What are FOB, CIF, CNF & EXW? (Import Incoterms)

incoterms-shipping-import-export

When importing products from China it is essential to have an understanding of the terms used for shipping your cargo as this can have huge implications on timescales, taxes, inspections and pricing. 

Importers should look at the various options and establish the most favorable terms given their budget and expectations.

When dealing with China suppliers and importing products you will have a number of options to choose from. The main four that you should be aware of are outlined in this post.

 

FOB – Free on Board (or Freight on Board). 

FOB - Free on board import export

This is when the cost of delivering the goods to the suppliers nearest port is included in the price and it is the suppliers duty to ensure that all goods arrive their safely.

From there it is the buyers responsibility to ensure that the shipping to the final location is organised and paid for. This will include you arranging payment of all the necessary freight and shipping fees and tariffs.

It is always good as a rule of thumb to buy goods (FOB) when you are importing and to sell (CIF) when you are exporting. 

Buying Free On Board (FOB) has three main benefits when compared to CIF.

  1. you will have maximum control and flexibility to decide your freight provider and negotiate the cost.
  2. as you will be using your chosen freight forwarder you will be able to track and trace your delivery far more accurately.
  3. your chosen logistics forwarder will be able to assist you should any problems arise, as they are your logistic partner they will be looking out for your best interest rather than those of your supplier.

FOB will cover:

  • Product cost
  • Local exporting fees/customs
  • Delivery of your goods to the suppliers nearest port 

Note: The quoted price will not include shipping from China to the destination country, insurance costs, local customs fees including tariffs or import duties, customs clearance charges, destination port fees or delivery to your home, office or warehouse.


CIF – Cost, Insurance and Freight. 

CIF — Cost, Insurance and Freight.

CIF is generally used by Importers when they are just starting out on their import/export trade business or if the product inventory is small.

This is when the supplier is responsible for delivering the goods to your nearest port in your destination country. Sea and freight charges are included in the total invoiced amount as well as costs for insuring your goods. Be aware that they are only delivered to your nearest port. It is still then your responsibility to then take charge of the shipment from the port to your desired holding facility address.

The freight and shipping details will be arranged by the supplier. Using this method is always going to be more expensive as your supplier will be charging a premium to arrange the freight and insurance for your cargo. They will also often be working with their chosen forwarders and perhaps also earning commission on top.

If you are new to importing and do not want the complications of organizing freight then CIF can be an easier option although it will cost you more than sourcing and administering providers yourself.

If you are importing large quantities then CIF can become troublesome. As your CIF shipments increase you will soon find that receiving timely tracking information can be more difficult. Service and transit issues will also be out of your direct control as you will need to go through the supplier. Communication flow can be slow which may impact your overall costs if issues arise. 

It should also be noted that when using CIF, you may end up paying duties on the freight and insurance charges that your supplier has added on. These charges should not be dutiable however it is difficult to separate them from the resulting invoiced declared amount.

Proof of payment and costing needs to submitted to customs. If you buy FOB this issue will not arise as the freight and insurance costs will not be included in the selling process.

Exporters often like to use CIF as a shipping method as they can use their own providers and add on additional income fees for the provided service.

cif vs fob


CNF – Cost & Freight (or Cost, no Insurance, Freight). 

CIF is extremely similar in every way to CIF however insuring the goods is not included. 

Example: If you supplier quotes you a CNF London price, then the price will include shipping of the goods via sea freight to a port in London and also include insurance. It will then be your duty to organise customs clearance and delivery to your chosen location.

As appealing as the CNF price may seem, it is essential that you are aware that you will also be burdened with additional costs when your goods arrive at their destination.

For example:

  • Customs clearance fees
  • V.A.T
  • Import Duties
  • Port security charges
  • Fuel surcharges
  • Docking charges
  • Warehouse storage fees

If you would like any more information or have questions regarding shipping methods please take our import/export course which gives you  step by step information on this and many other essential topics that will enable you to import in a timely and efficient manner saving you both time and money. 


EXW – Ex-Works

exw-import export incoterm

This is when you pay for the product and ONLY the product.

There is no arrangement by the supplier regarding shipping any of the exporting fees or process. This includes local port charges and customs tariffs. 

The EXW pricing term is best utilized when courier shipping is being used such as air freight using for example: DHL, UPS, TNT etc.

Air freight is usually rapid and takes up to 6 days. Air freight couriers however are expensive and mainly used for small items or sample orders.

If you have decided that courier shipping is your chosen method then ask your supplier to arrange it for you. It will be cheaper if they arrange it in China and will usually get a better quotation than you will if you are requesting from the US or the UK. Ask them for the EXW price and also ask them to obtain a courier shipping quote.

If you have decided that courier shipping is your chosen method then ask your supplier to arrange it for you. It will be cheaper if they arrange it in China and will usually get a better quotation than you will if you are requesting from the US or the UK. Ask them for the EXW price and also ask them to obtain a courier shipping quote.

Often suppliers are honest when providing your quotation however do get your own quotations also to ensure that you are not being overcharged. The best way is to get multiple quotations so that you can compare.  

If you realise that the suppliers quotation far exceeds the quotations that you have obtained then you can produce them and request an explanation as to why their quotations are higher. Often this will not happen but it is always best to cover all bases.

Another major benefit of using EXW and a courier to ship your goods is that you will not have to navigate the local customs clearance procedure. Couriers will cover this for you and then invoice you the complete amount including taxes, import duties and the customs clearance fee which is generally only a small amount. The products will also be delivered straight to your desired location which is highly convenient.

In summary, EXW works well when combined with courier shipping. It should not be used with sea freight shipments, regardless of which shipping provider you use. For sea freight FOB is a great option as is will usually work out far cheaper for you as you will not be paying extra fees to your supplier including local delivery and export charges.