Incoterms (INternational COmmerce TERMS) define exactly who pays for what and who bears the risk at each stage of your shipment from China to Chile. Choosing the wrong Incoterm can cost importers thousands of dollars in hidden fees, or worse, leave you exposed to losses you didn’t anticipate. This comprehensive guide explains every relevant Incoterm and provides a decision framework for Chilean importers.
What Are Incoterms and Why They Matter
Definition: Incoterms are standardized international rules published by the International Chamber of Commerce (ICC) that specify:
- Who pays for transportation, insurance, and other costs
- Who bears the risk if goods are lost or damaged
- When responsibility transfers from seller to buyer
Current Version: Incoterms 2020 (effective January 1, 2020; still current as of 2026)
Why This Matters: Misunderstanding an Incoterm can cost you $1,000-10,000+ per shipment:
- You might pay for freight you thought the supplier was paying for
- You might assume you have insurance that you don’t actually have
- You might be liable for goods lost in transit when you thought the supplier was liable
The 11 Incoterms 2020: Complete Overview
There are 11 official Incoterms. For importing from China to Chile, only 5-6 are relevant. Here’s the complete landscape:
Category 1: Departure Terms (Seller’s Warehouse)
EXW – Ex Works (Named Place)
What It Means:
Seller prepares goods at their factory/warehouse; you take responsibility from that point forward.
Seller Pays For:
- Loading goods at their warehouse (sometimes)
- That’s it—minimum responsibility
Buyer Pays For:
- Everything else: factory pickup or local transport to port, export clearance, freight, insurance, import clearance, unloading, local transport to your location
Risk Transfer Point:
Immediately at the seller’s premises (you assume risk before goods even leave the factory)
Cost Structure:
Seller's factory → Your warehouse = 100% YOUR COST
Advantages:
- ✅ Lowest price quoted by supplier (they assume minimum responsibility)
- ✅ Maximum control over logistics (you choose freight forwarder, shipping route)
- ✅ You understand all costs (transparency)
Disadvantages:
- ❌ Most logistical complexity (you coordinate everything)
- ❌ You bear all risk (theft, damage, loss in transit)
- ❌ Requires experienced freight forwarding knowledge
- ❌ You must arrange export clearance in China (complex)
- ❌ Total cost often higher despite lower quoted price
Best For:
- Experienced importers with established freight forwarding relationships
- Large, repeated orders where you can negotiate favorable freight rates
- Importers willing to take on logistical complexity
Example:
EXW Shenzhen, meaning supplier’s responsibility ends at Shenzhen factory gate. You arrange everything from there.
Category 2: Main Carriage Unpaid (Seller Arranges, Buyer Pays Freight)
FCA – Free Carrier (Named Place)
What It Means:
Seller delivers goods to a carrier (freight forwarder) you nominate at an agreed location. That’s where responsibility transfers.
Seller Pays For:
- Goods preparation
- Loading onto the first carrier
- Export clearance in China
Buyer Pays For:
- Freight charges to destination
- Insurance
- Import clearance
- Unloading and final delivery
Risk Transfer Point:
When goods are handed to the first carrier (typically at Chinese freight forwarder’s warehouse)
Cost Structure:
Factory → First Carrier (Seller pays) → Your warehouse (Buyer pays)
Advantages:
- ✅ Seller handles export clearance (complex part)
- ✅ You control main freight (can shop rates)
- ✅ Clear handover point reduces disputes
- ✅ Works for both sea and air freight
- ✅ Recommended for containers (Incoterms 2020 updated FCA specifically for this)
Disadvantages:
- ⚠️ You must arrange insurance separately
- ⚠️ You coordinate with freight forwarder (less hassle than EXW, but still significant)
Best For:
- Most Chilean importers with moderate experience
- Regular importers who want to control costs
- Container shipments (ICC specifically recommends FCA for containers)
Example:
FCA Shenzhen Freight Forwarder Warehouse, meaning supplier gets goods to the forwarder’s warehouse; you take it from there.
FOB – Free On Board (Named Port of Shipment)
⚠️ Important Note: FOB is technically for non-containerized sea freight only. However, it’s still widely used for container shipments due to historical practice with Letters of Credit. For strict compliance with Incoterms 2020, use FCA for containers; FOB for break-bulk cargo.
