Incoterms and Import Duties: How Shipping Terms Affect Your Costs
Founder, USTariffCalc.com · LinkedIn
Incoterms govern who pays for shipping, who bears the risk of loss, and — critically — what value gets declared to US Customs. Choosing the wrong Incoterm can inflate your customs value by 5–15%, increasing every tariff layer that applies to your shipment.
Most Common Incoterms for US Imports
EXW (Ex Works)
You're responsible for everything from the factory door. Your customs value includes: product cost + inland freight in origin country + international shipping + insurance. You have maximum control but also maximum responsibility.
FOB (Free on Board)
The most common term for sea freight. The supplier delivers goods to the port of export. Your customs value includes: FOB price + international shipping + insurance. This is the most straightforward for duty calculation.
CIF (Cost, Insurance, Freight)
The supplier arranges and pays for shipping and insurance to the US port. Your customs value = the CIF price. This simplifies your calculation but you have less control over shipping costs.
DDP (Delivered Duty Paid)
The supplier handles everything including US import duties. Sounds great, but you lose control over HTS classification, customs value declaration, and broker selection. Many suppliers inflate the duty estimate as a hidden markup.
Which Incoterm Is Best for Tariff Optimization?
✅ Recommended: FOB
In brief
- →DDP (Delivered Duty Paid): supplier handles duties — but you lose control and overpay
- →DAP/DPU: you control customs clearance, accurate valuation, and duty rate verification
- →Incoterms affect customs value: FOB vs CIF can change your duty base by 3–8%
- →Never let the foreign supplier be the importer of record for US Customs
FOB gives you the best balance of control and simplicity. You control the shipping rate (which affects customs value), choose your own customs broker, and manage your HTS classification. This is the standard for experienced importers.
⚠️ Avoid: DDP from Chinese suppliers
When a Chinese supplier offers DDP pricing, they often inflate the tariff estimate by 5-15%. They may also use aggressive HTS classifications that increase your compliance risk. And if CBP has questions about the entry, you have no visibility or control.
Calculate Your Landed Cost Under Any Incoterm
Landed Cost Calculator →Frequently Asked Questions
Does the Incoterm affect how much tariff I pay?
Indirectly yes. The Incoterm determines what costs are included in the customs value. Higher customs value = higher duties since tariffs are a percentage of customs value.
Should I use DDP to avoid dealing with customs?
Generally no. DDP gives you less control and suppliers often inflate duty estimates. FOB is recommended for most importers as it provides the best balance of control and cost visibility.