EXW, FOB or DDP? Incoterms and Landed Cost for Machined Parts

For machined parts from China, most buyers land on FOB — you keep control of the freight forwarder, and because the goods are dense and high in value, air freight is often cheaper overall than sea freight once you count inventory and financing costs. But the right term depends on whether you have a forwarder, how much the shipment is worth, and whether you can clear customs yourself. What matters more than the term is knowing your full landed cost, because the factory price is usually less than 70% of what the part actually costs you.

Key takeaways

• Under EXW the buyer handles everything from the factory door; under FOB the supplier clears export and hands over at the port; under DDP the supplier delivers duty paid to your address.
• DDP quotes frequently exclude destination charges and import VAT, so ask for the inclusions in writing.
• Landed cost is not factory price plus freight. It includes export clearance, insurance, destination handling, duty, VAT or sales tax, brokerage and inland delivery.
• For high-value, low-volume machined parts, air freight often wins on total cost even though the freight line looks more expensive.
• Correct HS classification depends on what the part does and what it is made of. Misclassification leads to duty reassessment or inspection.

The five terms that matter

Two details people get wrong. CIF is a maritime term; using it for air freight is technically incorrect even though it is common in practice, and it leaves the buyer without clear cargo insurance obligations. DAP is often mistaken for DDP — under DAP the buyer still pays duty and import VAT, and only DDP transfers that to the supplier.

Why FOB is the usual default

Three practical reasons:

Control of the forwarder. You can consolidate shipments, use your own negotiated rates, and hold the forwarder accountable for transit damage. Under CIF the supplier chooses the carrier, and you inherit their service level.

Cost transparency. The freight line is visible and separable. Under DDP it is bundled, and you cannot tell whether the supplier’s freight is competitive or padded.

Customs relationship. Your importer of record accumulates your own compliance history. If a supplier’s broker misdeclares something, the problem lands on your record, not theirs.

Where FOB hurts: if you do not have a forwarder and are shipping 20 kg a few times a year, the admin overhead may exceed the savings. In that case a small-package courier on DDP terms is often the pragmatic choice.

The DDP trap

A DDP quote that looks clean can hide cost. Check for these:

• Does it include import VAT or sales tax? Many DDP quotes exclude it and the carrier bills you on delivery.
• Does it include destination terminal handling, documentation fees and customs brokerage? These are frequently excluded and appear as a separate invoice.
• Does it include any anti-dumping or Section 301 additional duties where applicable?
• Who is the importer of record, and whose name is on the customs entry?

Ask for a written list of inclusions. A responsible supplier will provide one. A supplier who says “DDP means everything included” without listing items has not thought about the destination charges.

There is also a compliance dimension. If the supplier is the importer of record on a DDP shipment, you may have limited visibility into how the goods were declared. For anything with regulated end use, that is a risk worth avoiding.

The full landed cost stack

Build the calculation in this order:

• Factory price, per the quote.
• Inland transport to the export port or airport, if not included.
• Export clearance and documentation.
• International freight, by the mode you selected.
• Cargo insurance, typically a small percentage of the CIF value.
• Destination terminal or airport handling charges.
• Customs brokerage fee.
• Import duty, per the HS classification and the applicable rate.
• Import VAT or sales tax, recoverable in some jurisdictions and not in others.
• Inland delivery from the destination port to your facility.
• Any additional duties applicable to the origin and product category.

Two items are commonly forgotten. The first is the cost of capital tied up in goods in transit and in safety stock — for air versus sea this can be the decisive factor. The second is the cost of your own time managing a distant supplier, which is real even when it does not appear on an invoice.

Why air freight often wins

A typical machined part has high value per kilogram. A 5 kg shipment of precision components might carry a value that makes ocean freight look absurd once you price the working capital.

Consider a shipment of machined components worth about USD 8,000 and weighing 60 kg. Ocean freight might cost a few hundred dollars but take 30–40 days door to door. Air freight might cost several times that but arrive in 5–7 days. The difference in transit time is roughly 30 days of inventory. If the goods finance cost, storage and the risk of a design change during transit are counted, air frequently comes out ahead — and it removes a month of uncertainty from your production schedule.

The crossover depends on value density. Heavy, low-value parts go by sea. Light, high-value parts go by air. Most precision machined components sit on the air side of that line.

HS classification and why it matters

Classification for machined parts is determined by what the part does and what it is made of, not by the fact that it was machined. Common chapters include:

• 7326 for other iron or steel articles.
• 7616 for other aluminum articles.
• 8466 for machine tool parts and accessories.
• 8487 for machinery parts without electrical connectors.
• 9021 and 9022 for orthopedic and radiological apparatus parts, where the end use qualifies.

Getting the classification right requires the supplier to state three things: material, function, and method of manufacture. Ask for those in writing on the commercial invoice. A wrong classification can result in duty reassessment, penalties, or a customs examination that holds your shipment for weeks — and the cost lands on the importer, not the supplier.

If you are unsure, engage a customs broker to issue a binding ruling before your first shipment. It costs little and removes the risk from every subsequent order.

Origin and transhipment

Do not accept any arrangement where the origin is changed by repackaging or relabeling. Beyond the legal exposure, it invalidates any preferential duty treatment you might otherwise claim and creates a compliance record problem that follows your company.

Legitimate ways to change origin exist — substantial transformation in a qualifying location — but they require real manufacturing, not documentation work. If a supplier offers “origin flexibility”, treat it as a warning sign about how they handle everything else.

A worked example

A hypothetical order of 200 machined aluminum brackets, factory price USD 6,000:

The landed cost is about 24% above the factory price before recoverable tax. Duty rates and VAT treatment vary by country and by classification, so treat this as a structure to fill in with your own broker’s numbers, not as a rate table.

Practical checklist before you order

• Confirm the Incoterm and write the named place — “FOB Shenzhen” not just “FOB”.
• Get the exclusions list in writing.
• Confirm who is the importer of record.
• Confirm the HS code and duty rate with your broker before the first shipment.
• Decide the freight mode on value density, not on the freight line alone.
• Make sure the commercial invoice states material, function, manufacture method and origin.

For the upstream steps, see importing CNC machined parts from China step by step and how to vet a Chinese CNC machining supplier. Our custom machining services page lists what we produce in-house, and you can contact us with a drawing for a quote.

FAQ

Is FOB or DDP better for a small first order? For a first order under roughly 100 kg with no forwarder in place, DDP through a courier is usually simpler and the total cost is close enough that the admin savings win. Once you are ordering regularly, FOB with your own forwarder gives better control and visibility.

Does DDP include import VAT? Often not, even when the supplier says “duty paid”. VAT or sales tax is frequently excluded and billed by the carrier on delivery. Ask for the inclusions list and confirm whether tax is inside the quoted price.

Who pays if customs classifies my part differently than the supplier declared? The importer of record bears the cost — additional duty, penalties and storage. This is why you should confirm the HS code yourself before the first shipment rather than accepting the supplier’s number.

Can I use CIF for air freight? Practically yes, and many suppliers quote that way, but CIF is a maritime term and its insurance provisions do not map cleanly to air cargo. For air shipments, prefer FOB or DAP with explicit insurance arranged by whoever bears the risk.