Incoterms for Custom Parts: EXW vs FOB vs DDP Explained

When you ask for a quote on a batch of custom CNC parts, the price you get back is only meaningful once you know one thing: where does the supplier's responsibility stop, and where does yours begin? That single boundary is what an Incoterm sets. Choose EXW and a very low unit price can hide thousands of dollars of freight, clearance and duty that land on you later. Choose DDP and a higher number can be genuinely all-in — or padded, because the seller is now carrying risks it cannot see. Neither is right or wrong; they suit different buyers.

This guide walks through the six Incoterms a machined-parts buyer actually meets — EXW, FCA, FOB, CIF, DAP and DDP — and shows exactly which leg each one shifts: export clearance, main carriage, insurance, import clearance, duty and final delivery. We focus on the three in the title because they are the common real choices, and we are blunt about the trade-offs. The Incoterm you write on the purchase order is a sourcing decision, not a formality.

The quick answer: what an Incoterm is (and is not)

An Incoterm is a three-letter code from a standardised set published by the International Chamber of Commerce (ICC). It allocates, between buyer and seller, the responsibility and cost for each stage of moving goods from A to B, plus the point at which risk of loss or damage transfers from one party to the other. The current published edition is Incoterms® 2020.

Here is what it does not do, and this is the single most misunderstood point in cross-border sourcing: an Incoterm does not change the duty owed on your parts, and it never makes a shipment “duty-free.” Duty is determined by the parts' commodity classification (HS code), their declared customs value and the trade rules of the importing country — not by which letters you chose. All the Incoterm decides is who is responsible for paying that duty and handling clearance. Under DDP the seller pays it; under EXW or FOB you pay it. The bill is the same; only the name on the counter changes.

Think of it as a relay race. The parts run from the supplier's factory floor, through export clearance, onto a truck or into a container, across the ocean or through the air, through customs in your country, and finally to your door. The Incoterm marks the baton hand-offs. Everything before the hand-off is the seller's job and cost; everything after is yours.

The Incoterm answers WHO is responsible. A separate decision — air express, air freight or ocean — answers HOW the parts physically move. We cover that in the sister article, shipping machined parts worldwide. Read them together: the Incoterm and the freight mode are two dials on the same order.

The six Incoterms a machined-parts buyer meets

Of the eleven Incoterms in the 2020 set, most were written for bulk commodities and rarely apply to a pallet of machined parts. Six show up on real purchase orders for custom parts. Here is what each one shifts, in the order of “least seller responsibility” to “most.”

EXW — Ex Works

The seller makes the goods available at its own premises (the factory or a named warehouse), packed but not loaded. That is the entire extent of the seller's obligation. You — the buyer — arrange collection, export clearance out of China, the main carriage, insurance, import clearance, duty and final delivery. Risk transfers to you the moment the goods are placed at your disposal at the seller's dock.

EXW gives you the lowest possible headline quote because the seller has priced in almost nothing beyond the parts. In exchange you own the most work and the most risk. In practice a foreign buyer cannot personally clear goods for export out of China — that requires a local agent — so pure EXW often gets handled as if it were FCA anyway, with the supplier or your forwarder's China agent doing the export paperwork. If you are new to importing, EXW's cheap number is a trap: the missing costs do not vanish, they just appear later on invoices you did not budget for.

FCA — Free Carrier

The seller delivers the goods, cleared for export, to a carrier or place named by you — typically the forwarder's warehouse or a container yard. FCA fixes EXW's biggest weakness: export clearance is now the seller's job, which is who should be doing it in China. Risk transfers when the goods are handed to your nominated carrier. FCA is the modern, container-friendly replacement for FOB and the one the ICC recommends when goods travel in containers rather than being loaded loose over a ship's rail. Many buyers still write FOB out of habit; for containerised machined parts, FCA is technically cleaner.

