Incoterms 2020 Explained: EXW, FOB, CIF and DAP for Importers
Who pays for what, where risk transfers, and which Incoterm actually suits your route — a plain-English guide for FMCG buyers comparing quotes.
Two suppliers quote you for the same pallet. One says €9.40, the other €11.20. The cheaper one is not necessarily cheaper — it may simply be quoting a term that leaves far more cost with you. Incoterms are the three-letter codes that decide which of you pays for what, and where responsibility passes from seller to buyer.
What Incoterms actually govern
Published by the International Chamber of Commerce, Incoterms are a standard set of trade terms. The current edition is Incoterms 2020. Each term defines three things:
- Cost. Who pays for transport, loading, export clearance, freight, insurance, import clearance and delivery.
- Risk. The precise point at which responsibility for loss or damage passes to the buyer.
- Obligation. Who arranges each step and who produces which documents.
Note what they do not cover: they do not determine ownership, they do not set payment terms, and they do not replace your sales contract. A term without a named place is incomplete — always write it as "CIF Mombasa, Incoterms 2020".
EXW — Ex Works
The seller makes the goods available at their own premises. Everything after that is yours: loading, inland transport to the port, export clearance, freight, insurance, import duty and final delivery.
EXW produces the lowest headline price and the highest amount of work. It suits experienced importers with their own freight forwarder and a reason to control the routing. For a first-time buyer it is usually a trap — the quote looks excellent until the forwarder's invoice arrives. There is also a practical wrinkle: under strict EXW the buyer is responsible for export clearance in the seller's country, which a foreign buyer often cannot do directly.
FOB — Free On Board
The seller delivers the goods on board the vessel at the named port of shipment and handles export clearance. Risk passes once the goods are on board; from that point the freight, insurance and everything at destination are yours.
FOB is the most widely used term in international trade for good reason. It gives the buyer control over the ocean freight — useful if you have negotiated rates or a preferred carrier — while leaving the seller to manage the origin side, which they know better. Note that FOB is intended for sea and inland waterway transport only; for containers handed to a carrier at a terminal rather than loaded over the ship's rail, FCA is technically the more correct term.
CIF — Cost, Insurance and Freight
The seller pays for carriage to the named destination port and arranges insurance. Risk, however, still transfers when the goods are loaded at origin — a distinction that surprises buyers. If the cargo is damaged mid-ocean, it is your claim to make against the policy the seller bought.
CIF is convenient for buyers who would rather not arrange freight, and it makes quotes easy to compare because most costs to the destination port are inside one number. Two cautions: the insurance the seller is obliged to provide under CIF is minimum cover, which may be less than you want; and destination charges, duty and inland delivery are still yours.
DAP — Delivered At Place
The seller delivers to a named destination — typically your warehouse — carrying cost and risk the whole way, except import duty and taxes, which remain the buyer's responsibility.
DAP gives the most predictable outcome for a buyer who wants a single delivered price and minimal involvement. You still need to be ready to clear the goods and pay duty; if the consignment sits at customs because you were not prepared, the resulting charges are yours.
Comparing quotes on different terms
This is the practical skill. To compare an EXW quote with a CIF quote, add to the EXW price: inland haulage to port, export clearance, terminal handling at origin, ocean freight and insurance. Only then are the two numbers describing the same thing.
A worked example of this normalisation, with the destination-side costs included, is in our landed cost guide. Once you can do it quickly, you will notice how often the apparently cheaper offer is not.
Which term should you choose?
- New to importing? CIF or DAP. Fewer moving parts, fewer opportunities for an unexpected invoice.
- Have a forwarder and negotiated rates? FOB. You keep control of the freight leg where your rates are competitive.
- Consolidating from several suppliers into one container? EXW or FCA, so your forwarder can collect from each and build the load.
- Want one delivered number for internal budgeting? DAP, remembering duty and taxes still sit with you.
Whichever you choose, state the term and the named place on the quotation, the proforma invoice and the commercial invoice, and make sure all three agree. Mismatches between documents are a common cause of customs queries — see our documentation checklist.
FMCG Depot quotes on EXW, FOB, CIF and DAP. Tell us your destination and how much of the logistics you want to handle, and we will quote on the term that fits — or on two terms side by side so you can compare properly.
Frequently asked questions
Under FOB the buyer arranges and pays for ocean freight and insurance from the port of loading. Under CIF the seller pays for both to the destination port — but risk still transfers to the buyer when the goods are loaded at origin.
CIF or DAP. Both leave the seller to arrange the main carriage, which means fewer separate invoices and far less that can go wrong. Remember that import duty and taxes remain the buyer's responsibility under both.
Only on the headline number. EXW moves inland transport, export clearance, freight, insurance and all destination costs onto the buyer. Once those are added it is frequently more expensive than a CIF quote from the same supplier.
No. Incoterms govern cost, risk and obligation only. Transfer of ownership is determined by your sales contract and the applicable law, not by the trade term.
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