FOB vs CIF vs CFR vs EXW vs DDP Explained (Incoterms 2020 Guide)

If you are involved in export-import business, logistics, freight forwarding, or international trade, you must have heard terms like EXW, FOB, CFR,CIF, FCA, DDP, DAP, CPT, and CIP. But some times we confused about these all terms and specially for the beginners who just enter in the export import business.

Many beginners get confused because these terms decide:

• Who will pay freight charges?
• Who will pay insurance?
• Who is responsible for customs clearance?
• Who will handle delivery to the final destination?
• At what point the risk transfers from seller to buyer?

To solve this confusion, international trade uses Incoterms.

In this article, we will explain all the major Incoterms in a simple and practical way, with real-life examples and comparison tables.

What Are Incoterms?

Incoterms stands for International Commercial Terms. They are globally accepted trade terms published by the International Chamber of Commerce (ICC). These terms clearly define the responsibilities of the exporter (seller) and importer (buyer).

Each Incoterm tells who will handle important things like shipping work, transportation cost, insurance cost, and risk of damage or loss during delivery.

When people understand Incoterms, international trade becomes smoother because there is no confusion about who will pay and who will do what at each step.

Incoterms mainly decide two things:

1. Cost Responsibility

Who pays for transport, freight, insurance, customs, etc.

2. Risk Transfer Point

At which point the risk of damage or loss transfers from seller to buyer.

Real-Life Example Used in This Article

To understand all terms easily, we will use one common example:

Seller (Exporter): Carpet Manufacturer in Birgunj, Nepal
Buyer (Importer): Carpet Dealer in Kenya, South Africa
Transport Route: Birgunj → Kolkata Port → Mombasa Sea Port → Buyer Warehouse

Product Value:

• 100 carpets
• Cost per carpet: $50
• Total goods value: $5,000

Now let’s understand each Incoterm one by one.

1. EXW (Ex Works) – Cheapest for Seller

Under EXW, the seller only makes the goods available at their factory or warehouse. The buyer is responsible for everything after that.

EXW = “Pick the goods from my place”

Basically here Seller says: “I will manufacture and pack the goods.
I will keep it ready at my factory.
You come, pick it up, and do everything else.”

Seller Responsibilities in EXW	Buyer Responsibilities in EXW
Manufacturing	Pickup from factory
Packing	Inland transport
Goods ready at factory gate	Export customs
	Freight
	Insurance (If needed)
	Import duty
	Final delivery

Real-Life Example:

Exporter says:
“EXW Birgunj, Nepal – $5,000” This means the Kenya buyer must arrange transport from Birgunj to Kenya South Africa. Best for: Sellers who want minimum responsibility
Risk for buyer: High

2. FOB (Free On Board) – Most Popular in Sea Export

FOB is used for sea shipments. Under FOB, seller is responsible until goods are loaded on the ship at the port. After the goods are loaded on the ship, risk and cost transfer to the buyer.

FOB = “Seller loads on ship, buyer handles sea freight onwards” Seller is responsible till goods are loaded on the ship at the port of shipment. Buyer is responsible from the ship onwards (sea freight, insurance, import, delivery).

Seller Responsibilities in FOB	Buyer Responsibilities in FOB
Produce the goods	Sea freight – booking the ship, paying freight charges
Pack the goods	Insurance – optional but recommended for goods in transit
Transport goods to the port of shipment	Import customs clearance – paying import duty, VAT/GST
Load goods onto the ship	Transport from destination port to warehouse
Handle export customs clearance	Any risk during sea transport and after

Real-Life Example:

Exporter says:
“FOB Kolkata Port – $5,800” This means exporter will deliver carpets to Kolkata port and load them on vessel. Buyer pays freight from Kolkata to Mombasa, Kenya. Best for:Exporters who want balance responsibility. Most common term used in Nepal-India exports.

3. CFR (Cost and Freight) – Seller Pays Freight, Buyer Pays Insurance

Under CFR, seller pays cost of goods + freight to destination port. But buyer pays insurance.

