EXW, FOB, CFR and CIF: What Changes for the Buyer?

ARTICLE / 01

A supplier’s unit price tells only part of the story. Before comparing quotes, you need to know where the seller’s obligation ends, who books the freight, and when the risk of loss or damage passes to you. An EXW Guangzhou quote, a FOB Shenzhen quote, and CFR or CIF Bandar Abbas quotes may describe the same goods but very different responsibilities.

The short answer: Under EXW, the seller makes the goods available at a named place, often its factory. Under FOB, the seller delivers them on board a vessel at the named port of shipment. Under CFR, the seller also pays for sea freight to the named destination port. Under CIF, the seller additionally obtains the insurance required by that rule. For FOB, CFR and CIF, risk transfers when the goods are on board at origin—even when the seller pays for carriage to the destination.

EXW: what does a factory-gate price leave out?

With EXW (Ex Works), the seller makes the goods available at the named place, usually a factory or warehouse. “EXW Guangzhou — USD 20,000” is therefore not a delivered-to-port price. Collection, loading onto the collecting vehicle, inland transport, export formalities, international freight and onward delivery all need to be costed and assigned separately.

Under the EXW rule, the seller is not generally obliged to load the goods onto the buyer’s vehicle or clear them for export. Confirm both points before placing the order. A buyer based outside the export country may be unable to complete the export formalities there; in that situation, FCA is often a better term to discuss. Having a capable local forwarder helps with coordination, but does not by itself remove legal restrictions on who can act as exporter.

EXW can work when you have reliable control over origin operations and a clear quotation for each step. Otherwise, a low initial goods price may lose its advantage once local charges are added.

FOB: the seller delivers on board

Under FOB (Free On Board), the seller handles export clearance and delivers the goods on board the vessel nominated by the buyer at the named port of shipment. “FOB Shanghai Port” means that delivery and the transfer of risk occur on board at Shanghai. The buyer generally arranges the sea freight and any insurance it wants.

FOB gives the importer more control over the carrier, sailing and freight rate. But it is a rule for sea and inland waterway transport, and it does not always fit the way containers are handled. A container is commonly handed over to a terminal or carrier before it is loaded onto the ship. Where that earlier handover is the real delivery point, consider FCA instead. If the seller is to pay for the main carriage, CPT or CIP may also be worth considering, depending on the transport arrangement.

CFR: the seller pays the sea freight, but not the risk to arrival

With CFR (Cost and Freight), the seller delivers the goods on board at origin and contracts and pays for carriage to the named destination port. “CFR Bandar Abbas” means that sea freight to Bandar Abbas is the seller’s cost.

The distinction is between who pays and who bears the risk. Although the seller pays for the voyage, the risk of loss or damage passes to the buyer when the goods are on board at the port of shipment. “Freight paid to destination” does not mean “seller responsible for the cargo until arrival.”

CIF: freight plus the insurance required by the rule

CIF (Cost, Insurance and Freight) follows the same delivery and risk-transfer logic as CFR. The additional seller obligation is to obtain cargo insurance meeting the cover required by the CIF rule. Under “CIF Bandar Abbas,” the seller pays for the sea freight and obtains that insurance, while risk still passes on board at origin.

CIF insurance is not automatically all-risks cover. Review the insurer, insured amount, exclusions, deductible and claims process, particularly for valuable or sensitive cargo. If the standard cover is insufficient, agree on wider cover in the sale contract rather than assuming the CIF label provides it.

EXW, FOB, CFR and CIF compared

The table shows the basic allocation for a shipment by sea from China to Bandar Abbas. Your contract and the actual origin and destination charges still determine the full commercial picture.

EXW can be used with any mode of transport; FOB, CFR and CIF are sea and inland waterway rules. The table cannot settle contract-specific questions about loading, terminal charges or the precise point of handover.

A worked example: the lowest quote may not be the cheapest shipment

Suppose one supplier offers the same goods on the following terms. These figures illustrate the comparison method; they are not current freight rates.

