The four incoterms buyers use most — EXW, FOB, CIF and DDP — move price and risk to four different places. EXW transfers at the factory gate. FOB transfers once goods are on board at the port of shipment. CIF transfers at the destination port after insurance. DDP transfers at your door.
Quick answer
- EXW: risk passes at the factory, so you arrange collection, export clearance and everything after it.
- FOB: risk passes once goods are on board at the port of shipment, and you pay ocean freight and insurance.
- CIF: risk passes at the destination port, with the seller arranging carriage and insurance.
- DDP: risk passes at your door, with the seller arranging transport, insurance and import clearance.
Where exactly does risk pass under each incoterm?
The rule is simple: risk passes at the moment named in the term, and not before it. Everything before that moment is the seller’s problem; everything after is yours. Under Incoterms 2020 the four terms below are the ones a packaging buyer meets most often.
| Term | Full name | Risk passes | Place |
|---|---|---|---|
| EXW | Ex Works | When the goods are placed at the seller’s disposal | The factory gate, unloaded and undeclared |
| FOB | Free On Board | Once the goods are on board the vessel | The port of shipment, on the ship |
| CIF | Cost, Insurance and Freight | When the goods are unloaded at the destination port | The destination port, before import clearance |
| DDP | Delivered Duty Paid | When the goods are placed at the buyer’s disposal | The named destination, ready for unloading |
Two features of this table decide most disputes. First, the moment is physical — a gate, a ship rail, a quay, a loading bay — not a date. Second, the loading and unloading responsibility flips at that point, so who handles the crane and the terminal lift changes with the term.
Who arranges freight, insurance and customs clearance?
This is where the terms feel abstract. The division of tasks follows directly from where risk passes.
| Task | EXW | FOB | CIF | DDP |
|---|---|---|---|---|
| Loading at factory | Buyer arranges | Seller | Seller | Seller |
| Export customs clearance | Buyer | Seller | Seller | Seller |
| Ocean freight to destination | Buyer | Buyer | Seller | Seller |
| Marine insurance | Buyer if wanted | Buyer if wanted | Seller, minimum cover | Seller |
| Import customs clearance | Buyer | Buyer | Buyer | Seller |
| Import duty and tax | Buyer | Buyer | Buyer | Seller |
| Delivery to your warehouse | Buyer | Buyer | Buyer | Seller |
Notice the pattern: CIF moves the cost of carriage and insurance to the seller but leaves import clearance and duty with the buyer. DDP is the only one of the four that moves import clearance and duty as well. That is exactly why a CIF shipment can still involve you dealing with customs, and why a DDP shipment should not.
Why is an EXW quote so much cheaper than an FOB quote?
The gap is not the factory being generous. It is the cost of six or seven services rolled into the EXW number that the buyer was previously paying for separately. An EXW price starts from the factory gate, so the quote excludes everything downstream.
| Cost element | In an FOB quote | In an EXW quote |
|---|---|---|
| Export declaration and handling | Included | Excluded |
| Factory to port haulage | Included | Excluded |
| Terminal handling at origin | Included | Excluded |
| Documentation for export | Included | Excluded |
| Ocean freight | Excluded, paid by buyer | Excluded, paid by buyer |
| Insurance | Excluded unless added | Excluded |
So the gap between EXW and FOB is usually the cost of moving a pallet from the factory floor to a ship, plus the export paperwork. Buyers who switch to EXW to “save money” often spend more, because they now need a forwarder who will collect from a factory door, handle the export declaration and get the container released at origin. Without a forwarder in the exporting country, EXW is a bad choice regardless of the quoted number.
What are the five things to confirm before you accept a quote?
Most packaging quotes state an incoterm but leave the variables that determine the real price unstated. Five of them account for almost every surprise.
- Shipment type: sea LCL, sea FCL, air, or rail. The same bottle is a different price in each, and air is not simply faster — it is a different landed cost structure.
- Container type: 20 ft or 40 ft, and high-cube. For bottles, volume decides the answer, so ask for total CBM and how many cartons fill a 40 ft high-cube.
- Destination: the named place must be exact. A CIF quote to “the destination port” and a DDP quote to your warehouse door are different products with different prices.
- Insurance: for CIF, what the minimum cover actually is, who claims, and what is excluded. Mineral breakage and moisture are the usual exclusions that matter for packed bottles.
- Validity: how many days the price holds, and what happens to it when validity expires. Resin and freight both move, and a stale quote is not a quote.
Two more worth pinning down: whether tooling or decoration setup is inside the unit price or separate, and whether the price assumes a single consolidated shipment. Both change the arithmetic on a split delivery.
Which term suits which kind of buyer?