Seller Responsibilities in CFR	Buyer Responsibilities in CFR
All FOB costs	Insurance
Freight charges till destination port	Import duty
	Destination port charges
	Local delivery

Real-Life Example:

Exporter says:
“CFR Mombasa Port – $6,200” Seller pays freight till Hamburg port. But if cargo gets damaged in sea, buyer faces loss unless insured. Best for: Buyers who have cheaper insurance options Risk: Buyer must insure goods properly

4. CIF (Cost, Insurance and Freight) – Best for Buyer Comfort

CIF is similar to CFR but includes insurance.

Seller Responsibilities in CIF	Buyer Responsibilities in CIF
All FOB costs	Import duty
Freight till destination port	Destination port charges
Insurance till destination port	Delivery to warehouse

Real-Life Example:

Exporter says:
“CIF Mombasa, Kenya – $6,350” Seller arranges freight and insurance till Mombasa port. Best for: New importers who want peace of mind. Common in international trade

5. FCA (Free Carrier) – Better Version of EXW

Under FCA, The seller delivers the goods to a carrier or another person nominated by the buyer at a named place. Seller fulfills responsibility once goods are delivered to the carrier at the agreed location.Buyer takes responsibility after that point, including risk and cost. It can be a port, ICD, airport, or warehouse.

FCA = “Seller hands goods to the transporter chosen by buyer”

Seller Responsibilities in FCA	Buyer Responsibilities in FCA
Produce & Pack the goods	Transport from delivery point onwards
Deliver goods to agreed location (factory, warehouse, port, airport, or other place)	Insurance (optional but recommended)
Load goods if the delivery is at seller’s premises	Import customs clearance – paying duties and taxes
Handle export customs clearance	Final delivery to warehouse

Real-Life Example:

Exporter says:
“FCA Birgunj ICD – $5,400” Seller delivers carpets to Birgunj Inland Container Depot (ICD) and hands them to buyer’s forwarder. Best for: Road + container shipments Advantage: More professional than EXW

6. DDP (Delivered Duty Paid) – Complete Door-to-Door Delivery

The seller is responsible for delivering goods to the buyer’s place in the destination country, paying all costs, duties, and taxes.Seller bears all risk and cost until goods reach the buyer.Buyer’s responsibility is minimal, usually just receiving the goods.

DDP = “Seller does everything, buyer just receives.

Seller Responsibilities in DDP	Buyer Responsibilities in DDP
Produce and pack goods	Receive goods at the specified place
Transport to port of shipment or transport hub	Minimal paperwork (usually acknowledgment of delivery)
Handle export customs	No transport, no import customs, no insurance required.
Pay freight / shipping cost
Arrange insurance (recommended)
Handle import customs clearance, duties, and taxes in buyer’s country
Deliver goods to buyer’s specified place (warehouse, factory, or store)

Real-Life Example:

Exporter says:
“DDP Kenya Warehouse – $8,000” Buyer will receive carpets without worrying about duty or customs. Best for: Buyers who want full hassle-free service. Risk for seller: High (because duty and regulations can change)

7. DAP (Delivered At Place) – Seller Delivers to Buyer Location

The seller delivers the goods to a named place in the buyer’s country, ready for unloading. Seller pays all costs and bears risk until goods reach the agreed destination.Buyer is responsible only for import customs clearance and duties, unless otherwise agreed.

DAP = “Seller brings goods to your location, buyer handles import

Seller Responsibilities in DAP	Buyer Responsibilities in DAP
Produce and pack goods	Import customs clearance – pay duties, VAT, GST
Transport goods to port of shipment or transport hub	Unload goods at final warehouse
Handle export customs clearance	Any additional local transport after delivery point
Pay freight/transport to the named place
Arrange insurance (recommended)
Deliver goods ready for unloading at buyer’s specified place
Provide invoices and shipping documents

Exporter says:
“DAP Kenya Warehouse – $7,200”Seller delivers carpets to buyer warehouse door.Buyer pays import duty and customs clearance.Best for: Buyers who want delivery to door but can handle import duty.Very useful for e-commerce and bulk trade

8. CPT (Carriage Paid To) – Freight Paid But Insurance Not Included

Seller pays the transportation cost to deliver goods to the agreed destination place, but risk transfers to the buyer once goods are handed over to the first carrier. Seller pays freight/transport cost.Buyer bears risk after goods are handed to carrier.