What It Means:
Seller pays all costs up to the point goods cross the ship’s rail (are loaded onto the vessel).
Seller Pays For:
- Goods
- Transportation from factory to port
- Loading onto the vessel
- Export clearance
Buyer Pays For:
- Main ocean freight
- Insurance (critical—seller doesn’t pay)
- Unloading at destination port
- Import clearance
- Final transport to your warehouse
Risk Transfer Point:
When goods cross the vessel’s rail (are on board the ship)
Cost Structure:
Factory → Port Loading (Seller) → Valparaíso (Buyer pays freight) → Your warehouse (Buyer)
Advantages:
- ✅ Standard term (most widely used; suppliers familiar with it)
- ✅ Clear handover point at port
- ✅ You control main freight costs
- ✅ Most common for China-Chile imports (industry default)
- ✅ Balanced responsibility
Disadvantages:
- ❌ You must arrange insurance (if ship sinks or cargo is damaged, you claim it)
- ❌ Coastal shipping costs vary; hard to estimate
- ❌ Technically not recommended for containers (though widely used)
Best For:
- Standard choice for Chilean importers
- When you want to control freight rates
- Experienced importers comfortable with insurance requirements
- Sea freight (maritime shipments)
Example:
FOB Shanghai, meaning supplier pays up to Shanghai port loading; you pay everything after goods load onto vessel.
Category 3: Main Carriage Paid (Seller Pays Freight)
CFR – Cost and Freight (Named Port of Destination)
What It Means:
Seller pays all costs to get goods to the destination port, but does not pay insurance. You assume risk when goods load onto the vessel, but the seller is paying the freight.
Seller Pays For:
- Goods
- Factory to port transport
- Loading
- Ocean freight to Valparaíso
- Export clearance
Buyer Pays For:
- Insurance (critical—seller doesn’t arrange it)
- Unloading at destination port
- Import clearance
- Final local transport
Risk Transfer Point:
When goods load onto the vessel (same as FOB)
Cost Structure:
Factory → Valparaíso (Seller pays) → Your warehouse (Buyer pays)
Critical Detail: Risk and payment are separated. Seller pays freight but you bear risk. This mismatch creates confusion.
Advantages:
- ✅ Freight cost predictable (seller quotes it)
- ✅ You know total landed cost upfront
Disadvantages:
- ❌ You must arrange insurance (seller doesn’t pay even though they’re paying freight)
- ❌ Creates confusion: seller pays freight but you assume risk
- ❌ Seller often marks up freight costs (hidden markup)
- ❌ Less common; industry prefers FOB or CIF
Best For:
- Rarely used in practice
- Only if you have negotiated favorable freight terms and want seller to pay but maintain risk control
Not Recommended: Confusion between cost and risk makes this problematic.
CIF – Cost, Insurance, and Freight (Named Port of Destination)
What It Means:
Seller pays everything—freight AND insurance—to get goods to the destination port. However, risk still transfers when goods load onto the vessel.
Seller Pays For:
- Goods
- Factory to port transport
- Loading
- Ocean freight
- Marine insurance (minimum coverage)
- Export clearance
Buyer Pays For:
- Import clearance
- Unloading and local transport
- Any additional insurance beyond minimum
Risk Transfer Point:
When goods load onto the vessel (same as FOB; this is the critical misconception many importers have)
Cost Structure:
Factory → Valparaíso (Seller pays everything) → Your warehouse (Buyer pays remaining)
The Critical Trap:
Many importers think “CIF means seller responsible until goods reach the port.” This is WRONG. Under CIF, the seller pays for shipping AND insurance, but risk transfers at loading. If goods are damaged during transit, the buyer claims on the insurance—not the seller.
Advantages:
- ✅ Simple for buyer (seller arranges freight and insurance)
- ✅ Buyer doesn’t worry about freight shopping
- ✅ Beginner-friendly (minimum buyer responsibility)
Disadvantages:
- ❌ Higher cost (seller marks up freight + insurance; often 10-15% markup)
- ❌ Risk transfers at loading, not delivery (critical misunderstanding)
- ❌ You have no control over carrier choice (seller picks, may not be optimal)
- ❌ Insurance may be minimal coverage (Clause C) not comprehensive
- ❌ ICC and freight experts recommend against CIF
- ❌ Limited visibility into actual freight costs
Best For:
- First-time importers who want simplicity
- Small orders where cost premium is acceptable
- When you want to avoid logistics coordination
Not Recommended for Experienced Importers: The cost premium doesn’t justify the loss of control.
