EXW, FOB, CIF or DDP? Incoterms Explained for Importers

Two suppliers quote you the same product. One says $4.20 EXW, the other $5.10 FOB. The first looks cheaper by 18%. Depending on where the factory is, it may in fact be more expensive.

Incoterms are the three-letter codes that define exactly where the seller's responsibility ends and yours begins. They are not negotiating jargon — they determine who pays for each leg, who is liable if the goods are damaged, and who does the customs paperwork.

The four you will actually meet

EXW — cheapest headline, most work

Under EXW the factory's only obligation is to have the goods packed and available for collection. You — or your agent — arrange the truck, the export declaration, the port handling and everything after.

This is fine if you have someone in China. It is a poor choice if you do not, because Chinese export customs procedures require a registered exporter, and many small factories are not one. Buyers who accept EXW without local support routinely find themselves paying a third party to act as exporter of record, at a cost that erases the saving.

EXW is not a cheaper price. It is the same price with several unquoted costs moved onto your side of the line.

FOB — the sensible default

Under FOB the supplier delivers to the port and completes export clearance. You take over from the vessel onwards, which means you choose the freight forwarder, you see the actual ocean rate, and you control the destination charges.

That control matters more than it sounds. It is the reason we recommend FOB for most container shipments: you can compare freight quotes properly and you are not inheriting a forwarder chosen by someone with no reason to get you a good rate.

CIF — convenient, and where margin hides

CIF looks attractive because it is one number to your port. The catch is that the supplier picks the shipping line and the destination agent, and neither has any incentive to keep your destination charges low.

The classic pattern: a CIF quote that undercuts everyone, followed by an invoice at destination for handling, documentation and delivery-order fees that are two or three times the market rate. You cannot refuse them — the agent holds your cargo release.

If you do take CIF, ask in writing what the destination charges will be, and get it from the destination agent, not the supplier.

DDP — right for small and first orders

DDP means one number, door to door, duty included. You pay a premium for that simplicity, and for a first shipment or a small consignment it is frequently worth it: no surprises, no clearance to arrange, no learning the hard way.

One caveat: verify that duty really is included and that the declared value is correct. A DDP quote built on an under-declared value is a liability that lands on you, not the shipper.

Where risk actually transfers

The part buyers most often miss. Under FOB, risk passes to you when the goods are loaded on the vessel — so damage during the ocean leg is your problem, not the supplier's, regardless of who packed the box.

This is why marine cargo insurance is worth the small percentage it costs on any container of real value. Under CIF the seller must insure, but only at the minimum level, which is often less coverage than you would choose.

How to compare quotes properly

Never compare an EXW price to an FOB price to a CIF price. Convert them all to the same basis — ideally landed cost at your warehouse door — before deciding anything.

1. Ask every supplier for the same term (FOB is the easiest to standardise on)
2. Get the freight quoted separately, with destination charges listed
3. Add duty at your HS code, plus VAT or GST
4. Add final delivery and unloading
5. Divide by units to get true landed cost per piece

Do this once and the "cheapest" supplier frequently changes. It is fifteen minutes of arithmetic that regularly moves several percent of a container's total cost.