FOB, CIF, and EXW Explained: Which Trade Term Should You Choose?
Incoterms (International Commercial Terms) define buyer and seller responsibilities in global trade. The three most common terms—FOB, CIF, and EXW—can greatly impact your costs and risks. Let’s break them down.
1. FOB (Free On Board)
Seller delivers goods to the port and loads them onto the vessel.
Buyer pays for freight and insurance.
Popular for sea shipments.
Best for: Buyers who want control over shipping and costs.
2. CIF (Cost, Insurance, and Freight)
Seller covers cost, insurance, and freight to the buyer’s port.
Buyer handles customs clearance and inland transport.
Best for: Beginners who prefer simplicity, though costs are often higher.
3. EXW (Ex Works)
Seller makes goods available at their factory.
Buyer handles all transportation, customs, and insurance.
Best for: Experienced importers with their own logistics.
Comparison Table
| Term | Seller Responsibility | Buyer Responsibility | Risk |
|---|---|---|---|
| FOB | Factory → Port loading | Freight, insurance, import | Balanced |
| CIF | Factory → Buyer’s port | Customs, inland delivery | Lower for buyer |
| EXW | Goods at factory | Everything else | Highest for buyer |
Conclusion
Each term has its pros and cons. Beginners often choose CIF, while experienced buyers prefer FOB for cost control. EXW is only recommended if you have strong logistics support.
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