on marketing and sales instead of logistics
Risk Assessment Framework
Control vs Convenience Trade-off
EXW: Maximum control, maximum effort, lowest cost potential
FOB: Balanced control, moderate effort, competitive costs
DDP: Minimal control, minimal effort, higher cost certainty
Liability Considerations
Damage in Transit: Who files claims and manages insurance?
Customs Delays: Who resolves documentation issues and pays storage?
Carrier Problems: Who manages carrier performance and alternatives?
Cost Fluctuations: Who bears fuel surcharges and currency changes?
Decision Matrix
Choose EXW When:
You have experienced logistics staff or partners
Cost minimization is critical to your business model
You ship high volumes and can negotiate better rates
You want complete visibility and control over supply chain
Choose FOB When:
You want balance between cost control and convenience
You have some logistics capability but not full China expertise
You want to avoid managing China domestic transportation
You’re comfortable managing international freight and destination costs
Choose DDP When:
You’re new to importing or want to focus on your core business
Budget certainty is more important than cost minimization
You lack logistics expertise or resources
You’re testing new products or suppliers
Implementation Best Practices
EXW Management Strategy
Develop relationships with reliable China domestic truckers
Use container tracking technology for visibility
Implement strict document control procedures
Build contingency plans for delays and issues
FOB Coordination Approach
Verify seller has export license and experience
Confirm exact FOB port and terminal requirements
Establish clear communication protocols with factory
Monitor vessel schedules and port operations
DDP Partnership Method
Conduct due diligence on seller’s logistics capabilities
Verify all-inclusive pricing covers all potential charges
Establish performance metrics and reporting
Maintain some oversight despite hands-off approach
Cost Comparison Examples
Electronics Shipment: $50,000 Value
EXW Total: $7,200 (you manage all logistics)
FOB Total: $8,100 (seller handles to origin port)
DDP Total: $9,800 (full convenience pricing)
Savings: EXW saves 26% vs DDP, FOB saves 17% vs DDP
Furniture Shipment: $30,000 Value
EXW Total: $5,400 (with specialized handling)
FOB Total: $5,900 (balanced approach)
DDP Total: $7,100 (premium for convenience)
Savings: EXW saves 24% vs DDP, FOB saves 17% vs DDP
Transition Strategy
Moving from DDP to FOB
Start with one product line or supplier
Work with experienced freight forwarder
Develop internal logistics capability gradually
Expand as confidence and experience grow
Moving from FOB to EXW
Establish China-based logistics contacts
Test with smaller shipments first
Implement robust tracking and control systems
Scale as cost savings materialize
Actionable Selection Checklist
For EXW Consideration
Do you have logistics staff or reliable partners in China?
Is cost minimization critical to your competitive advantage?
Are you comfortable managing multiple service providers?
Do you have contingency plans for supply chain disruptions?
For FOB Consideration
Do you want balance between cost control and convenience?
Are you comfortable managing international freight?
Do you have reliable destination logistics partners?
Can you handle customs clearance in your country?
For DDP Consideration
Is predictable budgeting more important than lowest cost?
Are you new to importing or focusing on other business areas?
Does your supplier have proven DDP capability?
Are you willing to pay a premium for convenience?
Building Strategic Shipping Terms
Choosing between EXW, FOB, and DDP requires honest assessment of your capabilities, resources, and business priorities. The right choice balances cost control with operational reality, ensuring your supply chain supports rather than hinders your business growth.
Need help determining the right shipping terms for your business? We provide:
Incoterms selection analysis
Cost comparison and optimization
Implementation planning and support
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