If collection, inland movement and origin work cost USD 1,800 to bring the EXW shipment to a point comparable with the FOB offer, the EXW route costs USD 21,800 at that stage. The supplier’s FOB price is USD 21,400—USD 400 less in this example, despite the higher headline price.

The difference between FOB and CFR is USD 1,900. If your forwarder offers genuinely comparable sea freight for USD 1,500, arranging it yourself may favor FOB. If your comparable rate is USD 2,300, the supplier’s CFR offer deserves closer attention. The USD 250 difference between CFR and CIF should be weighed against the price and quality of the insurance cover you would otherwise buy.

Before adding figures, check that the quotations cover the same services. Terminal handling, documentation, loading, service type, destination port and local charges can differ even when the Incoterms labels look comparable.

FOB or CFR: which gives you the better deal?

There is no universal winner. FOB lets you select the forwarder, carrier and sailing and negotiate the main freight yourself. Under CFR, the seller arranges and pays for carriage to the named port. A high-volume exporter may have an attractive freight contract; your own forwarder may offer a better rate or service.

Ask the seller for its FOB price, obtain a comparable freight and charges quotation from your forwarder, then compare the total with CFR. Include transit time, schedule reliability and destination charges—not just the ocean-freight line.

CFR or CIF: is the extra insurance worth it?

Both terms leave the sea-freight bill with the seller and pass risk to the buyer when the goods are on board at origin. CIF adds the seller’s obligation to insure. A small difference between two prices is not decisive if the proposed policy has unsuitable exclusions, deductibles or claims procedures. For some cargo, CFR plus a policy you arrange with wider cover may be preferable.

Does CIF mean there will be no charges on arrival?

No. “CIF Bandar Abbas” does not mean delivered to your warehouse. Depending on the contract and the shipment, terminal and port charges, documentation, storage, customs clearance, duties and taxes, and inland delivery may remain payable separately.

Before accepting CFR or CIF, ask exactly which destination charges the rate includes and which will be billed to the consignee. This matters especially when the seller chooses the carrier and its destination agent.

Buying from China: should you request EXW or FOB?

EXW may be viable if you have dependable origin support in China and can lawfully manage the export process with clearly priced responsibilities. Otherwise, a term under which the seller handles export formalities and delivers at an agreed origin point can be simpler to execute and compare. For containers handed to a terminal before loading, discuss FCA alongside any FOB proposal.

Ask the supplier to price the same goods on EXW and on an appropriate origin-delivery term. Ask your forwarder to itemize collection, inland transport, export procedures where legally possible, port costs and handover to the carrier. Compare like with like.

Name the place—and the Incoterms edition—in the contract

Writing only “FOB” or “CIF” on a pro forma invoice leaves important details open. Identify the named place or port and the rule edition, for example “FOB Shanghai Port, Incoterms® 2020” or “CFR Bandar Abbas Port, Incoterms® 2020.” For EXW and FCA, describe the delivery point as precisely as practical, such as a particular factory address or terminal. Spell out services and local charges that could otherwise be disputed.

Compare every offer to the same final point

If the cargo ultimately needs to reach a warehouse in Tehran, calculate each option to that warehouse: goods price, origin costs, international carriage, insurance, destination charges, customs clearance and inland delivery. Then compare time, control over the carrier, insurance and responsibility for each stage. EXW, FOB, CFR and CIF are not simply four price labels; they are four different operating arrangements.

Have several quotations for the same shipment? Send the origin, destination, cargo details, weight, volume and supplier prices through NIKCO.LOG’s quote form. We can help identify the freight and charge components that need to be compared. For an overview of the shipping process, see our ocean freight services.

Sources and scope

The allocation of responsibilities and the risk-transfer points above follow the ICC’s Incoterms® 2020 rules. This general guide does not replace your sales contract, the insurance policy or advice on a particular shipment. For the full rules and guidance on choosing a term that matches the actual handover, consult the International Chamber of Commerce:

• ICC: rules for any mode of transport, including EXW and FCA
• ICC: sea and inland waterway rules, including FOB, CFR and CIF
• ICC: checklist for selecting an Incoterms rule, including container and multimodal handover