FOB vs CIF vs EXW: which Incoterms® rule should you use?

The three you will meet most often

Under CIF the seller pays the freight but the buyer carries the risk from the moment the goods are loaded. That split surprises first-time importers more than anything else in Incoterms.

The mistake almost everyone makes

FOB, CFR, CIF and FAS are written for cargo loaded over a ship's side — bulk grain, steel coils, timber. They are not written for containers. A container is handed to the carrier at a terminal days before the ship arrives, so if you sell FOB you keep the risk for goods sitting in a stack you do not control, and your insurance may not cover that gap.

For containerised cargo the matching rules are FCA (instead of FOB), CPT (instead of CFR) and CIP (instead of CIF). The ICC has said this for years, yet FOB and CIF remain the habit. If your goods travel in a container, use FCA or CIP.

One practical snag pushed people back to FOB: banks want an on-board bill of lading for a letter of credit, and under FCA delivery happens before loading. Incoterms® 2020 fixed this — the parties can agree that the buyer instructs the carrier to issue an on-board bill of lading to the seller. See the UCP 600 workbench for what the bank actually checks.

Insurance: the difference between CIF and CIP

• CIF requires only minimum cover — Institute Cargo Clauses (C), which covers named events such as fire, stranding and collision, but not ordinary handling damage or theft.
• CIP requires Institute Cargo Clauses (A), all-risks cover, since the 2020 revision.
• Both require cover of at least 110% of the invoice value, in the currency of the contract.

So a buyer on CIF terms who expects all-risks cover is usually disappointed at claim time. Either agree ICC (A) in the contract or arrange your own policy — the cargo insurance portal explains the clauses and what each one excludes.

How the Incoterm changes the price you compare

Two quotes are only comparable once they reach the same point. A supplier's EXW price can easily land more expensively than a competitor's FOB price once you add loading, inland haulage and export documents that EXW leaves with you.

It also changes your duty bill. Most countries, including the EU, charge import duty on the CIF value — goods plus freight plus insurance. The United States charges on the FOB value, so the same shipment carries a smaller duty base there.

Build the full picture with the landed cost estimator, and compare the rules side by side in the Incoterms® 2020 navigator.

A short decision guide

• Buying, and you have good freight rates? FCA (or FOB for bulk). You control the carrier and the routing.
• Buying, and you want a single landed price? CIP (or CIF for bulk), or DAP if you want it delivered to your door.
• Selling to a new market and want the least exposure? FCA or FOB. Your responsibility ends at origin.
• Selling and want to control the shipment? CIP or CFR — useful when a buyer's cheap carrier would damage your reputation.
• Avoid DDP unless you are registered for tax in the destination country. It makes you responsible for import clearance and duties in a country whose rules you may not know, and in several countries a foreign seller cannot legally act as importer of record.
• Avoid EXW for exports. You cannot clear goods for export from a country you do not operate in, and the seller still has to provide the export paperwork in practice. FCA does the same job properly.