Two factories quote the same product at very different prices, and the gap disappears the moment you check the fine print: one quoted EXW, the other FOB. The product did not get cheaper — the supplier is just agreeing to do less. That three-letter code at the end of a quote is an Incoterm, and it decides where the supplier's job ends and yours begins.
What Incoterms actually control
Incoterms are a standard set of trade terms maintained by the International Chamber of Commerce. They do not decide who legally owns the goods or who is liable if something is defective — they decide which party pays for transport, insurance, and export/import clearance at each stage, and at what point the risk of loss or damage passes from seller to buyer. For sourcing from China and Hong Kong, three terms come up constantly: EXW, FOB, and CIF.
EXW — Ex Works
Under EXW, the supplier's responsibility ends the moment the goods are packed and ready at the factory door. Everything after that — domestic trucking to the port, export customs clearance, loading onto the vessel, ocean freight, insurance, destination clearance, and final delivery — is on you. EXW quotes look the cheapest on paper because the factory is quoting the least amount of work, not because the product itself is cheaper.
FOB — Free On Board
Under FOB, the supplier handles domestic trucking, export customs clearance, and loading the goods onto the vessel at the named port of shipment. Risk and cost pass to the buyer once the goods are on board. This is the term most commonly quoted on Alibaba and by sourcing agents, because it gives the buyer a clean handoff point at origin while still letting the supplier manage everything on their own side of the border, where they have the most leverage and local relationships.
CIF — Cost, Insurance and Freight
CIF includes everything FOB does, plus the supplier arranges and pays for ocean freight and minimum insurance coverage all the way to the named destination port. Risk still technically passes to the buyer once goods are loaded, but the supplier is the one holding the freight and insurance contracts until arrival. CIF is often the easiest term for a first-time importer with no freight forwarder of their own, since it folds the shipping arrangement into a single quoted number.
- •EXW: lowest headline price, but the buyer arranges and pays for everything from the factory door onward
- •FOB: the most commonly quoted term — supplier handles origin-side logistics, buyer (or their forwarder) takes over at the port of shipment
- •CIF: simplest for a buyer with no freight forwarder yet, but always confirm the insurance coverage amount and what it actually covers
Which Incoterm should you ask for?
- •No freight forwarder or sourcing agent yet — ask for CIF so the supplier's quote already includes shipping and insurance
- •Already working with a forwarder or sourcing agent — FOB is usually cheaper overall and gives you more control over carrier and routing
- •Comparing quotes from several factories — ask every one of them for the same Incoterm, otherwise the prices are not actually comparable
- •Avoid EXW unless you (or your agent) can personally handle export clearance and domestic trucking in China — it is rarely worth the saving for a first order
EXW quotes catch first-time importers off guard for exactly this reason: the savings on paper get eaten up, and sometimes exceeded, by export clearance fees and domestic trucking costs that the buyer did not expect to be arranging from overseas.
Related guides
In practice, a sourcing agent typically negotiates the Incoterm on your behalf and makes sure every factory you are comparing is quoting on the same basis — one less thing to get wrong on a first order.