Incoterms 2020 for Metal Parts Buyers
The three letters on your purchase order decide who pays, who insures and who carries the risk when a container is delayed or damaged.
Incoterms are published by the International Chamber of Commerce and define the division of cost, risk and responsibility between seller and buyer. They do not transfer title to the goods, set payment terms, or define what happens in a force majeure event — those belong in the sales contract.
For buyers of machined parts, castings and fasteners, four terms cover the large majority of shipments. Getting the term and the named place right on the purchase order prevents most freight disputes.
The Four Terms You Will Actually Use
| Term | Risk transfers to buyer | Seller pays | Buyer pays | Best for |
|---|---|---|---|---|
| EXW | At our factory gate | Packing only | Collection, export clearance, all freight, insurance | Buyers with their own China freight forwarder |
| FOB | When goods are loaded on board at the named port | Local transport, export clearance, loading | Ocean freight, insurance, destination charges | Container orders; most common for metal parts |
| CIF | When goods are loaded on board (seller buys insurance) | Freight to destination port + minimum insurance | Destination charges, duties, inland delivery | Buyers who want one landed-to-port price |
| DDP | At the named destination, ready for unloading | Freight, insurance, import clearance, duties | Unloading | Small parcels and buyers wanting a door price |
Always name the place: FOB Qingdao Port, Incoterms 2020, not just FOB. A term without a named location is ambiguous, and our export desk will ask for clarification before issuing the proforma invoice.
Three Mistakes That Cost Money
1. Treating CIF as door-to-door. Under CIF the seller pays freight and minimum insurance to the destination port, but risk transfers to the buyer once the goods are loaded at origin. Destination charges, duties and inland transport remain the buyer's cost. Under CIF the seller's insurance obligation is only minimum cover — buy additional cover if the parts are high value.
2. Assuming DDP is always available. DDP requires the seller to handle import clearance and duties in the buyer's country. In some markets this is not practical for a foreign seller, particularly where a local importer of record and VAT registration are required. Ask before writing DDP into a contract.
3. Mixing Incoterms with payment language. "FOB, payment against B/L copy" is fine; "FOB, 100% after delivery to warehouse" contradicts the term. Keep delivery obligations and payment milestones in separate clauses.
Why Packing Matters More Than Usual Here
Machined surfaces, plated finishes and threaded parts are vulnerable to corrosion and handling damage over a long sea voyage. We pack parts individually where finish or threads require protection, use palletised export cartons with stretch wrap, and label cartons by part number, quantity and lot. The packing list mirrors the commercial invoice so customs and site QA can reconcile the shipment. See quality and packing.
Documents to Expect
- Commercial invoice and packing list
- Bill of lading (sea) or airway bill (air)
- Certificate of origin where required by the destination
- EN 10204 3.1 material certificates, if specified in the order
- Dimensional / first-article inspection reports
- Insurance certificate for CIF shipments
- Fumigation or wood packaging declaration where pallets are used
A Clean Purchase Order Line
Example: "500 pcs Part No. BR-2041, 42CrMo, quenched and tempered, per approved drawing Rev. C. FOB Qingdao Port, Incoterms 2020. 30% deposit / 70% against B/L copy. Dimensional report and EN 10204 3.1 certificate required before shipment." One line removes most of the ambiguity that otherwise turns into email threads.
For a full list of what to include with the order, use the RFQ checklist, and see the FAQ for payment and lead-time terms.
Related Questions
Is FOB or CIF better for a first order?
FOB is usually clearer for container shipments because you control the freight forwarder and see the freight cost. CIF is convenient but risk still transfers at origin.
Does CIF include insurance at full value?
Only minimum cover is required under CIF. If the parts are high value, ask for additional insurance or arrange your own policy.
Can you ship DDP to my country?
It depends on local import and VAT rules. Ask us with the destination country before writing DDP into the contract.
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