Two brands order the same capsule from the same factory, on the same day, at the same ex-works price. One lands it at 2.85 USD per unit. The other lands it at 3.70.
Nothing went wrong. They just agreed to different incoterms, and one of them did not read what the term included.
This is the part of the quote that factories rarely explain, because in most cases the factory would rather you did not ask. It also sits underneath the numbers in our packaging cost per unit breakdown, where freight alone can swing a small order by thousands.
What an incoterm actually is
An incoterm is a three-letter code that answers two questions and no others:
- Who pays for each leg of the journey, from the factory gate to your door.
- Where the risk transfers from the seller to you.
It does not say who is a good supplier, it does not set quality, and it does not decide who is responsible for regulatory compliance in your market. Those are separate conversations, and confusing them is how brands end up with a container they cannot legally sell.
The four terms you will actually see
Most supplement factories in China quote one of these four. Anything else is usually a variation.
EXW - Ex Works
The price covers goods packed at the factory. You arrange and pay for everything else: inland trucking in China, export customs, freight, insurance, duty, clearance, delivery.
It is the cheapest number on paper and the most expensive in practice, because a brand with no Chinese freight forwarder will pay retail rates for every leg, and the factory has no obligation to help you load.
FOB - Free On Board
The price covers goods loaded on the vessel at a named Chinese port. The seller handles export customs and inland transport to the port. You pay ocean freight, insurance, duty, clearance and delivery.
This is the standard term for serious buyers, because it puts the part the factory is good at (getting goods out of China) on the factory, and the part you can shop around (freight) on you.
CIF - Cost, Insurance and Freight
Like FOB, plus the seller pays ocean freight and insurance to your destination port. Risk still transfers at the origin port, which is the detail people miss: if the container is lost at sea, the insurance pays, not the factory.
CIF is convenient and usually 5 to 15 percent more expensive than arranging freight yourself on a small shipment.
DDP - Delivered Duty Paid
The price covers everything to your door, duty included. You receive a delivered unit cost and nothing else to arrange.
It is the right choice for a first order and the wrong choice for a scaling brand, for reasons covered below.
Side by side
For a 1,000-unit order of a 60-count bottle, ex-works price 2.10 USD:
| Term | You pay for | Typical added cost per unit | Landed per unit |
|---|---|---|---|
| EXW | Everything from the factory gate | 1.05 to 1.60 | 3.15 to 3.70 |
| FOB | Ocean freight onward | 0.55 to 0.85 | 2.65 to 2.95 |
| CIF | Duty, clearance, delivery | 0.45 to 0.75 | 2.55 to 2.85 |
| DDP | Nothing | included | 2.85 to 3.40 |
The spread between the best and worst outcome is more than 30 percent of the landed cost, on identical goods. That is the entire margin on some products.
Note the shape of the numbers: EXW is not cheaper than FOB. It only looks cheaper, because the expensive legs have been removed from the number you were shown.
Why DDP is right for order one and wrong for order ten
DDP removes work, and in the first order the work is the risk. You do not yet know a forwarder, you do not yet know your HS code, and a mistake in either costs more than the DDP premium.
By the third or fourth order, the arithmetic changes. A DDP seller is charging you a margin on freight, duty handling and clearance, and on a 5,000-unit shipment that margin is money you could keep. Getting your own forwarder typically saves 5 to 12 percent, and it also gives you the documents you need if customs ever asks.
The transition point is usually once you are shipping more than one pallet at a time, or more than twice a year.
The five traps in the fine print
- EXW with no loading arrangement. The factory is not obliged to load your truck, and some will charge a loading fee you never saw quoted.
- FOB with an unnamed port. "FOB China" is not a term. You need the port, because inland transport to a distant port can cost more than the ocean leg.
- CIF insurance that is hard to claim. The policy covers 110 percent of value, but claims require documents you may not have and a local agent you have never spoken to. If the goods matter, insure them yourself.
- DDP without a stated HS code. Duty depends on classification, and supplement products sit in a few different codes with very different rates. A DDP quote that does not name the code is a quote that can be re-priced after the fact.