Example:
CIF Valparaíso, meaning supplier pays freight and insurance to Valparaíso, but risk transfers when goods load in China.
CPT – Carriage Paid To (Named Place of Destination)
What It Means:
Seller pays freight to a named destination (can be inland, not just a port). Risk transfers when goods are handed to the first carrier. Insurance is not included.
Seller Pays For:
- Goods
- Carriage to destination
- Export clearance
Buyer Pays For:
- Insurance (seller doesn’t arrange it)
- Import clearance
- Unloading and final transport
Risk Transfer Point:
When goods are handed to the first carrier (early in the journey)
Best For:
- Air freight shipments
- Multimodal transport (multiple carriers)
- When destination is inland (not just port)
Advantage:
- ✅ Works for any transport mode (air, sea, road, multimodal)
Disadvantage:
- ❌ You must arrange insurance
- ❌ Risk transfers early (you need insurance quickly)
CIP – Carriage and Insurance Paid To (Named Place of Destination)
What It Means:
Like CPT, but seller also arranges insurance. Seller pays both carriage AND insurance.
Seller Pays For:
- Goods
- Carriage to destination
- Insurance
- Export clearance
Buyer Pays For:
- Import clearance
- Unloading and final transport
- Additional insurance if desired
Risk Transfer Point:
When goods are handed to the first carrier
Best For:
- Air freight shipments (especially valuable goods)
- Multimodal transport with high-value items
- When you want insurance included but risk transferred early
Advantage:
- ✅ Insurance included (unlike CPT)
- ✅ Works for any transport mode
- ✅ Insurance is minimum Clause A (comprehensive coverage)
Disadvantage:
- ❌ Higher cost (seller pays freight + insurance)
Category 4: Arrival Terms (Seller Delivers to Destination)
DAP – Delivered at Place (Named Place of Destination)
What It Means:
Seller delivers goods to a named place (your warehouse, a port, an airport) but goods are not unloaded. Seller bears all costs and risks until arrival.
Seller Pays For:
- Everything up to the named destination
- BUT does not unload
Buyer Pays For:
- Unloading
- Import clearance
- Duties and taxes
- Final transport from that point
Risk Transfer Point:
When goods arrive at the named place, ready for unloading
Advantages:
- ✅ Clear delivery point
- ✅ Seller bears most costs and risks
- ✅ Works for any transport mode
Disadvantages:
- ❌ Still requires buyer to handle import clearance
- ❌ Seller cost is higher (may add 15-20% markup)
Best For:
- Buyers who want door-to-airport or door-to-warehouse delivery
- Buyers comfortable handling import clearance themselves
DDP – Delivered Duty Paid (Named Place of Destination)
What It Means:
Seller bears all costs and risks, including import duties and taxes. Goods delivered to your specified location, duties already paid.
Seller Pays For:
- Everything: goods, freight, insurance, import clearance, duties, taxes, unloading, final delivery
Buyer Pays For:
- Basically nothing (receives goods duty-paid)
Risk Transfer Point:
Only at final delivery to your warehouse/specified location
Advantages:
- ✅ Easiest for buyer (truly hands-off)
- ✅ No surprise duties at arrival
- ✅ Complete seller responsibility
- ✅ Works for any transport mode
Disadvantages:
- ❌ Most expensive (seller adds 20-35% markup for full liability and risk)
- ❌ Seller may mishandle import declarations to save money
- ❌ Seller may lack expertise in Chilean customs
- ❌ Less common with Chinese suppliers
- ❌ You have no visibility into actual costs
Best For:
- Beginners who prioritize simplicity over cost
- Small, one-time imports
- When you absolutely don’t want to deal with customs
Not Recommended for Regular Importers: Cost premium is substantial and unjustified once you have experience.
Example:
DDP Santiago, meaning supplier delivers goods to your warehouse in Santiago, fully paid, no duties owed.
