FOB, EXW, and CIF are Incoterms — standardized three-letter trade terms that define exactly where responsibility passes from your overseas factory to you, who pays for each leg of the journey, and who absorbs the loss if something goes wrong. Under EXW you take over at the factory gate, under FOB the factory delivers the goods loaded on the vessel at the origin port, and under CIF the factory also arranges ocean freight and insurance to your destination port. A factory quote almost always looks great until you discover what it does not include: we regularly see importers compare two quotes and pick the cheaper one, without noticing that one was EXW and the other CIF — which makes the comparison meaningless from the start.

The three terms you will actually encounter

  • EXW (Ex Works). The goods are ready for pickup at the factory door. Everything after that is on you: inland trucking in the origin country, export clearance, ocean or air freight, insurance, US customs clearance, duties, and delivery to your warehouse. The unit price looks lowest, but it is only the starting point.
  • FOB (Free On Board). The factory trucks the cargo to the origin port, handles export formalities, and loads it onto the vessel. From that moment, risk and cost are yours. This is the most common and most convenient term for US importers because it draws a clean line between the factory's responsibility and your freight forwarder's.
  • CIF (Cost, Insurance, and Freight). The factory also arranges ocean freight and minimum insurance to your destination port. It sounds effortless, but the factory chooses the carrier — and the "savings" often reappear on the US side as inflated destination charges, handling fees, and release fees you never agreed to.

Why FOB is the default for experienced importers

With FOB you control the international leg: you pick the freight forwarder, so you also control destination costs. That control matters most on small production runs, where fixed fees are a large share of the per-unit cost. Your forwarder can also consolidate orders from several suppliers in one region into a single container — a meaningful saving. And there is transparency: when you book the freight yourself, you see the real rate instead of a marked-up number buried in the factory's price. EXW still has its place — when you buy from several small suppliers in one area and want your forwarder to collect from all of them, or when the factory is not licensed to export at all. Choosing the right supplier in the first place matters just as much; see our guide to telling a factory from a trading company.

What Incoterms do not cover

A point many first-time importers miss: Incoterms allocate transport cost, risk, and insurance — they do not determine when legal ownership transfers, and they say nothing about payment terms or product quality. They are no substitute for a proper manufacturing agreement, and in China specifically, for an NNN agreement that protects your design. The term also will not save you from a defective shipment. Your real protection is a third-party pre-shipment inspection while the goods are still at the factory, combined with payment terms that hold back a final balance until the inspection passes.

How to compare quotes apples to apples

Ask every supplier to quote on the same term — ideally FOB from a named port. Then build the full landed cost for each quote by adding the same components: ocean or air freight, insurance, US customs duties and any applicable tariffs on the product's HTS classification, customs broker fees, port and terminal charges, and trucking to your warehouse. Only that final number is the true landed cost. Weigh it together with the minimum order quantity each factory demands — a lower unit price at a higher MOQ can tie up more cash than it saves — and with the broader tradeoffs covered in manufacturing in China vs the USA. Mastering Incoterms is ultimately a pricing tool, not just logistics vocabulary.

Practical tips for your first order

Always name the port next to the term — "FOB Shenzhen," not just "FOB." Get carton dimensions and gross weight in writing before you order, because they drive the freight bill. Buy cargo insurance even when it is optional. Check that the commercial invoice, packing list, and bill of lading match exactly — a small mismatch in the goods description can hold your shipment at the port for days. Look up your product's HTS code and duty rate before you commit, so the tariff is not a surprise, and confirm the factory uses treated-wood-compliant pallets. Finally, on a first order, consider air-shipping a small quantity before booking a container: the per-unit cost is high, but far cheaper than a full container of a product that turns out to be defective. If you are comparing manufacturing countries as well as suppliers, our comparison of manufacturing in Vietnam vs China covers how logistics differ. For the full picture, start at the overseas manufacturing hub.

Planning your first overseas production run? Contact Projects House — we prepare manufacturing-ready engineering files, help you compare factory quotes on a true landed-cost basis, and manage production remotely so the container that arrives matches the product you designed.