6 min read · Updated 2026-11-05
Incoterms explained: EXW, FOB, CIF and DDP for beginners
Incoterms explained simply: they are standard rules, published by the International Chamber of Commerce, that say exactly where cost and risk pass from the seller to the buyer. Pick the wrong one and you can discover mid-shipment that you owe costs you never planned for.
Quick answer
- Incoterms explained in one line: FOB and CIF are the usual starting points for new importers. EXW looks cheapest but leaves you with almost everything. DDP removes the work but is usually the most expensive and needs a lot of trust.
- Always write the term and the named place into the contract, for example "FOB Shanghai".
The main Incoterms compared
| Term | In plain words | Transport |
|---|---|---|
| EXW (Ex Works) | The buyer takes almost everything from the seller's factory door onward. | Any |
| FCA (Free Carrier) | The seller delivers to a named carrier or place, and risk passes there. | Any |
| FOB (Free On Board) | The seller loads the goods onto the vessel at the origin port. After that, risk and remaining costs are the buyer's. | Sea only |
| CFR (Cost and Freight) | Like FOB, but the seller also pays freight to the destination port. Risk still passes at loading. | Sea only |
| CIF (Cost, Insurance and Freight) | CFR plus the seller arranges minimum insurance. | Sea only |
| CIP (Carriage and Insurance Paid To) | The all-modes version of CIF. | Any |
| DAP (Delivered At Place) | The seller delivers to a named place. The buyer still handles import clearance and duty. | Any |
| DDP (Delivered Duty Paid) | The most seller-heavy term. The seller delivers, clears customs and pays duty in your country. | Any |
Which one should a new importer choose?
- FOB or CIF: the supplier handles export formalities and loading, and you arrange the international freight, insurance and import clearance. This builds your own logistics relationships and understanding early.
- EXW: it can look cheapest on the quote, but it often costs more once you find out what it leaves out, such as export clearance in the supplier's own country.
- DDP: attractive if you want to remove almost all the logistics, but it is usually the most expensive overall, and it depends on a supplier handling your own country's duty correctly. That is a lot of trust for someone you may not know yet.
When you compare two quotes, make sure they use the same Incoterm. A lower price on EXW and a higher price on CIF are not comparable until you add the missing costs.
How the term changes your costs
The Incoterm decides which costs are inside the supplier's price and which you pay yourself later. That is why it feeds directly into your landed cost. With FOB you add international freight and insurance. With CIF those are already in the price, but you still add duty, port charges and local transport.
Incoterms also decide who carries the risk if the goods are lost or damaged in transit. Ask your freight forwarder to explain the term before you agree to it, and put it in the contract.
Frequently asked questions
What does FOB mean in importing?
FOB, Free On Board, means the seller loads the goods onto the vessel at the origin port. From that point risk and the remaining costs, such as sea freight and import clearance, are the buyer's. It is meant for sea freight only.
What is the difference between FOB and CIF?
With FOB the buyer arranges and pays the sea freight and insurance. With CIF the seller pays the freight to the destination port and arranges minimum insurance, although risk still passes when the goods are loaded.
Is DDP good for a first-time importer?
It can remove most of the logistics work, but it is usually the most expensive option and relies on the supplier handling your country's duty correctly. Many beginners do better with FOB or CIF.
From Module 8: Contracts and Incoterms
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Written by the Sabbi team
Based on the Sabbi Importation course. This is general guidance, not legal or customs advice. Confirm rates and rules with a licensed clearing agent.
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Share on WhatsAppSources and further reading
- International Chamber of Commerce: Incoterms rules
The organisation that publishes and updates the Incoterms rules.
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