Incoterm Comparison Table for Chilean Importers
| Incoterm | Seller Pays | Risk Transfer | Cost Level | Control | Best For |
|---|---|---|---|---|---|
| EXW | Minimal | Factory gate | Lowest quoted | Maximum (yours) | Experienced, high-volume importers |
| FCA | To first carrier | Handover to carrier | Low-Medium | High (yours) | Recommended for containers; experienced importers |
| FOB | To port loading | On board ship | Low-Medium | High (yours) | Standard choice; sea freight |
| CFR | To port of dest. | On board ship | Medium | Medium | Rarely used (confusing) |
| CIF | To port of dest. + insurance | On board ship | Medium-High | Low (seller picks carrier) | Beginners (simplicity over cost) |
| CPT | To destination | To first carrier | Medium | Medium | Air freight, multimodal |
| CIP | To destination + insurance | To first carrier | Medium-High | Medium | Air freight with insurance |
| DAP | To destination | Arrival at destination | High | Low | Door-to-warehouse, import clearance by buyer |
| DDP | Everything including duties | Final delivery | Very High | Minimal (yours) | Beginners who don’t care about cost |
The Three-Way Decision Framework for Chilean Importers
For Sea Freight (Maritime) Shipments
Are you new to importing?
├─ YES → CIF (simple, but expect 10-15% cost premium)
│
└─ NO (experienced) → FOB (standard, control freight costs)
├─ If you want to manage freight rates yourself → FOB
│
└─ If you prefer supplier manages freight → CIF (but negotiate!)
Professional Recommendation: FOB is the industry standard for China-Chile imports. Most suppliers quote FOB Shanghai or FOB Shenzhen. It provides balanced responsibility and cost.
For Container Shipments (2020 Compliance)
Are you shipping in a container?
├─ YES → FCA (ICC 2020 officially recommends for containers)
│ FCA Shenzhen Freight Forwarder Warehouse
│ (Seller delivers to freight forwarder; you take it from there)
│
└─ NO (break-bulk) → FOB (traditional non-container)
Why FCA for Containers? FOB technically applies only to non-containerized sea freight. Incoterms 2020 updated FCA specifically to work well with container shipments and can now include a “bill of lading” notation for banking purposes.
For Air Freight Shipments
Do you want seller to arrange everything?
├─ YES → CIP (seller pays freight + insurance)
│ (higher cost but simplest)
│
└─ NO → CPT or FCA (seller pays freight; you arrange insurance)
(lower cost; more control)
Cost Comparison Example: Which Incoterm Saves Money?
Scenario: Importing 1,000 wireless earbuds from Shenzhen to Santiago
| Component | FOB Cost | CIF Cost | DDP Cost |
|---|---|---|---|
| Product cost | $10,000 | $10,000 | $10,000 |
| Factory→Port | $100 (quoted separately) | Included in CIF | Included |
| Ocean freight | $500 (you arrange) | ~$600 (supplier adds markup) | ~$650 (supplier adds markup) |
| Insurance | $100 (you arrange) | $150 (included) | $200 (included) |
| Import duties (6%) | $636 | $636 | Included |
| IVA (19%) | $2,015 | $2,050 | Included |
| Customs broker | $165 | $165 | $200 |
| TOTAL YOU PAY | $13,516 | $13,601 | $13,050+ |
| Cost per unit | $13.52 | $13.60 | ~$13+ |
Insights:
- FOB vs CIF: Only $85 difference (0.6%) in this example
- But CIF gives you less control over freight
- DDP appears cheapest ($13.05) but supplier likely marked up costs by 15-20%; true cost may be $13.50+
- Winner for cost: FOB (when you shop freight aggressively)
- Winner for simplicity: DDP (but highest true cost if you dig into actual supplier pricing)
Negotiating Incoterms with Chinese Suppliers
Your Leverage
Your ability to negotiate Incoterms depends on:
- Order Size:
- Under $5,000: Minimal leverage (supplier sets terms)
- $5,000-20,000: Moderate leverage (can negotiate FOB or FCA)
- $20,000+: Strong leverage (can negotiate favorable CIF or even special arrangements)
- Purchase History:
- First order: Low leverage
- Repeat customer: High leverage (suppliers value continuity)
- Supplier’s Order Book:
- Busy supplier (full capacity): You accept their terms
- Slow supplier (looking for business): You have leverage
- Industry Competition:
- Competitive products (phones, gadgets): High supplier competition = your leverage
- Specialized products (niche items): Low competition = supplier leverage
Negotiation Strategy
Your Goal: FOB (standard, balanced)
Opening Position: “I prefer FOB Shanghai. What’s your FOB price for [product]?”
