Shipping Incoterms Explained (FOB, CIF, EXW) for New Importers

If you’re importing for the first time, Incoterms can feel like shipping “secret code.” But they’re actually a simple tool: Incoterms define who does what, who pays for what, and when risk transfers from seller to buyer.

This guide explains the three most common terms new importers run into-EXW, FOB, and CIF-with plain-language examples and a quick decision framework so you can choose the right one for your shipments.

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What Incoterms do (and don’t) do

Incoterms define:

• Responsibilities: who books transport, who handles export clearance, who buys insurance, etc.

• Costs: who pays which parts of the logistics chain.

• Risk transfer point: when the buyer becomes responsible if goods are damaged or lost.

Incoterms do NOT define:

• Title/ownership transfer (that’s in your sales contract and payment terms)

• Payment terms (e.g., deposit, LC, net terms)

• Product quality/specs or penalties

• Exact freight rates or carrier service levels

Think of Incoterms as the “handover rules” for shipping-not the entire agreement.

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The three terms, in one line each

• EXW (Ex Works): Seller makes goods available at their premises; buyer handles almost everything from there.

• FOB (Free On Board): Seller delivers goods on board the vessel at the port of shipment; buyer takes over after loading.

• CIF (Cost, Insurance & Freight): Seller pays ocean freight and insurance to the destination port, but buyer still takes risk after loading on the vessel.

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Important beginner note: match Incoterms to your transport mode

• FOB and CIF are for ocean (sea) freight and inland waterways.

• If you’re shipping by air, courier, rail, or truck cross-border, terms like FCA/CIP/DAP/DDP are often more appropriate.

You can still learn FOB/CIF for sea imports (where they’re very common), but don’t force them onto air shipments.

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How to write an Incoterm correctly

Always write it like this:

Incoterm + named place/port + Incoterms® 2020

Examples:

• EXW Shenzhen, Incoterms® 2020

• FOB Shanghai, Incoterms® 2020

• CIF Rotterdam, Incoterms® 2020

The “named place/port” matters because responsibilities and costs change depending on exactly where the handover happens.

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Side-by-side comparison: EXW vs FOB vs CIF

Who does what?

Where does risk transfer?

• EXW: risk transfers when goods are made available to the buyer (often at seller’s premises).

• FOB: risk transfers once goods are loaded on board the vessel at the port of export.

• CIF: risk transfers once goods are loaded on board the vessel too (same point as FOB), even though the seller pays freight and insurance to the destination port.

That last line surprises many first-time importers: CIF does not mean the seller carries the risk all the way to your destination.

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EXW explained (Ex Works)

What it means

Under EXW, the seller’s main obligation is to:

• make the goods available at their facility (factory/warehouse), packaged as agreed.

From that moment onward, the buyer arranges pickup, export clearance, main transport, insurance, import clearance, and delivery.

When EXW works well

EXW can make sense if:

• you have a strong logistics team or freight forwarder in the seller’s country,

• you want maximum control over the whole shipment,

• you’re consolidating cargo from multiple suppliers and coordinating pickups.

The big EXW problem for new importers

In many real-world shipments, export customs clearance is easier (or sometimes only practical) when handled by the seller or by an agent acting on the seller’s behalf.

With EXW, the buyer is supposed to handle export formalities. That can create issues like:

• the supplier refuses to act as exporter of record,

• the forwarder can’t file export documents without the supplier’s cooperation,

• delays at origin when documentation isn’t aligned.

Practical EXW tip

If you want EXW-like control but fewer export headaches, many importers choose FCA (Free Carrier) instead of EXW (especially for container shipments). But if you’re sticking to EXW, confirm in writing:

• who loads the truck,

• who files export clearance,

• who is listed as exporter on the export documents.

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FOB explained (Free On Board)

What it means

With FOB, the seller is responsible up to the point the goods are loaded on board the vessel at the port of shipment.

Typically, the seller covers:

• transport from their facility to the port,

• export clearance,

• origin terminal processes leading up to loading.

The buyer typically covers:

• ocean freight (booking the carrier via forwarder),

• insurance (if desired),

• destination charges, import clearance, duties/taxes, and final delivery.