DDP gets recommended most often and suits the fewest. It suits an importer with no forwarder, no customs broker and a small volume where the administrative cost of importing exceeds the freight saving. It does not suit a buyer who already imports regularly, wants control over the carrier, or needs their own inspection on arrival.
| Situation | Term that usually fits | Why |
|---|---|---|
| First shipment, small volume, no forwarder in the exporting country | DDP | The seller carries the administrative burden you cannot yet carry |
| Regular importer with a working forwarder | FOB or CIF | You control the carrier, the consolidation and the claim process |
| Large volume where insurance matters | CIF | Seller buys cover, but you still clear and pay duty |
| Buyer with a factory-side agent or a very small order | EXW | Only viable if someone local handles export clearance |
| Buyer who wants one invoice and one landed number | DDP | Freight, duty and clearance all sit with the seller |
| Buyer consolidating several suppliers into one container | FOB at each factory, one buyer booking | You control the consolidation, so you need the control point |
One caveat on DDP: because the seller handles import clearance, the shipment may move more slowly through customs, and tax treatment still depends on your country’s rules. Ask how the seller will classify the goods and what documentation they will provide, so nothing stops at the border.
What is the one-line test for choosing a term?
Ask a single question: when the goods are damaged or lost, who is standing where?
| Where the damage happens | Who carries it under each term |
|---|---|
| Inside the factory, before loading | Seller under all four |
| Factory to port, or during export handling | Buyer under EXW; seller under FOB, CIF, DDP |
| On the ship at sea | Buyer under EXW and FOB; seller under CIF and DDP |
| In transit after the destination port | Buyer under EXW, FOB and CIF; seller under DDP |
| In your warehouse after delivery | Buyer under all four |
If your forwarder or insurance policy is weakest in one of the rows above, that is the term to change. Buyers holding a single annual marine policy usually prefer FOB or CIF; buyers with no freight infrastructure usually prefer DDP for the first order and switch to FOB once volume justifies it. The step-by-step mechanics of a container move are in how to ship cosmetic bottles from China, and the payment and timing side sits in importing bottles: freight, payment and lead time.
What are the three misunderstandings we see most often?
1. Believing the incoterm decides the price, not the risk. Each term sets both, but the price difference is only one side of it. The side that costs money later is usually risk: who claims, who delays, who pays the demurrage when a document is wrong.
2. Assuming CIF means door-to-door. CIF stops at the destination port. The goods have arrived, the seller has delivered, and import clearance, duty and inland transport are all still yours. If you want the seller to carry those, the term is DDP, and the price will be higher.
3. Comparing an EXW quote against a DDP quote. This is the most common pricing error in packaging sourcing. The two numbers include different services, so the difference is not a saving or a margin — it is two different products. Convert both to one landed basis before deciding.
What to put in writing before you place the order
- The incoterm with its year, written as “Incoterms 2020, FOB Shenzhen”, never just the three-letter code.
- The named place, defined precisely enough to be a delivery address or a port.
- Shipment type and container type, with total CBM and estimated carton count.
- Whether the price includes tooling, decoration setup, samples and the first article.
- Insurance responsibility and, for CIF, the minimum cover and how a claim is made.
- Documentation the seller will provide with the shipment, and who prepares each document.
- Shipment date or window, and what happens if it slips.
- How the two numbers will be compared: unit price, landed cost, or both, in one currency.
- Payment terms, including whether the deposit is tied to drawing approval or to shipment.
- Quote validity in days, and the notice period before any price change.
For the arithmetic behind all of this, the full cost build-up from unit price to warehouse is in total landed cost: why unit price is only half the cost.
Frequently asked questions
Where does risk actually pass under FOB?
Once the goods are on board the vessel at the port of shipment. Before that point the seller carries them, including the loading onto the ship. After it, ocean freight, insurance and everything at the destination are the buyer’s.
Does CIF include customs clearance and duty?
No. CIF includes carriage to the destination port and minimum marine insurance. Import clearance, duty and tax remain the buyer’s responsibility, which is why many buyers eventually move to DDP.
Is DDP always the most expensive term?
Not always the most expensive quoted number, but always the widest scope. It includes export clearance, ocean freight, insurance, import clearance, duty and delivery. That last group is often the part that makes it look expensive.
Should a first-time importer use EXW?
Rarely. EXW puts export clearance and factory collection on you, in a country where you probably have no forwarder. It only makes sense if someone local is already handling export documents on your behalf.
Does the incoterm decide who pays import duty?
It decides who arranges and pays it as part of the quoted price. Under EXW, FOB and CIF the buyer pays duty and must be able to import in their own name. Under DDP the seller handles it, subject to local rules on who may be the importer of record.
What if the incoterm is not written on the purchase order?
Then no term has been agreed and the default local rules apply, which vary and are rarely what either party intended. Write the term and the named place on the order before any goods move.
About Shijin Packaging
Shijin Packaging Products Co., Ltd. has been manufacturing plastic packaging in Shenzhen, Huizhou and Guangzhou since 2003. We hold more than 2,000 existing moulds, run ISO 9001, GRS and SGS audited production, and ship roughly 500,000 bottles a day for cosmetic, personal care, household, car care and food-grade customers. We quote EXW, FOB, CIF and DDP against the same product and carton data, so the four numbers compare line by line rather than as four different offers.
Ask for all four incoterms on your next quote: send your model, quantity, carton dimensions and destination, and we will return EXW, FOB, CIF and DDP prices with the shipment type, container type and quote validity stated on each line.