Why it matters for payment
The Incoterm decides when risk passes, which should decide what evidence the final tranche is released against.
Paying a final tranche on "delivery confirmation" under EXW is incoherent: under EXW the seller's obligation ends when the goods are available at their own factory door. Under DDP, releasing the final tranche on a bill of lading pays the seller before they have completed most of what they agreed to do.
Match the evidence to the term.
The four you will actually encounter
| Term | Seller's obligation ends | Risk passes at | Typical use |
|---|---|---|---|
| EXW | Goods available at their premises | Seller's factory | Buyer has a strong freight agent |
| FOB | Goods loaded on the vessel | On board the vessel at origin port | The China default |
| CIF | Goods loaded, freight and insurance paid to destination | On board the vessel at origin port | Buyer wants seller to arrange freight |
| DDP | Goods delivered, duties paid | Buyer's premises | Buyer wants no logistics involvement |
Note the trap in CIF: the seller pays for freight to the destination, but risk still passes at the origin port. If the vessel sinks, it is the buyer's loss, claimed on insurance the seller arranged. Buyers routinely misread CIF as meaning the seller carries risk to destination. It does not.
Practical advice
FOB is the workable default for most importers buying from China. The seller handles export clearance and getting goods on the vessel, the parts that are much easier from inside the country, while the buyer controls freight and can use their own forwarder.
Always write the named place alongside the term: "FOB Shenzhen", not "FOB". A bare Incoterm is ambiguous and disputes turn on the named place.