FOB, EXW, and DDP determine who pays for what when importing to Canada. Here's which Incoterm is right for your business—and what each one means for your duties, risk, and landed cost.
If you've ever requested a quote from a Chinese supplier, you've probably seen the letters FOB, EXW, or DDP on the invoice — and wondered what they actually mean for your wallet. These aren't random shipping jargon. They're called Incoterms (International Commercial Terms), and they determine who pays for what, who carries the risk, and who's responsible for customs clearance when goods move across borders.
For Canadian importers, choosing the wrong Incoterm can cost you thousands — or worse, leave you legally exposed when something goes wrong at the port. This guide breaks down FOB vs EXW vs DDP in plain English, with real-world guidance on which term makes the most sense depending on your situation.
Incoterms are a set of 11 internationally recognised trade terms published by the International Chamber of Commerce (ICC). They define the point at which responsibility, risk, and cost transfer from the seller to the buyer in a cross-border transaction.
In the Canadian context, your choice of Incoterm has direct implications for who acts as Importer of Record (IOR) with the Canada Border Services Agency (CBSA), who pays Canadian customs duties and GST/HST, how the declared customs value is calculated (which affects duty costs), and who is liable if goods are lost or damaged in transit.
Most Canadian SME importers deal primarily with three terms: EXW, FOB, and DDP. Understanding the practical difference between these three will put you in a much stronger position at the negotiation table.
For a broader overview of how these terms interact with Alibaba purchasing, our Alibaba trade terms and Incoterms guide for Canadians is a good companion read.
With EXW, the seller's obligation ends at their factory door. They make the goods available for pickup at their facility — that's it. Everything from that point falls on you as the buyer: inland transport to the port, export customs clearance, loading, ocean freight, marine insurance, Canadian customs clearance, duties, taxes, and final delivery.
Under EXW, the buyer pays everything — domestic Chinese trucking, export fees, freight, insurance, and import duties. The seller pays nothing beyond having goods ready for collection.
The key problem with EXW for Canadian importers: in China, export clearance must be handled by an entity with a valid Chinese export licence. As a Canadian buyer, you don't have one. This means you'll need to appoint a local freight forwarder or trading agent in China to handle export formalities on your behalf — adding another party, another cost, and another point of potential failure. EXW pricing from a Chinese supplier is often quoted lower, but the true landed cost is typically higher once you factor in the complexity.
EXW makes sense when you have a trusted freight forwarder in China who can manage the export side efficiently, you want maximum visibility and control over shipping costs, or you're shipping large volumes where even small per-unit savings on the quote matter.
FOB is the most widely used Incoterm for Canadian importers buying from China, and for good reason. Under FOB, the seller handles everything up to and including loading your goods onto the vessel at the named port of origin (e.g., FOB Shanghai, FOB Shenzhen, FOB Ningbo). From that point — once the goods are on the ship — risk and cost transfer to you.
Under FOB, the seller pays for factory packaging, inland trucking to port, export customs clearance, port handling, and loading onto the vessel. The buyer pays for ocean freight, marine insurance, Canadian port handling, customs duties, GST, and inland delivery in Canada.
FOB is popular because it keeps the export-side logistics with the seller, who is in a far better position to handle Chinese domestic trucking and export clearance. You retain control over the ocean freight booking (which lets you shop freight rates) while handing off the complexity of the Chinese side.
One important caveat: FOB is technically designed for non-containerised, bulk cargo. For containerised ocean freight (the vast majority of Canadian imports from China), the technically correct term is FCA (Free Carrier), which transfers risk when goods are handed to your carrier. In practice, most Chinese suppliers and Canadian importers continue to use "FOB" even for containerised freight, but it's worth knowing the distinction.
For a practical breakdown of how FOB works from one of China's busiest ports, read our FOB Ningbo shipping guide for Canadian importers.
DDP is the opposite end of the spectrum from EXW. Under DDP, the seller assumes almost all responsibility: they handle export clearance, international freight, insurance, Canadian customs clearance, import duties, and delivery to your door. From your side, it looks simple — you just pay the invoice price and the goods arrive ready to use.
Under DDP, the seller pays everything including Canadian import duties and GST/HST. The buyer pays the quoted DDP price, which bundles all of the above — typically at a markup.
DDP sounds ideal, but there are three major risks Canadian importers often overlook. First, the seller becomes your Importer of Record. This means their bond is on the line for any compliance issues — but it also means you have no direct relationship with CBSA, no HS code history, and no importer account. If the supplier gets their customs clearance wrong, you could face CBSA scrutiny without any documentation to protect yourself. Second, you lose visibility into what you actually paid in duties. When a supplier bundles duties into a DDP quote, you can't verify whether they're claiming the correct tariff classification or duty rate. Third, DDP quotes are typically more expensive — the supplier builds in a margin on top of actual shipping and duty costs.
