FOB vs CIF vs EXW: which Incoterm should you choose?

Incoterms (International Commercial Terms) are a standard set of rules, published by the International Chamber of Commerce, that define who — buyer or seller — is responsible for costs, risk, and logistics at each stage of a shipment. They don't cover the goods themselves or payment terms, only the handoff of cost and risk. Here are the three an importer sourcing from a Chinese factory will see most.

EXW (Ex Works) puts the least responsibility on the factory: they make the goods available at their own premises, and everything after that — loading, export customs, main freight, import customs, final delivery — is on you. It can look like the cheapest quote, but you (or your freight forwarder) are handling every step, including export formalities in a country you may not operate in.

FOB (Free On Board) shifts responsibility to the factory up through loading the goods onto the vessel at the origin port, including export customs clearance. From that point on — ocean freight, insurance, import customs, and final delivery — is yours. This is the most common term for importers who already work with a freight forwarder, since it gives you control over booking the ocean freight while the factory handles what it knows best: getting the goods export-cleared and on the ship.

CIF (Cost, Insurance, and Freight) goes a step further: the factory (or their forwarder) also books and pays for ocean freight and minimum insurance coverage to the destination port. You take over from the destination port onward — import customs clearance, duties, and final delivery. It can simplify the process for a first-time importer, but you have less visibility into and control over the shipping and insurance choices being made on your behalf.

There's no universally 'best' term — it depends on whether you already have a freight forwarder relationship, how much control you want over shipping, and how comfortable you are managing origin-side logistics. Confirm exact responsibilities with your factory and forwarder before your first order; Incoterms rules are updated periodically (most recently Incoterms 2020), so terms can be interpreted slightly differently depending on which version a contract references.