Published June 28, 2026 · Updated June 28, 2026 · 6 min read
When you get a supplier quote, you'll see terms like "FOB Shenzhen $4.20" or "CIF Los Angeles $5.80." These Incoterms determine who pays for what and who bears risk at each stage of the journey. Understanding them is essential for calculating your true landed cost.
| Term | Seller Covers | Buyer Covers |
|---|---|---|
| EXW (Ex Works) | Nothing beyond factory gate | Everything: pickup, export, freight, insurance, import |
| FOB (Free On Board) | Local transport + export customs + loading onto vessel | International freight, insurance, import duties |
| CIF (Cost Insurance Freight) | FOB + international freight + insurance to destination port | Import duties, local delivery |
| DDP (Delivered Duty Paid) | Everything including import duties and local delivery | Nothing — goods arrive cleared and delivered |
Free On Board (FOB) is the standard term for most ocean freight imports from Asia. The price your supplier quotes includes:
Once goods are on the ship, risk and cost transfer to you. You (or your freight forwarder) pay for:
Cost, Insurance, Freight (CIF) means the seller arranges and pays for international freight and basic insurance to your destination port. The CIF price looks higher than FOB — but it includes those costs.
The problem: suppliers mark up the freight. When they book the shipping, they often add 10–20% margin on top. With FOB, you use your own freight forwarder and get competitive market rates. For most importers who are placing regular orders, FOB + your own forwarder is cheaper.
CIF makes sense when: you're placing a small first order, don't yet have a forwarder relationship, or the supplier offers genuinely competitive freight rates.
EXW prices are the lowest because the seller does nothing except make goods available at the factory. You handle everything from pickup to import. This gives maximum control and visibility but requires a freight forwarder who can handle China domestic pickup and export customs — not every small forwarder offers this. Most importers prefer FOB over EXW for this reason.
DDP (Delivered Duty Paid) means the supplier handles absolutely everything including import duties and last-mile delivery. It sounds convenient but has downsides:
DDP is fine for samples and small test orders. For regular commercial imports, FOB is the professional standard.
To compare a FOB price against a CIF price, you need to add freight and insurance to the FOB price to get a true CIF equivalent. The formula for landed cost:
Landed Cost = FOB Price + Freight + Insurance + Import Duty + Local DeliveryLanded Cost Calculator — enter FOB price, freight, duty rate, and other costs to see your true per-unit cost.
FOB (Free On Board) means the seller covers all costs and risks until the goods are loaded onto the vessel at the origin port. After loading, the buyer bears all risk and cost.
Under FOB, the buyer arranges and pays for international freight and insurance. Under CIF, the seller includes those costs in the price. CIF is more convenient; FOB gives you more control and typically lower freight costs.
FOB is generally better for regular importers because you control freight costs and get competitive rates from your own forwarder. CIF is fine for first or small orders.
EXW (Ex Works) means the seller makes goods available at the factory; you handle everything from factory pickup through import. Lowest seller risk, highest buyer responsibility.