Understanding FOB, CIF, and EXW in International Shipping
In international trade, misunderstandings about shipping responsibilities can lead to delays, extra costs, or even financial losses. This is why businesses use Incoterms—internationally recognized rules that define who is responsible for costs, risks, and logistics during the shipping process.
Three of the most commonly used Incoterms are FOB, CIF, and EXW. Understanding the difference between them is essential for both exporters and importers to avoid unexpected problems in global trade.
FOB (Free On Board)
FOB means the seller is responsible for delivering the goods onto the vessel at the port of shipment. Once the goods are loaded on the ship, risk transfers to the buyer.
Seller covers:
- Packaging
- Export customs clearance
- Transport to the port
- Loading goods onto the vessel
Buyer covers:
- Sea freight
- Insurance (optional)
- Import customs
- Delivery to the final destination
Best for: Shipments where the buyer wants control of the main freight cost.
CIF (Cost, Insurance, and Freight)
CIF means the seller is responsible for arranging the sea freight and buying minimal insurance. However, risk still transfers to the buyer once the goods are loaded on the vessel, just like FOB.
Seller covers:
- Export costs
- Sea freight
- Minimum insurance
- Delivery to the port of destination
Buyer covers:
- Risk from the moment goods are onboard
- Import customs
- Final delivery
Best for: Buyers who prefer the seller to handle freight and insurance arrangements.
EXW (Ex Works)
EXW places almost all responsibility on the buyer. The seller only needs to make the goods available at their warehouse or factory.
Seller covers:
- Making goods available at their location
Buyer covers:
- All transportation
- Export customs
- Freight
- Import customs
- Insurance
- Final delivery
Best for: Experienced buyers who want full control of the entire shipping process.
Which One Should Your Business Choose?
- Choose EXW if you want complete control and have strong logistics partners.
- Choose FOB if you want a balanced responsibility between seller and buyer.
- Choose CIF if you prefer the seller to handle freight and minimum insurance.
Each term has its own purpose, and choosing the right one helps prevent disputes, reduces unexpected costs, and makes your export-import operations more efficient.
Conclusion
FOB, CIF, and EXW are essential Incoterms that define how risk and cost are shared between buyers and sellers. By understanding what each term means, your business can make smarter decisions, negotiate better contracts, and ensure smoother international shipments.