FOB, EXW or DDP? Incoterms Explained for First-Time Importers
The three letters on your supplier's quote decide who pays for what, and who carries the risk if something goes wrong in transit. Here is what each common term means when you are buying from Asia.
In this piece 6 sections
Incoterms are a set of trade terms published by the International Chamber of Commerce; the current edition is Incoterms 2020. Each term is a short code that splits the costs and risks of moving goods between seller and buyer. Compare two quotes on different terms and you are comparing different things, which is why the term matters as much as the unit price.
FOB: Free On Board
Under FOB the seller clears the goods for export and loads them onto the vessel you have nominated at the named port, for example "FOB Ningbo". Risk passes to you once the goods are on board. From then on you pay the ocean freight, insurance, destination port charges, import clearance and duties.
FOB is popular because it splits the work sensibly: the supplier handles its own country's paperwork and you control the main freight booking through your own forwarder. The ICC's guidance is that FOB is meant for goods loaded directly onto a ship. For containerised cargo, which is handed to the terminal days before loading, FCA (Free Carrier) describes what actually happens more accurately. In practice FOB remains common on container quotes, so just be aware of the gap.
EXW: Ex Works
EXW means the seller makes the goods available at its own premises and does nothing else. You are responsible for loading, local trucking, export clearance, ocean freight and everything after. The catch for buyers in Asia is export clearance: a foreign buyer often cannot act as the exporter of record in China, so the factory or a local agent ends up doing it anyway, usually for an extra fee you only learn about later.
When an EXW price is worth it
EXW makes sense if your forwarder has an origin office that can collect, export-clear and consolidate for you. Ask the forwarder to quote the origin charges before you compare an EXW price against FOB.
CIF: Cost, Insurance and Freight
Under CIF the seller books and pays ocean freight and minimum insurance to your destination port. The detail people miss is that risk still passes at the port of loading, exactly as with FOB. You carry the risk for a voyage booked by someone else, often on the cheapest available service, and destination charges are still yours.
DDP: Delivered Duty Paid
DDP puts everything on the seller: freight, import clearance and duties, delivered to your door. It reads as the easy option, and for small or first orders it can be. But the duty and freight are built into the price, so you cannot see what was assumed. Ask how the goods will be classified and valued at import, and who is named as importer of record, because problems with a declaration can still land on your goods and your business.
| Term | Seller pays to | Risk passes | Best for |
|---|---|---|---|
| EXW | Its own premises | At the seller's premises | Buyers with an origin forwarder |
| FCA | Handover to your carrier | At handover | Containers, any transport mode |
| FOB | Goods on board at origin port | On board the vessel | Sea freight you book yourself |
| CIF | Destination port, with insurance | On board at origin | Rarely the best deal for buyers |
| DDP | Your named address, duties paid | At delivery | Small orders where simplicity wins |
Two quotes on different Incoterms are not two prices for the same thing. Compare landed cost, not unit price.
Compare landed cost, not unit price
The useful number is landed cost: unit price plus freight, insurance, origin and destination charges, duties and taxes, and inland delivery, divided by the units that arrive sellable. Ask your forwarder to quote the same shipment on the supplier's term and on the alternatives, then compare totals. A slightly higher FOB price with a forwarder you trust often beats a cheap CIF price with surprise destination fees.
What Incoterms do not cover
An Incoterm does not say when you pay, when ownership transfers or what happens if the goods are faulty. Those belong in the purchase order and contract. Always write the term with its named place and the edition, for example "FOB Shenzhen, Incoterms 2020", so there is no argument about which version applies.
