Incoterms — International Commercial Terms published by the International Chamber of Commerce (ICC) — define who pays for what and who bears risk at each stage of an international shipment. The 2020 edition (Incoterms 2020) is the current standard. Getting your Incoterm wrong costs money. Getting it right saves 5-15% on logistics costs on high-volume shipments.
For China-to-US chemical shipments, the two terms you will encounter most often are FOB and CIF. Here is how they work and how to choose.
What FOB Means
FOB stands for Free On Board, followed by a named port of shipment (e.g., FOB Shanghai, FOB Qingdao).
Under FOB:
- The seller is responsible for all costs and risks until the goods are loaded on board the nominated vessel at the named port.
- From the moment the goods pass the ship’s rail, risk transfers to the buyer.
- The buyer pays for: ocean freight, marine insurance, destination port charges, import customs, inland delivery to final destination.
In plain terms: FOB Shanghai means the seller gets the goods to the port and on the ship. Everything after that is your problem and your cost.
What CIF Means
CIF stands for Cost, Insurance, and Freight, followed by a named destination port (e.g., CIF Los Angeles, CIF Houston).
Under CIF:
- The seller pays for ocean freight to the destination port.
- The seller arranges and pays for marine insurance (minimum coverage — Institute Cargo Clauses C).
- Risk transfers to the buyer when the goods are loaded on board the vessel at origin (same point as FOB).
- The buyer is responsible for: import customs, destination port charges, and inland delivery.
Important distinction: risk transfers at the origin port under CIF, even though the seller is paying for freight. This means if the cargo is damaged at sea, it is your loss even under CIF — you just make the claim against the seller’s insurance rather than your own policy.
Other Common Incoterms for Chemical Trade
EXW (Ex Works): Maximum responsibility on the buyer. The seller makes goods available at their factory gate. The buyer arranges everything: inland freight to port, export customs clearance, ocean freight, insurance, import customs, final delivery. Used rarely in China trade because buyers typically cannot complete Chinese export customs clearance.
DAP (Delivered At Place): The seller is responsible for delivering goods to a named destination, ready for unloading, without import clearance. Seller pays freight and insurance to destination. Buyer handles import customs and duties. Common for first-time importers who want simplicity.
DDP (Delivered Duty Paid): Maximum seller responsibility. Seller pays everything including import duties and taxes at destination. Rare in China trade because Chinese exporters generally cannot act as the importer of record in the US.
Cost Comparison: FOB vs CIF
Here is a worked example for a 20-foot container of TiO2 rutile from Shanghai to Los Angeles:
FOB Shanghai price: $1,800/MT × 24 MT = $43,200
Under FOB (buyer arranges freight):
- Ocean freight (Shanghai to LA, 20GP): $2,800 - $3,500 (spot market, 2025)
- Marine insurance (0.75% of $43,200): $324
- Total landed at LA port: ~$47,000
Under CIF (seller arranges freight):
- CIF LA price (seller includes freight): typically $1,900-1,950/MT × 24 MT = $45,600 - $46,800
- Marine insurance: included by seller (minimum coverage only)
- Total landed at LA port: ~$46,000 - $47,000
The numbers are similar in this example, but the CIF price is less transparent — you do not know what freight rate the seller used or whether the insurance coverage is adequate. FOB gives you full visibility and control.
When FOB Wins
FOB is the better choice when:
You have an established freight forwarder. If you have a US-based or Chinese freight forwarder with competitive freight rates and DG capabilities, FOB almost always results in a lower total cost. The seller’s CIF rate includes a margin.
You ship regularly in volume. High-volume buyers negotiate annual contracts with carriers at rates 20-35% below spot. Under FOB, you capture that negotiated rate. Under CIF, the seller captures it.
You need to control the logistics. For DG shipments, you may have specific carrier approvals or forwarder relationships that accept your DG cargo. Under FOB, you name the vessel and the forwarder. Under CIF, the seller’s forwarder books the shipment — and their DG capability may not match yours.
You want visible insurance coverage. The seller’s CIF insurance meets only the minimum ICC C clauses. You may want All Risks coverage (ICC A) — under FOB, you arrange and pay for the coverage level you actually need.
When CIF Wins
CIF is the better choice when:
You are a first-time importer. If you do not have a freight forwarder relationship and have not done China-to-US shipping before, CIF removes the ocean freight complexity from your first order. Get the goods to the destination port and let your customs broker handle the import side.
It is a one-off or small order. Spot freight rates for small or single shipments carry a premium. For a one-off order, the seller’s regular freight rates may actually be better than your one-off spot rate.
The seller has better freight rates. Some large Chinese chemical exporters have annual contracts with carriers that result in freight rates below what small-to-medium importers can negotiate independently. CIF captures that advantage.
Dangerous Goods Considerations
For DG shipments, the FOB vs CIF decision has an additional dimension.
Under CIF, the seller’s forwarder handles the DG documentation and carrier booking. If the seller’s forwarder is not IMDG-certified or has poor DG compliance practices, the risk of documentation error lands with you — even though you did not choose the forwarder.
Under FOB, your forwarder handles DG documentation. If you use a qualified DG-certified forwarder, you have full control over compliance quality.
For high-risk DG products (Class 5.2 organic peroxides, Class 6.1 dual hazards, Class 3 with very low flash points), we recommend FOB regardless of your shipping volume, simply because the documentation quality risk is too high to delegate to an unknown forwarder.
The Bottom Line
For most chemical importers doing regular shipments from China:
- FOB is better if you have a freight forwarder relationship and ship 3+ containers per year.
- CIF is acceptable for first orders, one-off shipments, or situations where the seller’s logistics network is genuinely superior.
- Never use EXW for China unless you have a customs clearance agent in China — completing Chinese export customs as a foreign buyer is operationally complex.
One more point: whichever Incoterm you use, specify it precisely in your purchase order. “FOB” without a named port is ambiguous and can create disputes. Use “FOB Shanghai (Incoterms 2020)” or “CIF Los Angeles (Incoterms 2020)” and make sure the same term appears on the commercial invoice, packing list, and letter of credit if you’re using one.