EXW, FOB, CIF and DDP — Shipping Terms Explained for First-Time Importers

Every quote you get from a factory has a three-letter term attached to the price. It is not fine print — it decides who pays for freight, who carries the risk in transit, and whether customs clearance is your problem or the factory's. Get it wrong and your cheap quote ends up costing more than the expensive one.

There are eleven Incoterms in the 2020 rules. In practice, apparel importing runs on four.

EXW — Ex Works

The factory's responsibility ends at its own door. You arrange collection, export clearance, freight, insurance, import clearance and delivery.

• Looks like the cheapest number on paper because it contains almost nothing
• Puts export formalities in the origin country on you, which is the part a foreign buyer is least equipped to handle
• Rarely the right choice unless you have an agent in the origin country

If you are comparing an EXW quote against anything else, you are not comparing like with like — you are comparing a garment price against a delivered price.

FOB — Free On Board

The factory's responsibility ends once your goods are loaded at the export port. From there, freight, insurance, customs and destination handling are yours.

• Lowest realistic quoted price per piece — the factory is not pricing in freight
• You need a freight forwarder or customs broker at your end
• Best for importers who already have a logistics setup, or who want to shop freight rates themselves

CIF — Cost, Insurance and Freight

The factory books and pays ocean freight and marine insurance to your destination port. You still handle customs clearance and delivery from port to warehouse.

• One extra step handled for you
• You still need a broker for clearance
• Useful when you do not have forwarder relationships yet

Worth knowing: under CIF the seller is only obliged to buy minimum-cover insurance, and risk passes to you at the origin port even though the seller booked the freight. If the cargo is damaged mid-ocean, it is your claim to make on a policy someone else chose. If the goods are valuable, specify the cover you want rather than accepting the default.

DDP — Delivered Duty Paid

The factory handles everything — freight, insurance, customs clearance and import duty — and delivers to your door. You pay one number and receive a box.

• Highest quoted price per piece, but no logistics work at your end
• No surprise customs bills — duty is included
• Best for first orders, or low volumes where setting up a broker relationship is not worth it yet

One caveat that catches VAT-registered businesses: under DDP the seller is normally the importer of record, and in several markets that can affect whether you are able to reclaim the import VAT, because the tax was not paid in your name. If you are VAT or GST registered, ask your accountant how your market treats this before choosing DDP by default. It is a question worth one email and it can be worth more than the freight difference.

Where the risk actually transfers

The part buyers skip is that Incoterms split two different things: who pays for a leg of the journey, and who carries the risk on it. They do not always change hands at the same point.

Under FOB and CIF, risk passes to you at the origin port. Under DDP, it stays with the seller until delivery. That distinction only matters on the day something goes wrong — a container is damaged, a shipment is delayed at a transhipment port, cargo is lost — and on that day it decides who is making the insurance claim.

Landed cost — the only number worth comparing

A quoted unit price is one line in a longer sum. Whatever term you are quoted on, your true cost per piece includes:

• The unit price × quantity
• Sampling cost, spread across the order
• Freight — sea or air
• Insurance
• Import duty, which depends on the product's classification and its country of origin
• Import VAT or sales tax, depending on your market
• Customs brokerage and port or terminal handling
• Inland delivery from port to your warehouse

Duty rates vary by product classification and by trade agreement between the origin and destination countries, and they change. We can tell you the country of origin and give you the details your broker needs to classify the goods, but the rate itself is a question for your customs broker in your own market — anyone quoting you a duty percentage for a country they do not operate in is guessing.

Sea or air

Apparel normally moves by sea. Air freight typically costs several times more per kilogram, so it is a deadline decision rather than a routine one.

The honest way to use it: build your calendar backwards from the date the goods must be with you, allowing 7 to 10 days for sampling, 28 to 35 days for bulk production after sample approval, and then transit on top. If that arithmetic leaves you needing air freight for a whole order, the plan started too late — but air on a part shipment, to cover the opening of a season while the balance follows by sea, is a legitimate and much cheaper compromise.

Documents you should receive

Whichever term you use, a complete shipment comes with paperwork, and a missing document holds goods at the border at your expense:

• Commercial invoice — values and describes the goods for customs
• Packing list — cartons, quantities, weights and dimensions
• Bill of lading for sea, or air waybill for air
• Certificate of origin — often required to claim a preferential duty rate
• Any market-specific certificates your broker asks for

Check the description and values on the invoice before the goods ship. Correcting a commercial invoice after arrival is slow and sometimes expensive, and an under-declared value is a serious problem in your name, not the factory's — decline it if it is ever offered as a favour.

Which should you choose?

If this is your first order, or you are ordering under a few hundred pieces, DDP is usually simplest: you know your total cost upfront and there is nothing to arrange. Once you are running regular volume and have your own forwarder, FOB usually works out cheaper — the crossover point is generally where freight becomes a meaningful share of the order rather than a rounding error.

Common mistakes worth avoiding: comparing an FOB quote from one factory with a DDP quote from another and concluding the wrong one is cheaper; assuming DDP means the goods cannot be delayed at customs, which it does not; and leaving the Incoterm off the purchase order entirely, so that the two sides discover they assumed different terms only when an invoice arrives.

We quote all three on request — ask for a side-by-side on your next enquiry and compare the real landed cost, not just the per-piece number. Our shipping page sets out how we handle each.