Why FOB is popular for new importers

FOB often hits the “sweet spot”:

• The supplier handles export-side complexity in their home country (where they’re experienced)

• You control the international freight cost and forwarder relationship

• You can choose service level (fast/slow, direct/transshipment)

A common FOB confusion: “FOB destination”

You might hear terms like “FOB destination” in domestic shipping conversations. In international Incoterms usage, FOB is tied to a named port of shipment and is for ocean transport. Make sure your paperwork matches standard Incoterms wording.

Practical FOB tip

Ask your forwarder for:

• all-in ocean rate plus

• destination local charges estimate
  so you can compare apples-to-apples with CIF offers.

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CIF explained (Cost, Insurance & Freight)

What it means

With CIF, the seller pays for:

• ocean freight to the destination port, and

• cargo insurance (typically at minimum coverage).

But risk transfers when the goods are loaded onto the vessel at origin-same as FOB.

So CIF is best understood as:
“Seller pays to get it to the destination port, but the buyer still carries the shipping risk after loading.”

Why sellers love CIF (and why buyers should check the details)

CIF is convenient because it looks simple: “freight included.” But it can hide cost surprises:

• The seller chooses the carrier/service (you may get slow routes)

• Destination charges can still be billed to you (and they vary a lot)

• The included insurance may be minimal and may not cover your real exposure

CIF insurance: what new importers miss

The insurance under CIF is usually basic. If you’re shipping high-value, fragile, or theft-prone goods, you may want to buy your own cargo insurance (or ask for stronger coverage in the contract).

Practical CIF tip

If you accept CIF, still ask for:

• the freight forwarder/carrier name,

• route and transit time,

• destination charges list (what you’ll pay on arrival),

• a copy of the insurance certificate and what it covers.

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Cost visibility: what you’re actually paying for

New importers often compare quotes like this:

• Supplier A offers CIF

• Supplier B offers FOB
  …and CIF “looks cheaper.”

But CIF bundles costs into the product price, while FOB separates them. To compare fairly, calculate landed cost:

Landed Cost = product cost + origin charges + main freight + insurance + destination charges + duties/taxes + final delivery

FOB gives you more visibility/control on freight.
CIF gives you convenience but less transparency.

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Real-world examples

Example 1: You’re importing bulky, low-value goods (e.g., pillows, plastic items)

• You care about cost per cubic meter.

• You can tolerate slightly longer transit.

Often a good fit: FOB (you shop freight rates) or CIF (if your supplier’s freight deal is strong and destination charges are reasonable).

Example 2: You’re importing high-value electronics

• Insurance and damage risk matter.

• You want reliable routing and tracking.

Often a good fit: FOB plus your own cargo insurance and a forwarder you trust.

Example 3: You’re consolidating from 3 factories into one container

• You need pickups, coordination, and a warehouse/consolidation plan.

Often a good fit: EXW (or FCA) with your forwarder managing origin pickups and consolidation.

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Quick decision guide for new importers

Choose EXW if:

• you have an experienced forwarder handling pickup and export processes,

• you’re consolidating multiple suppliers,

• you want maximum control (and you’re prepared for more coordination).

Choose FOB if:

• you want control over freight cost and carrier choice,

• you want the supplier to handle export clearance and origin delivery,

• you want the most common “balanced” option for ocean importing.

Choose CIF if:

• you want a simpler quote that includes ocean freight,

• you’re okay with less control over routing,

• you confirm destination charges and insurance details upfront.

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Common mistakes to avoid

1. Assuming CIF means “seller carries all risk to destination.”
   Risk transfers at loading, not arrival.

2. Using FOB/CIF for air freight.
   Use terms designed for multimodal shipping if you’re not shipping by sea.

3. Not specifying the named port/place.
   “FOB China” is not precise enough. Always name the port.

4. Ignoring destination charges on CIF.
   CIF includes freight to port, but destination handling and documentation fees can still be payable by the buyer.

5. Choosing EXW without confirming export clearance responsibility.
   This causes real delays and last-minute “extra fees.”