Incoterms are the three-letter trade terms published by the International Chamber of Commerce (the current edition is Incoterms 2020). They are written into your purchase order or supplier quote and answer three questions: where the seller's job ends, who pays each leg of the journey, and at what point the risk of loss or damage moves from seller to buyer. They do not transfer ownership, set payment terms or replace your contract.
For a Canadian importer, the choice matters more than it looks. The term decides who chooses the forwarder, whether you can see and control the freight cost, who deals with export clearance in the origin country, and how the price on the commercial invoice has to be adjusted when your customs clearance is filed with the CBSA.
The 11 Incoterms 2020 rules at a glance
Incoterms 2020 split into two groups. Four rules are only meant for sea and inland waterway transport, where goods are handed over at a ship: FAS, FOB, CFR and CIF. The other seven work for any mode, including containers, air freight and trucking: EXW, FCA, CPT, CIP, DAP, DPU and DDP.
| Term | Seller delivers at | Who books main freight | Typical fit for Canadian importers |
|---|---|---|---|
| EXW (Ex Works) | Seller's premises, not loaded | Buyer | Rarely ideal for China imports; buyer must handle export formalities |
| FCA (Free Carrier) | Buyer's carrier at a named place | Buyer | Strong choice for containers and air freight |
| FOB (Free on Board) | On board the vessel at the origin port | Buyer | The most common term on ocean quotes from Asian suppliers |
| CFR / CIF | On board at origin, seller pays freight (CIF adds insurance) | Seller | Simple on paper; destination charges can surprise you |
| DAP / DPU | Named place in Canada (DPU: unloaded) | Seller | Seller manages transport; you still clear customs and pay duties |
| DDP (Delivered Duty Paid) | Your door, duties and taxes paid | Seller | Convenient, but the seller must be able to act as importer in Canada |
EXW: lowest price on paper, most work for you
Under Ex Works the supplier makes the goods available at its own facility and does nothing else. Your forwarder collects the cargo, and in principle you are responsible for loading and for export clearance in the origin country. In China that export declaration usually has to be filed by a party registered there, so EXW often ends up with the supplier quietly doing the export paperwork anyway, without any contractual obligation to do it well. EXW can make sense when you have a strong origin agent or are consolidating from several factories, but for most importers FCA is the cleaner version of the same idea.
FCA and FOB: the importer's sweet spot
With FOB, the supplier delivers the goods to the port, clears them for export and loads them on the vessel your forwarder booked. From that moment the risk and the ocean freight are yours. This is why FOB Shanghai, FOB Ningbo or FOB Shenzhen is the default on so many ocean quotes: you choose the forwarder, you see the true freight rate, and you control the schedule into Vancouver, Prince Rupert, Montreal or Halifax.
The ICC recommends FCA for containerised cargo, because container freight is handed to the carrier at a terminal or warehouse days before it is physically loaded on a ship. Under FOB the seller technically keeps the risk while the box sits in the terminal. FCA moves the handover to the point where the carrier actually takes the goods, which matches how containers and air freight really move. If your supplier is comfortable with it, "FCA (named terminal or warehouse), Incoterms 2020" is the more precise term for FCL and LCL ocean freight and for air freight.
CFR and CIF: why "freight included" can cost more
Under CFR and CIF the supplier books and pays the ocean freight to a named Canadian port. It sounds convenient, and the unit price looks complete. The catch is that the supplier's forwarder controls the booking, and its destination agent in Canada bills you for terminal handling, documentation and release fees when the cargo lands. Those charges are outside the supplier's price and outside your control. CIF also only obliges the seller to buy minimum insurance cover (Institute Cargo Clauses C), which protects against a narrow list of major events. If cargo insurance matters to you, arrange your own or ask for CIP, which under Incoterms 2020 requires the higher "all risks" level of cover.
DAP, DPU and DDP: delivered terms
With DAP and DPU the seller pays transport all the way to a named place in Canada, but import clearance, duties and taxes remain your job. That means you still need a business number with an import-export program account, a CARM setup and a customs broker.
DDP is the only term where the seller also pays Canadian duties and taxes. For a foreign supplier to do that properly, it has to act as the importer of record in Canada, which brings its own registration and tax obligations. In practice, many "DDP" offers on low-value or e-commerce shipments are handled by consolidators, and the importer has little visibility into how the goods were classified and valued. If something is declared incorrectly, the goods are still sitting at a Canadian border with your name on the delivery address. Use DDP when you trust the supplier's logistics set-up and understand who the importer of record is.
How Incoterms affect your Canadian duty bill
Canada calculates value for duty on what is often described as an FOB basis. The CBSA's Memorandum D13-3-3 states that transportation costs from the place of direct shipment to Canada are not included in the value for duty, while transportation costs to that place must be included. Practically:
- On an FOB or FCA invoice, the price already excludes international freight, so the invoice value is usually the starting point for value for duty.
- On a CFR, CIF, DAP or DDP invoice, the price includes freight. That freight can be deducted only when the actual amount is known and shown; the CBSA does not accept estimates. If the supplier will not break it out, you may pay duty and GST on part of the freight.
- On an EXW invoice, costs to move the goods to the place of direct shipment (inland trucking to the port, for example) are added to the price.
GST is then charged on the value for duty plus duties. Our guide to duties and taxes when importing into Canada covers the rest of the calculation, and your customs broker will confirm the figures for each entry.
Which Incoterm should you choose?
- Regular container importer from China or Asia: FOB or FCA at the origin port or terminal, with your own forwarder.
- Urgent air shipments: FCA at the supplier's door or the origin airport, so your forwarder can book space and file the entry before the plane lands.
- Several suppliers filling one container: FCA at your consolidator's warehouse, or EXW with a reliable origin agent.
- First small trial order: DAP to your door can be acceptable, but get the destination charges in writing.
Whatever you pick, write the full term on the purchase order: the rule, the named place and the edition, for example "FCA Yantian CFS, Shenzhen, Incoterms 2020". A vague "FOB China" leaves room for argument about who pays what.
Next step
If you are comparing supplier quotes on different terms, send us the origin, the Incoterm and the cargo details through the quote form. We will price the freight, destination handling and customs on the same basis so you can see the real landed cost. For the full China lane, see shipping from China to Canada.
Frequently asked questions
What is the best Incoterm for importing from China to Canada?
For most ocean shipments, FOB at the Chinese port, or FCA at the container terminal or warehouse, works best. The supplier handles export clearance, and you choose the forwarder and control the freight cost and schedule to Canada.
Is FOB or CIF better for a Canadian importer?
FOB usually gives the importer more control and fewer surprise destination charges. Under CIF the supplier's forwarder controls the booking, and its Canadian agent can bill you destination fees that were not in the supplier's price.
Does the Incoterm change how much duty I pay in Canada?
It can. Canada excludes transportation costs from the place of direct shipment from the value for duty, but only when the actual amount is known. On CIF, DAP or DDP invoices the freight must be shown separately to be deducted.
Can a foreign supplier ship DDP to Canada?
Yes, but the supplier has to act as the importer of record in Canada and pay the duties and GST. Ask who the importer of record is and how goods will be classified and valued before accepting DDP terms.
Which Incoterms 2020 rules are only for sea freight?
FAS, FOB, CFR and CIF are intended for sea and inland waterway transport. For containers and air freight, the ICC recommends the any-mode rules such as FCA, CPT and CIP.