China Sourcing Glossary: MOQ, Incoterms, IOSS, AQL

In short

This glossary explains the terms you meet when buying from Chinese factories: order quantities (MOQ), production models (OEM, ODM, private label, white label), costs (landed cost), shipping terms (Incoterms EXW, FOB, DAP, DDP), customs codes and EU VAT (HS, CN, TARIC, IOSS, EORI) and quality control (pre-shipment inspection, AQL).

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MOQ (minimum order quantity): The smallest quantity a supplier accepts in a single order. It varies a lot by supplier and product: some sell a few pieces, others ask for 1,000 units or more.
Sourcing agent: A person or company based in the supplier's country that finds factories, negotiates, checks quality and organises shipping on behalf of a buyer.
Reverse sourcing: Finding a supplier starting from a photo or a link of a finished product, usually with the image search of Alibaba, 1688 or Google Lens. (our guide)
Dropshipping: Selling a product without holding stock: when a customer orders, the supplier or the agent ships the product directly to the customer.
OEM (original equipment manufacturing): The factory makes the product to your design and specifications, and the design is yours. In other industries OEM can also mean the maker of components.
ODM (original design manufacturing): The manufacturer owns the design and you sell the product under your brand, sometimes with small changes.
Private label: A product made by a third-party manufacturer exclusively for your brand.
White label: A ready-made product sold to many retailers, who rebrand it with little or no customisation.
Landed cost: The total cost of a product once it reaches you or your customer: product price plus freight, insurance, duties, taxes and fees.
EXW (Ex Works, Incoterms 2020): The seller makes the goods available at its premises or another named place, without loading them and without export clearance. The buyer bears every later cost and risk, including export and import formalities. (ICC)
FOB (Free On Board, Incoterms 2020): The seller delivers the goods on board the vessel nominated by the buyer at the named port, and the risk passes once they are on board. It is for sea and inland waterway transport only; for containers handed over at a terminal, ICC suggests FCA instead. (ICC)
DAP (Delivered At Place, Incoterms 2020): The seller delivers the goods at the named destination, ready for unloading. The buyer clears import and pays import duties and taxes. (ICC)
DDP (Delivered Duty Paid, Incoterms 2020): The seller delivers at the destination already cleared for import, and bears all costs and risks, including import duties and taxes. (ICC)
HS code: The World Customs Organization's 6-digit product classification, used by more than 200 economies. HS 2022 is in force; HS 2028 takes effect on 1 January 2028. (WCO)
CN and TARIC codes: The EU's codes built on the HS code: the Combined Nomenclature (CN) has 8 digits and is updated every year; TARIC is the EU's integrated tariff database used for import declarations. (European Commission)
IOSS (Import One-Stop Shop): The EU scheme for declaring and paying VAT on distance sales of imported goods in consignments worth up to €150, in use since 1 July 2021. It covers VAT only: since 1 July 2026 these consignments also pay a €3 customs duty per item, where goods with the same tariff classification count as one item. (European Commission · EU duty guidance)
EORI number: The identification number of economic operators, mandatory for customs operations in the EU. It starts with a two-letter country code followed by up to 15 characters. (European Commission)
3PL (third-party logistics): Outsourcing warehousing, transport and order fulfilment to a specialised external provider.
Pre-shipment inspection (PSI): An on-site check of randomly selected units when production is 80–100% complete, before the goods leave the factory.
AQL (acceptance quality limit): The maximum average percentage of defective items considered acceptable in random sampling. The reference standard is ISO 2859-1, whose current edition is ISO 2859-1:2026. (ISO)
1688.com: Alibaba Group's domestic wholesale marketplace, which the group calls the product source for Chinese e-commerce. The website is in Chinese and serves mainly buyers in China.

Frequently asked questions

What is the difference between OEM and ODM?

With OEM the factory produces your own design. With ODM you pick a design the factory already owns and sell it under your brand, which usually needs less development work.

What is the difference between DAP and DDP?

With DAP the seller delivers to the destination and the buyer clears customs and pays import duties and taxes. With DDP the seller also clears the goods for import and pays duties and taxes.

Does IOSS cover customs duties?

No. IOSS is a VAT scheme for consignments up to €150. Since 1 July 2026 these consignments also pay a separate EU customs duty of €3 per item, where goods with the same tariff classification count as one item.

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Sources

ICC Academy – Incoterms 2020: EXW or DDP · 16 Apr 2025
ICC Academy – Incoterms 2020: FAS or FOB · 13 May 2025
ICC Academy – Incoterms 2020: DAP or DDP · 25 Feb 2025
European Commission – VAT One Stop Shop
European Commission – Flat fee on low-value imports until 1 July 2028 · 8 Jun 2026
European Commission – EORI number · 29 May 2024
European Commission – Combined Nomenclature
World Customs Organization – What is the Harmonized System
ISO – ISO 2859-1:2026 · Jan 2026

This guide is general information, not legal or tax advice.

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