Incoterms define exactly where responsibility, cost, and risk transfer from seller to buyer during an international shipment. Getting them confused can quietly cost you money — or leave you responsible for something you assumed the supplier was handling.
EXW (Ex Works). The seller's responsibility ends at their own factory door. You, the buyer, arrange and pay for everything from that point forward — export documentation, freight, insurance, import clearance. It looks like the cheapest quote, but it usually isn't once you account for everything you need to arrange yourself.
FOB (Free on Board). The seller handles export clearance and delivery to the origin port, loading the goods onto the vessel. Once goods are on board, risk and cost transfer to the buyer, who arranges and pays for main freight, insurance, and import clearance. This is one of the most common terms in sea freight.
CIF (Cost, Insurance, and Freight). The seller arranges and pays for freight and insurance to the destination port, in addition to export clearance. Risk still transfers to the buyer once goods are loaded at origin, even though the seller is paying for freight — an important nuance people often miss.
DDP (Delivered Duty Paid). The seller takes on maximum responsibility — freight, insurance, import duties, and delivery to your door. This is the most convenient for buyers but usually comes at a price premium, since the seller is absorbing risk and complexity they'd rather you managed.
Why this matters beyond terminology: two suppliers quoting the 'same' price under different Incoterms are not offering the same deal. Always confirm which Incoterm a quote is based on before comparing prices — and make sure it matches what you're actually prepared to arrange on your end.