FOB — Free On Board

The seller delivers the goods on board the vessel at the named origin port — Shenzhen, Guangzhou (Nansha) or a nearby port — with export clearance done. Once the parts are on the ship, risk and cost pass to you: ocean freight, insurance, import clearance, duty and delivery are yours. FOB is the workhorse of China sourcing and the balanced default for a reason: it draws a clean, well-understood line at the origin port. The seller handles everything on the China side up to loading; you control the international leg and can shop your own freight rates. Strictly, FOB was designed for bulk cargo loaded over a rail, but in everyday trade it is used routinely for containers, and every forwarder knows exactly what an “FOB Shenzhen” quote means.

CIF — Cost, Insurance and Freight

Like FOB, but the seller also pays the ocean freight to the named destination port and buys a minimum level of marine insurance. Note the trap: even though the seller pays freight and insurance to the destination port, risk still transfers when the goods are loaded at origin, exactly as in FOB. So if the container is damaged mid-ocean, it is your problem to claim — on an insurance policy the seller chose and that only has to meet the minimum cover. CIF looks convenient but the risk/cost split is deliberately mismatched; many experienced buyers avoid it and prefer to arrange their own freight and insurance under FOB or FCA.

DAP — Delivered At Place

The seller delivers to a named place in your country — usually your facility — ready for unloading, having handled export, main carriage and delivery. The one thing the seller does not do under DAP is import clearance and duty. Those remain your responsibility. DAP is the “almost door-to-door” option: the parts arrive at your address, but you (or your broker) still file the import entry and pay the duty and import taxes. It is a sensible middle ground when you want the seller to run the logistics but you want to keep control of — and visibility into — the customs and duty step.

DDP — Delivered Duty Paid

The seller does everything: export, main carriage, insurance (practically, to protect its own risk), import clearance, duty and import taxes, and final delivery to your door. This is the maximum obligation on the seller and the simplest experience for you — one price, parts appear, nothing else to arrange. The catch is real. To quote DDP, the seller must estimate the duty, taxes and clearance costs in your country, a place where it is not the importer of record and cannot always see the true rates. It either pads the number to cover that uncertainty, or it under-quotes and you get a surprise. You also lose visibility: you never see the duty line separately, so you cannot verify the HS classification or the declared value. DDP is wonderful for a buyer who wants zero logistics involvement and terrible for a buyer who wants to control landed cost.

Why the Incoterm decides which landed-cost lines are in the price

The reason this choice matters so much is that your total landed cost — the real number, parts plus every cost to get them onto your shelf — is fixed regardless of Incoterm, but the Incoterm decides which of those lines are already inside the supplier's quote and which arrive later as separate invoices. We break the full cost stack down in total landed cost of imported CNC parts; here is how the Incoterm carves it up.

An EXW quote contains only the parts and export packing. Everything else — inland trucking in China, export docs, freight, insurance, clearance, duty, delivery — hits you afterward. A FOB quote already contains the China-side costs and loading, so what lands on you later is the international freight and your import side. A DDP quote is supposed to contain the entire stack, duty included, in one figure. That is why comparing two quotes on different Incoterms without normalising them is meaningless: a $9.20 EXW part and an $11.80 DDP part may cost you exactly the same when the dust settles — or the EXW one may cost more once you add what it left out.

The discipline that protects you: never compare a quote until you have converted every line to the same Incoterm, ideally to landed cost at your door. Ask your forwarder to estimate the missing legs so an EXW or FOB number becomes comparable to a DDP one. A supplier that quotes fast and clearly — Sendot returns a quote within 12 hours of receiving your CAD — makes this easier because you can request the same parts on two Incoterms and see the delta.

Comparison table: who is responsible for each leg

Read this as the baton hand-offs. “Seller” means it is in the seller's quote and the seller's job; “Buyer” means it falls to you.

Two things to notice. First, duty stays in the same column as import clearance in every row — whoever clears the goods pays the duty. Second, the duty column only ever changes who pays, never how much. Move from FOB to DDP and the duty does not shrink; it simply moves from your column to the seller's, who then rebuilds it into the unit price. For the formal definitions, the ICC's Incoterms® 2020 reference is the authority, and your glossary Incoterms entry gives the short version for your team.