- DDP where the seller is not the importer of record. If the arrangement is informal, you can end up with goods in your warehouse and no lawful import record, which becomes a problem the first time you need to prove origin or handle a recall.
Duty is not one number
Three things decide what you actually pay at the border:
- HS classification. A finished dietary supplement in retail packaging usually falls under one heading, bulk powder under another, and the rates differ. Ask your broker to confirm the code before the first shipment, not after.
- Country of origin. Rules of origin are about where the product was substantially transformed, not where the bottle was filled. Anti-dumping and Section 301 style tariffs are origin-specific and change with policy.
- Value basis. Duty is assessed on the transaction value, which usually includes the goods and may include freight depending on the destination's rules. Under-declaring to save duty is the fastest way to lose a shipment and a supplier relationship.
Also check the destination's registration obligations before the goods ship. In the US, a supplement facility and the importer both have obligations, and prior notice is required for food and supplement imports. In the EU, the importer of record carries the responsibility for the product. None of this is handled by an incoterm.
Sea, air or express at 1,000 units
| Mode | Transit | Best for | Cost signal |
|---|---|---|---|
| Express courier | 5 to 10 days | Samples, urgent small batches, under 200 kg | Highest per kg, duty often prepaid |
| Air freight | 7 to 14 days | First production run when launch date is fixed | 4 to 8 times sea per kg |
| Sea LCL | 25 to 40 days | 1 to 8 pallets, normal planning horizon | Cheapest per unit, adds 2 to 3 weeks of buffer |
| Sea FCL | 25 to 40 days | Full container, reorders, mature SKUs | Lowest per unit, needs volume |
At 1,000 bottles, air is often the difference between launching this quarter and launching next quarter. Do the arithmetic on the margin you would lose by waiting, not just on the freight invoice.
Documents you should receive, whatever the term
- Commercial invoice and packing list, with the HS code and the incoterm stated
- Bill of lading or air waybill
- Certificate of origin, if your destination or your retailer asks for it
- Certificate of analysis for the finished batch
- Manufacturing and expiry dates per unit, matching the labels
- For the US, prior notice confirmation and the facility registration reference
If any of these is missing, the incoterm you chose did not save you anything.
Eight questions to ask before you accept a quote
- Which incoterm is this price quoted on, and to which named port or address?
- What HS code will be used, and what duty rate does it carry in my market?
- Who is the importer of record?
- Is the freight quoted door to door or port to port?
- Is insurance included, at what percentage, and who handles claims?
- What is the chargeable weight and volume of the shipment?
- What is excluded that I will be invoiced for later?
- If the shipment is delayed at customs, who pays the storage?
- What is the production to delivery timeline, and where does the lead time start from?
A supplier who answers all eight in writing is a supplier who has done this before.
Frequently asked questions
Is DDP always more expensive?
Per unit, usually yes, by 3 to 10 percent. For a first order that premium often buys more than it costs, because it removes the clearance risk you are least equipped to handle.
Can I ask a factory to quote FOB if they only offered EXW?
Yes, and most will. If they refuse, it usually means they have no export licence or no forwarder relationship, which is worth knowing before you wire a deposit.
Who pays the duty when the term is DDP?
The seller, in theory. In practice the cost is inside the price, so you are paying it. The difference is who carries the paperwork and the risk of a reclassification.
Does the incoterm affect my FDA or EU obligations?
No. Registration, prior notice and labelling duties are set by the destination market and stay with the importer regardless of the shipping term.
What is the safest term for a brand shipping to Amazon FBA?
DDP to the FBA warehouse is common and workable, but confirm the seller is named as importer of record and that you receive the entry documents. Without those, you cannot prove lawful import if Amazon or a customer asks.
The takeaway
The incoterm is not paperwork, it is the price. Ask for FOB as your default, use DDP when speed and simplicity are worth the premium, and never accept a delivered number without knowing the HS code, the duty rate and who is the importer of record.
Send us your destination and order size and we will quote the same product on EXW, FOB and DDP side by side, so you can see exactly what each term adds before you compare it with anyone else. The same MOQ logic applies: the number only means something once you know what is inside it, and our private label quotes always state the term.
