EXW vs FOB vs CIF vs DDP: which Incoterm should you use?
Under Incoterms 2020, the four terms differ in how far the seller carries cost and risk: EXW puts almost everything on the buyer, FOB shifts risk once goods are loaded on the vessel, CIF adds seller-paid freight and insurance to the destination port (but risk still passes at loading), and DDP makes the seller responsible all the way to the buyer delivered and cleared. Pick the term by how much of the journey you are willing and able to control.
Incoterms 2020, published by the International Chamber of Commerce, are standardized three-letter trade terms that define where the seller stops paying and stops bearing risk, and where the buyer takes over. They do not transfer title and they do not replace a contract; they allocate cost, risk, and delivery obligations at a defined point. The key trap is that cost transfer and risk transfer can happen at different points, which is exactly what separates CIF from the rest.
The four terms side by side
| Term | Risk transfers to buyer at | Who pays main freight | Who pays insurance | Best for |
|---|---|---|---|---|
| EXW (Ex Works) | Seller premises, before loading | Buyer | Buyer (optional) | Buyers with strong freight and customs capability who want maximum control and the lowest ex-factory price |
| FOB (Free On Board) | On board the vessel at the origin port | Buyer | Buyer (optional) | Sea or inland-waterway shipments where the buyer arranges ocean freight but wants the seller to handle export clearance and loading |
| CIF (Cost, Insurance and Freight) | On board the vessel at the origin port | Seller | Seller (minimum cover) | Sea shipments where the buyer wants the seller to arrange and pay freight and basic insurance to the destination port |
| DDP (Delivered Duty Paid) | Named destination, delivered and cleared | Seller | Seller (practically required) | Buyers who want a single landed price and minimal logistics work, accepting a higher price for that convenience |
The detail buyers miss most
Under CIF the seller pays freight and insurance to the destination port, but risk still passes to the buyer when the goods are loaded on the vessel at origin. So if a CIF shipment is damaged in transit, it is the buyer who must claim on the insurance, even though the seller arranged it. EXW and DDP sit at the two extremes: EXW gives the buyer the most control and the most work (including export formalities, which the buyer is poorly placed to handle from abroad), while DDP loads everything, including destination duties and import clearance, onto the seller.
- ·Choose EXW when you have your own freight forwarder and want the lowest possible factory price and full control.
- ·Choose FOB for sea freight when you can arrange ocean transport but want the seller to clear export and load the vessel.
- ·Choose CIF when you want the seller to organize and pay freight and basic insurance, and you accept that you carry transit risk from the load port.
- ·Choose DDP when you want a delivered, duty-paid price and minimal logistics involvement, and are willing to pay for that.
How the Incoterm interacts with MPBxChange
On MPBxChange the agreed Incoterm can be captured as part of the spec and the deal terms, so both sides are explicit about where risk and cost transfer before they commit. Because the term drives who pays freight, who carries transit risk, and who clears customs, pinning it down up front reduces the most common cross-border disputes. Milestone-escrow can then be aligned to the delivery point the chosen term defines, such as proof of loading for FOB or CIF, or proof of delivered-and-cleared for DDP.
Frequently asked questions
Because under CIF risk passes to the buyer when the goods are loaded at the origin port, even though the seller arranged the freight and insurance. If the cargo is damaged in transit, the buyer is the party that must pursue the insurance claim.
FOB, CFR, and CIF are intended for sea and inland-waterway transport. For containerized cargo handed to a carrier at a terminal, or for air, the ICC recommends the FCA, CPT, and CIP terms instead, even though FOB is still widely used informally.
EXW usually shows the lowest quoted price because it excludes almost all logistics, but the buyer then pays and manages export clearance, freight, insurance, and import duties, so the true landed cost can exceed a CIF or DDP quote.