FOB, CIF and EXW: Which Incoterm Actually Saves You Money?

When a Chinese factory quotes you a price, the first question to ask is: on what basis? USD 10 EXW is a completely different number from USD 10 CIF. Incoterms are the international language that defines exactly where the seller's responsibility ends and yours begins.

The three most-used terms

EXW — Ex Works

The factory prepares the goods at its door, and that is all. You handle loading, inland transport, Chinese export clearance, freight, insurance and Saudi clearance.

• When it suits you: when you have a strong forwarder in China handling everything, or you are consolidating from several factories.
• The risk: new importers see the low EXW price and assume they have saved money — then the costs accumulate.

FOB — Free On Board

The factory covers transport to the port, export clearance and loading onto the vessel. You cover sea freight, insurance and clearance at destination.

• When it suits you: most of the time. FOB gives you control over the carrier choice and lets you compare rates, while sparing you the complexity of exporting from inside China.

CIF — Cost, Insurance and Freight

The factory covers everything to the destination port, including insurance. You handle customs clearance and inland transport in Saudi Arabia.

• When it suits you: if you are a complete beginner and prefer simplicity, or the shipment is small enough that coordination is not worth the effort.
• The risk: the factory chooses the carrier and usually adds a margin; some agents offset a low rate with high destination charges that you pay.

Quick comparison

Three practical rules

1. Never compare two prices on different terms. Always convert them to the same basis first.
2. Ask about destination charges before agreeing to CIF. Request the agent's expected charge list at Jeddah or Dammam.
3. Do not buy EXW without someone handling the Chinese side. Export clearance inside China is not simple for a non-resident.

What about insurance?

Under FOB you buy the insurance, and that works in your favour: you choose comprehensive cover instead of the minimum a seller typically buys under CIF. Insurance usually costs a small percentage of cargo value, and saving it is an uncalculated gamble.