CPT = “I will pay transport, but risk is yours after handover.”

Seller Responsibilities in CPT	Buyer Responsibilities in CPT
Manufacture goods	Bear risk after goods are handed to first carrier
Packing	Insurance (optional but recommended)
Export customs clearance	Import customs clearance
Deliver goods to the first carrier (truck, freight forwarder, airline, etc.)	Pay import duties, VAT/GST
Pay transportation charges up to the agreed destination	Unloading charges at destination (usually)
Provide invoice, packing list, transport document (LR / AWB / Bill of Lading)	Local delivery after arrival (if needed)

Real-Life Example:

Exporter says:
“CPT Kenya Warehouse – $6,400” Seller pays transport till Kenya warehouse but insurance is buyer responsibility. Best for: Multi-mode transport. Risk: Buyer should insure goods separately.

9. CIP (Carriage and Insurance Paid To) – CPT + Insurance

CIP is the upgraded version of CPT. Seller pays carriage plus insurance.

CIP = “Seller pays freight + insurance, but risk transfers early.”

Seller Responsibilities in CIP	Buyer Responsibilities in CIP
Manufacture & Packing	Bear risk after goods are handed to first carrier
Export customs clearance	Import customs clearance
Deliver goods to the first carrier (truck/airline/freight forwarder)	Pay import duties, VAT/GST
Pay carriage (freight) cost till destination	Unloading cost at destination (mostly)
Arrange cargo insurance till destination	Final delivery from destination place to warehouse (if not included)

Real-Life Example:

Exporter says:
“CIP Kenya Warehouse – $6,550” Seller arranges freight and insurance till buyer location. Best for: Air cargo and multimodal shipments. Safer than CPT.

Comparison Table: FOB vs CIF vs CFR vs EXW vs DDP vs Others.

Term	Seller Pays Transport	Seller Pays Freight	Seller Pays Insurance	Seller Pays Import Duty	Delivery Location
EXW	❌	❌	❌	❌	Factory
FCA	✅ (to carrier)	❌	❌	❌	Carrier/ICD
FOB	✅	❌	❌	❌	On ship at port
CFR	✅	✅	❌	❌	Destination port
CIF	✅	✅	✅	❌	Destination port
CPT	✅	✅	❌	❌	Destination place
CIP	✅	✅	✅	❌	Destination place
DAP	✅	✅	Usually yes	❌	Buyer place
DDP	✅	✅	✅	✅	Buyer place

FOB vs CIF vs CFR (Most Confusing Comparison)

FOB	CFR	CIF
Seller delivers goods on ship	Seller pays freight till destination port	Seller pays freight + insurance till destination port
Buyer pays freight + insurance	Buyer pays insurance	Buyer only pays import duty and delivery

Simple way to remember:

• FOB = No Freight
• CFR = Freight Included
• CIF = Freight + Insurance

Which Incoterm is Best for Exporters?

✅ Best for Seller Safety:

EXW / FCA

✅ Best for Balanced Deal:

FOB

✅ Best for Buyer Attraction:

CIF

✅ Best for Premium Customers:

DAP / DDP

Which Incoterm is Best for Importers?

Beginner Importer:

✅ CIF or DAP

Experienced Importer:

✅ FOB or CFR

Importer who wants full delivery:

✅ DDP

Conclusion: Understanding Incoterms Makes Trade Easy

Incoterms like FOB, CIF, CFR, EXW, DDP, FCA, DAP, CPT, and CIP are the backbone of international trade. They decide who will pay charges and who will bear risk.

If you are exporting from Nepal, India, or any other country, understanding these terms will help you:

• Quote correct pricing
• Avoid loss
• Reduce disputes with buyer
• Build trust in business

Final Summary:

• EXW = Buyer handles everything
• FCA = Seller delivers to carrier
• FOB = Seller loads goods on ship
• CFR = Seller pays freight
• CIF = Seller pays freight + insurance
• CPT = Seller pays carriage only
• CIP = Seller pays carriage + insurance
• DAP = Seller delivers to place, buyer pays duty
• DDP = Seller pays everything

Frequently ask questions (FAQ):