How to choose the right Incoterm: a step-by-step

Work through these in order. The goal is to match the Incoterm to how much of the journey you actually want to run.

1. Confirm who will be the importer of record. If it must legally be you (common for regulated goods, or where you want to control the customs value and HS code), rule out DDP — under DDP the seller acts as importer, and that may not be permitted or desirable. This is the first filter.
2. Judge your own logistics capacity. Do you have a freight forwarder and a customs broker you trust in your country? If yes, FOB or FCA lets you use them and control cost. If you have no logistics setup and want none, lean toward DAP or DDP.
3. Decide how much cost visibility you need. If you must audit landed cost line by line — duty, freight, brokerage — choose FOB or FCA so every line is your own invoice. DDP hides these inside one number.
4. Weigh order size and frequency. For repeat, high-value orders it pays to build FOB relationships and shop freight. For a one-off small batch where your time is worth more than the freight margin, DDP's simplicity can be worth the premium.
5. Match the freight mode to the term. For containerised ocean shipments, FCA is technically cleaner than FOB; for air express of small parts, DAP or DDP via an integrator (DHL, FedEx, UPS) is natural because the carrier does clearance anyway. Decide the freight mode alongside the term.
6. Get the quote both ways and normalise. Ask the supplier to quote FOB and DDP (or FOB and EXW). Convert both to landed cost at your door with your forwarder's help. Choose on the true total plus the value of the work each shifts to you — not the headline number.
7. Have a forwarder confirm the term applies cleanly. Before you sign, a freight forwarder should confirm the Incoterm suits the lane, port and mode. The ICC writes the rules; the forwarder tells you how they land on your specific route.

Common mistakes that cost real money

These are the ones we watch buyers make repeatedly.

Believing DDP means “no duty.” It does not. DDP means the seller pays the duty and folds it into your price. You are still paying it — just invisibly, and often with a margin on top for the seller's uncertainty. If anyone tells you an Incoterm makes goods duty-free, stop the conversation.

Comparing quotes on different Incoterms. A FOB quote and a DDP quote are not comparable numbers. Normalise both to landed cost before you decide, or you will pick the wrong supplier on a phantom saving.

Taking EXW to save money, then drowning in the China side. A foreign buyer cannot easily handle Chinese export clearance. EXW pushes that onto you; in practice you pay an agent to do it, erasing the saving and adding friction. FCA or FOB puts export clearance with the party equipped to do it.

Assuming CIF insurance protects you. Under CIF the seller buys only minimum cover and risk still passes at origin. For valuable precision parts, arrange your own all-risk insurance under FOB rather than relying on CIF's floor.

Forgetting that Incoterms allocate cost, not tax liability. Duty, VAT and GST are set by your country's rules and the parts' classification, and they change. No Incoterm alters them. For the actual rates and clearance rules, use your national customs authority's tariff tool — for example the US Harmonized Tariff Schedule, the UK Trade Tariff, or your WCO Harmonized System classification — and confirm current rates with a customs broker. This article is not legal, tax or customs advice; rates and rules change and must be confirmed for your shipment.

Not writing the named place. An Incoterm is incomplete without a location: “FOB Shenzhen,” “DDP Chicago,” “FCA seller's warehouse Guangzhou.” “FOB” alone is ambiguous and creates disputes over where responsibility actually shifts.

Frequently asked questions

Once you have chosen your Incoterm, the rest is straightforward: send your CAD, tell us the term and named place you want, and we will return a quote within 12 hours — and we are happy to quote the same parts FOB and DDP so you can see exactly what each shifts. Sendot makes the parts and works alongside your freight forwarder and customs broker; we do not act as a licensed forwarder or broker ourselves, which is precisely why FOB, where you keep control of the international leg, is a term we quote comfortably every day.