You asked three suppliers for a price. One says "$2.10 EXW", one says "$2.45 FOB Ningbo", one says "$3.20 DDP". Your first instinct is to pick the $2.10. Your second instinct, if you've done this before, is to put the kettle on, because this is going to take a while.
Those three letters after the price are Incoterms: standard trade terms published by the International Chamber of Commerce. They answer two questions that matter a lot more than the unit price:
- Who pays for each leg of the journey?
- At what point does the risk move from the seller to you?
If you don't know those answers, you don't really know what you're being quoted.
The journey, in six steps
Picture your shipment's trip from a factory overseas to your warehouse:
- Goods leave the factory
- Export customs clearance in the seller's country
- Loading at the origin port or airport
- Main transport (ocean or air)
- Import customs clearance, duties and taxes in your country
- Final delivery to your door, warehouse or 3PL
Every Incoterm is just a line drawn somewhere along that list. Everything before the line is the seller's job. Everything after it is yours.
EXW (Ex Works): "Come and get it"
The seller makes the goods available at their own premises, and that's it. Technically you (or your freight forwarder) handle pickup, export clearance, loading, freight, import and delivery.
What it changes on your quote: EXW gives you the lowest-looking number, because almost nothing is included.
Watch out for: export clearance. Under EXW the buyer is responsible for it, which is awkward when you're a small brand on the other side of the world with no legal presence in the seller's country. Many forwarders can handle it, but ask first. EXW makes the most sense when you already work with a forwarder who has a local team at origin.
FOB (named port): "I'll put it on the ship"
The seller handles getting the goods to the named port, clearing them for export and loading them onto the vessel. Once the goods are on board, cost and risk pass to you.
What it changes on your quote: the price includes local transport and export formalities in the seller's country. You still pay ocean freight, insurance, destination port charges, import clearance, duties and final delivery.
Watch out for: FOB is meant for sea and inland waterway shipping. For air freight or containers handed over at an inland terminal, FCA (goods handed to your carrier at a named place) is usually the better fit. Also check which port is named. "FOB Shenzhen" and "FOB Shanghai" are not the same starting point for your freight quote.
FOB is popular with small importers: the seller handles the part that's hard to do from abroad, and you keep control of the main freight leg.
DDP (Delivered Duty Paid): "It just shows up"
The seller handles everything: transport, export, import clearance, duties and taxes, all the way to your named destination.
What it changes on your quote: the highest unit price of the three, because it bundles everything else in.
Watch out for: two things. First, you have less visibility on how the shipping and duty parts are priced, so it's harder to tell whether you're getting a fair deal. Second, the seller acts as importer, so make sure they can actually do that correctly in your country. Incorrect customs declarations can still cause trouble for the goods (and for you) at the border. Convenient is not the same as cheap.
The honorable mentions
You'll also see:
- FCA: the seller hands the goods, cleared for export, to your carrier at a named place. A more flexible cousin of FOB that works for any mode of transport.
- CIF / CFR: the seller also pays main freight to your port (CIF adds minimum insurance), but the risk still passes to you at loading at origin. Paying and carrying the risk are not the same thing, which surprises people the first time a shipment gets damaged at sea.
How to compare quotes with different Incoterms
Here's the part that actually saves money. Don't compare unit prices. Compare landed cost per unit: what each unit costs once it's sitting in your warehouse.
For each quote:
- Start with the quoted price × quantity.
- Add every cost that the Incoterm leaves to you: inland transport at origin, export clearance, freight, insurance, destination charges, broker fees, duties, final delivery.
- Add one-time costs like tooling or samples, spread across the order.
- Divide by the number of units.
To get the freight numbers, ask a forwarder for a quote with the real shipment details: carton count, carton dimensions, gross weight and pickup location. A rough number based on vibes is how a "cheap" EXW quote becomes the most expensive option once everything is added up.
Even easier: in your RFQ, ask every supplier to quote on the same Incoterm with a named place ("FOB Ningbo", "DDP Austin, TX"), plus carton dimensions and weights, and ask what's excluded. A missing line is not a zero. Same basis in, comparable quotes out.
Incoterms look like alphabet soup, but they're really just a map of who does what. Once you read every quote that way, the "cheapest" supplier often changes, and so does your margin.
I work on HireDov, an AI procurement agent that sends one RFQ to many suppliers, chases them until they quote, and lines the answers up side by side, Incoterms included.
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