EXW, FOB or CIF? Incoterms Explained for Small Importers

Incoterms are the three-letter codes that decide where the supplier’s job ends and yours begins. They are not a shipping method and not a price — they are a division of cost and risk. Getting this wrong is the single most common reason a first import order costs far more than the quote suggested.

What does EXW mean?

EXW (Ex Works) is the supplier’s minimum obligation: the goods are packed and waiting at the factory. Everything after that — local trucking to the port, Chinese export clearance, terminal handling, sea or air freight, insurance, import clearance, duty and final delivery — is yours to arrange and pay. EXW quotes look cheapest because they contain the least. They suit buyers who already have a freight forwarder in China and want full control of the chain. For a first-time importer with no agent, EXW usually creates more problems than it saves.

What does FOB mean?

FOB (Free On Board) is the workhorse term for China sourcing. The supplier delivers the goods to the named port, handles export clearance and loading, and the cost and risk transfer to you once the goods are on board. You arrange the sea freight and everything at your end. FOB is popular because it is clean: the supplier handles the Chinese side, which they know, and you control the freight, which is where prices vary most. It also makes quotes easy to compare, since the Chinese-side costs are already bundled in.

What does CIF mean?

CIF (Cost, Insurance and Freight) adds sea freight and basic marine insurance to your destination port. It is the simplest option if you do not have a forwarder, because one invoice covers everything up to the port. The trade-off is less visibility: the freight is chosen by the supplier and bundled into a single number, and destination charges at your port are still yours to pay and can surprise you. CIF is a reasonable choice for a first order when simplicity matters more than optimising freight cost.

Who pays import duty?

You do, under every term above. This is the point buyers most often misunderstand. EXW, FOB and CIF all end at or before your country’s border — none of them include import duty, VAT or GST, customs clearance, or delivery to your address. Only DDP (Delivered Duty Paid) shifts those to the seller, and most component and craft factories do not offer DDP because duty rates and tax registration differ in every country. We quote EXW, FOB or CIF and can help coordinate freight, but import duties and local taxes remain the buyer’s responsibility. Budget for them before you set your retail price.

Which term should you choose?

• No forwarder, small first order, want simplicity — choose CIF.
• Have a forwarder or want to control freight cost — choose FOB.
• Consolidating from several Chinese suppliers with your own agent — choose EXW.
• Whatever you choose, ask every supplier to quote on the same term.

How do you compare quotes fairly?

A cheaper EXW quote can easily end up more expensive than a higher FOB quote once trucking, export clearance and handling are added. Before you decide, put every quote on the same Incoterm, then build a landed cost: goods plus freight plus duty plus clearance plus local delivery, divided by the units that arrive saleable. That landed figure is the only number that tells you your real margin.