DDP makes most sense for small trial orders where simplicity outweighs the need for visibility, or when you've verified your supplier has proper Canadian import infrastructure in place.
CBSA calculates import duties based on the customs value of your goods, which is typically the transaction value. However, what's included in that value depends on your Incoterm. Under EXW, the declared value is just the ex-works price — no freight, no insurance — giving you the lowest duty base. Under FOB, the declared value includes the cost of goods plus freight to the port of export, but not ocean freight or insurance. This is the standard customs valuation method for most Canadian import entries. Under CIF, the declared value includes goods, ocean freight, and insurance — resulting in a slightly higher duty base than FOB. Under DDP, the seller handles the customs entry, and the declared value is entirely in the seller's hands.
For most Canadian importers, FOB provides the right balance: customs value is straightforward, duties are predictable, and you retain control over your customs broker relationship.
The Importer of Record (IOR) is the entity legally responsible for the accuracy of the customs entry with CBSA. This includes correct HS tariff classification, accurate declared value, country of origin declaration, compliance with all CBSA admissibility requirements, and payment of all duties and taxes.
Under EXW, FOB, FCA, DAP, and most other Incoterms, you are the Importer of Record. Under DDP, the seller is. If you're the IOR, you carry the legal liability for any customs penalties, corrections, or re-assessments — even if your supplier gave you incorrect information. Make sure your customs broker is doing proper classification, and keep your commercial invoices clean and accurate.
Always get a landed cost estimate. Before accepting any quote, ask your freight forwarder to calculate the full landed cost under each Incoterm option. A supplier's lower EXW price often ends up costing more when you factor in the additional logistics complexity.
Ask specifically which port FOB applies to. "FOB China" is not sufficient — you need the named port (FOB Shanghai, FOB Shenzhen, FOB Tianjin) because trucking costs from the factory to different ports vary significantly.
If a supplier insists on DDP, ask questions. Find out who their customs broker is in Canada. Ask if they have a CBSA importer account. If they can't answer clearly, you're better off switching to FOB and managing the Canadian side yourself.
Work with a sourcing agent who understands logistics. A good sourcing agent isn't just a supplier-finder — they help you select the right Incoterm, verify supplier capability, and structure your supply chain correctly from the start. Our guide on how to find the right sourcing agent to import from China covers what to look for.
For most Canadian SME importers sourcing from China, FOB is the right starting point. It keeps Chinese export logistics with the supplier (who is better equipped to handle them), gives you control over ocean freight booking, and makes you the Importer of Record — which builds your CBSA history and gives you full transparency over your duty costs.
As your import volumes grow and you bring on a trusted freight forwarder, transitioning to FCA or EXW may make sense for cost optimisation. DDP is best reserved for small trial orders where simplicity outweighs the need for visibility.
Is FOB the same as "free shipping" from China?
No. FOB means the seller covers costs and risk until the goods are loaded onto the vessel at the named Chinese port. You still pay ocean freight, insurance, Canadian duties, and inland delivery.
Can I switch Incoterms after placing an order?
Incoterms are part of your purchase agreement and should be established before the order is confirmed. Trying to change them after can create disputes over who owes what for costs already incurred.
Does my Incoterm affect whether I pay Canadian GST?
No — Canadian GST/HST on imported goods is payable by the Importer of Record regardless of Incoterm. Under DDP, the seller typically collects and remits it on your behalf, but you're still paying it through the DDP price.
What Incoterm should I use for air freight from China?
FOB is technically for sea freight. For air shipments, FCA is more appropriate. In practice, many suppliers quote "FOB airport" for air freight — just be aware of the risk gap this creates.
What if my supplier refuses to do anything other than EXW?
Some smaller Chinese factories prefer EXW to avoid dealing with export paperwork. In this case, you'll need a freight forwarder based in China who can handle the export side on your behalf — manageable with the right partner.
Navigating Incoterms is one of dozens of moving parts in a successful import operation. At Epic Sourcing Canada, we help Canadian businesses structure their supply chains correctly from day one — including advising on Incoterm selection, vetting suppliers, coordinating logistics, and managing quality control.
Whether you're placing your first order from China or looking to optimise a supply chain that's already running, we can help you make smarter decisions at every step.
Get in touch with the Epic Sourcing Canada team to talk through your sourcing situation.