If supplier insists on CIF: Negotiate the markup they add for freight and insurance. Request they break down freight cost separately so you can verify it’s reasonable.
Example Email:
“Thank you for the CIF quote of $12/unit. Can you provide a breakdown showing: product cost, freight cost to Valparaíso, and insurance cost? This will help me understand the total landed cost accurately. Alternatively, what would be your FOB Shanghai price?”
Why This Works: Requesting transparency often leads suppliers to offer FOB (which has less shipping markup) to simplify pricing.
Incoterm Mistakes to Avoid
| Mistake | Consequence | How to Avoid |
|---|---|---|
| Assuming CIF means seller responsible until port | You pay insurance claim but think seller should; dispute arises | Understand: CIF = risk transfers at loading, not delivery |
| Using FOB for container shipments | Not strictly Incoterms 2020 compliant; may confuse ports | Use FCA for containers instead |
| Choosing CIF to “simplify” without comparing cost | Overpay by 10-15% vs. FOB | Always compare FOB vs CIF pricing |
| Forgetting insurance under FOB | Goods damaged in transit; no coverage | Explicitly state who arranges insurance in contract |
| DDP with inexperienced supplier | Supplier mishandles Chilean import; goods delayed/detained | Only use DDP with suppliers experienced in Chile |
| Not specifying the port/location clearly | Dispute: “What did we agree on?” | Always include full details: “FOB Shanghai Port” not just “FOB Shanghai” |
| Using terms designed for different transport mode | Misunderstandings; disputes at port | FOB/CIF/CFR/CPT only for appropriate modes |
Best Practice Incoterm Selection for Chile (2026)
For First-Time Importers
- Recommended: CIF (simplicity; beginner-friendly)
- Alternative: DDP (ultimate simplicity; accepts cost premium)
- Avoid: EXW, FOB (requires logistics knowledge you may not have)
For Experienced Importers with Established Logistics
- Recommended: FOB or FCA (control costs; standard industry practice)
- Alternative: CIF (negotiated with transparent freight breakdown)
- Avoid: DDP (excessive markup; unnecessary for experienced importers)
For Regular Importers (4+ shipments/year)
- Recommended: FOB or FCA (build relationships; optimize freight rates; save 20-30% vs. CIF)
- Pro Tip: Negotiate master agreement with supplier specifying preferred Incoterm; leverage volume
For Air Freight
- Recommended: CPT or CIP (seller pays freight; you choose based on insurance needs)
- Note: CIF/FOB are sea-only terms; use CPT/CIP for air
Practical Checklist: Confirming Incoterm Details
Before confirming your order, ensure you have in writing:
- ☐ Which Incoterm: FOB, CIF, FCA, DDP, etc.
- ☐ Which port/location: “FOB Shanghai” or “FCA Shenzhen Warehouse” (specific location matters)
- ☐ Who arranges freight: Supplier or you
- ☐ Who arranges insurance: Supplier or you
- ☐ Insurance coverage amount: Recommended: 110% of invoice value
- ☐ Freight breakdown (if applicable): Separate line items for freight, insurance if not included
- ☐ Payment terms aligned: E.g., 30% advance FOB Shanghai; 70% payment against Bill of Lading
- ☐ Risk transfer point: Exactly when and where responsibility transfers
Which Incoterm Should You Choose?
The Simple Answer:
- New to importing? → CIF (simplest; slight cost premium acceptable)
- Experienced importer? → FOB (standard; best control and cost)
- Container shipment? → FCA (Incoterms 2020 standard)
- Air freight? → CPT or CIP (depending on insurance preference)
- Absolute beginner who avoids logistics? → DDP (accept 20-30% cost premium)
The Professional Answer:
Most successful Chilean importers use FOB Shanghai or FOB Shenzhen. It’s the industry standard, provides balanced responsibility, and allows you to control costs while building logistics expertise.
The Incoterm you choose today will shape how you manage your import business for years to come. Choose wisely, confirm details in writing, and you’ll avoid thousands of dollars in surprises and disputes.