Incoterms Explained: FOB, EXW, CIF, DDP and What They Mean for Your Shipment

Every international sale of goods rests on three questions: who arranges the transport, who pays for each leg, and who carries the risk if something goes wrong along the way. Incoterms — the International Commercial Terms published by the International Chamber of Commerce — answer those questions in three letters. Choose the right term and your shipment runs on rails. Choose the wrong one and you can end up paying for freight twice, or discovering that damaged cargo was legally “your problem” the moment it left the factory.

Here is a plain-English guide to the terms US importers actually encounter, based on the current Incoterms 2020 rules.

The Big Four for Importers

EXW — Ex Works

The seller’s only job is to make the goods available at their premises. You (the buyer) handle everything from there: pickup at the factory, export clearance, origin charges, ocean or air freight, US customs, and delivery. Maximum control, maximum responsibility. EXW can make sense when you have a strong freight forwarder with origin-side presence — but note that export clearance in the seller’s country can be awkward for a foreign buyer, which is why many forwarders steer clients toward FCA or FOB instead.

FOB — Free On Board

The classic term for ocean freight. The seller handles export clearance and delivers the goods on board the vessel at the origin port; risk transfers to you at that moment. You pay for and control the ocean freight, insurance, and everything after. FOB is the workhorse of the China–USA trade lane because it splits responsibilities cleanly: the supplier deals with their local port, you and your forwarder control the international leg — which usually means better rates and visibility than letting the supplier book the freight.

CIF — Cost, Insurance and Freight

The seller pays for ocean freight and minimum-coverage insurance to your named US port — but here is the trap: risk still transfers to you when the goods are loaded at origin, not when they arrive. Sellers often pad CIF prices with marked-up freight, and you inherit whatever carrier and routing they chose. CIF can look convenient for first-time importers, but most experienced buyers move to FOB once they realize how much control (and margin) they are giving away.

DDP — Delivered Duty Paid

The seller does everything — freight, US customs clearance, duties — and delivers to your door. Sounds perfect, but for US imports it has sharp edges: the foreign seller must act as the importer of record or route the entry through gray-market channels, duty amounts get baked invisibly into the price, and if the entry is filed wrong, the shipment (and sometimes the buyer) carries the compliance risk. With de minimis gone and tariffs shifting, knowing exactly what duty you paid matters more than ever.

Terms You’ll Also See

• FCA (Free Carrier) — like FOB but works for any transport mode, including air and containerized door pickups. The seller delivers export-cleared goods to your nominated carrier. Increasingly recommended over FOB for containerized cargo.
• CFR (Cost and Freight) — CIF without the insurance. Seller pays freight; risk transfers at loading; you insure.
• DAP (Delivered at Place) — seller delivers to your named destination, but you handle import clearance and duties. A more sensible “delivered” term than DDP for US imports.

Where Importers Get Burned

1. Confusing cost transfer with risk transfer. Under CIF and CFR, the seller pays the freight, but the cargo travels at your risk. If the container goes overboard mid-Pacific, the claim is yours — check whether the seller’s minimum insurance actually covers your loss, or arrange proper cargo insurance yourself.
2. Letting the supplier control the freight. Supplier-booked CIF freight often means slower routings, opaque surcharges at destination (“import service fees” that appear out of nowhere), and no leverage when things go wrong.
3. Using FOB for air freight. FOB is a maritime term. For air shipments, the correct equivalent is FCA — using FOB creates ambiguity about where risk actually transfers.
4. Ignoring origin charges under EXW. That attractive EXW price excludes export clearance, factory loading, and origin port fees — which can add up quickly in some countries.

Which Term Should You Use?

For most US importers buying containerized goods from Asia, FOB (or FCA) origin port hits the sweet spot: the supplier handles their side of the border, and your forwarder controls the freight, giving you transparent costs and one accountable partner. If you’re new to importing, our guides on how customs clearance works and FCL vs LCL shipping cover the next decisions you’ll face.

And if you’re staring at a supplier contract right now wondering what three letters to write in it — ask us. Recommending the right term for your product, lane, and risk tolerance is part of what a full-service forwarder is for.