Incoterms explained: EXW, FOB, CIF and DDP
Incoterms decide who pays for what and where risk passes. Here are the four you will meet most, in plain English.
What Incoterms are
Incoterms are a standard set of trade terms that define, for a shipment, who arranges and pays for each leg of transport and at what point risk passes from seller to buyer. The current set is Incoterms 2020.
They matter because a quote only means something once you know which Incoterm it is on: the same product 'costs' very different amounts EXW versus DDP.
EXW and FOB
EXW (Ex Works) means the price covers the goods at the factory door and nothing else — you arrange and pay for everything from there. It gives control but puts all the logistics on you.
FOB (Free On Board) means the seller gets the goods onto the ship at the Chinese port; you take over the sea freight, insurance, and everything at the UK end. FOB is a common, balanced choice.
CIF and DDP
CIF (Cost, Insurance and Freight) means the seller pays freight and insurance to the destination port; you still handle import clearance, duty and delivery from there.
DDP (Delivered Duty Paid) means the seller delivers to your door with duty and clearance handled — the simplest for the buyer, and effectively what a door-to-door landed price gives you.
Which to use
If you want maximum control and have the expertise, EXW or FOB let you manage freight yourself. If you want simplicity, DDP (or a door-to-door service) hands the logistics and customs to someone else.
Whichever you agree, put the Incoterm in writing on the quote so both sides know exactly what is and is not included.
Frequently asked questions
What is the difference between FOB and DDP?
Under FOB you take over at the Chinese port and handle freight, duty and UK delivery. Under DDP the seller delivers all the way to your door with duty paid. DDP is simpler; FOB gives you more control.
Which Incoterm is easiest for a beginner?
DDP or a door-to-door service, because the logistics and customs are handled for you and you receive one landed price.