EXW, FOB, CIF: what a Chinese quotation actually includes

A unit price means nothing without four companions: the incoterm and its named place, the quantity it applies to, the date it expires, and the edition of the rules being used. A figure quoted ex-works in Shenzhen and a higher figure quoted with carriage and insurance to Lagos are not separated by the difference between them. They may not be separated at all, and which is cheaper is not knowable from the two numbers.

There is a prior distinction that gets lost even more often. A price is not a quotation. A quotation states what is being sold, at what quantity, on what term, for how long the price holds, and what happens if any of those change. A number in a chat message states none of that.

That discipline sounds pedantic until the week someone builds a budget on the lowest of three numbers and the supplier says, entirely reasonably, that the figure was for a quantity you are not buying and was three months ago.

An incoterm allocates three separate things between seller and buyer: who arranges each leg of transport, who pays for it, and at what precise moment risk of loss passes. Those three do not always change hands at the same point, and the gap between them is where most misunderstandings live.

• EXW — the seller makes the goods available at its own premises and does nothing else. Loading, inland haulage, export clearance, main carriage, insurance and import are all the buyer's cost and the buyer's risk. It produces the lowest number a factory can honestly quote and the least comparable one.
• FOB, named port of shipment — the seller delivers the goods on board the vessel at the named port, handles export clearance and pays origin charges. Risk passes when the goods are on board. Everything from that point is yours.
• CIF, named port of destination — the seller contracts and pays for carriage and insurance through to the destination port. Risk still passes at the port of shipment, exactly as under FOB. The seller's cost travels further than the seller's risk, and that asymmetry is deliberate.

One technical point that costs nothing to get right. FOB and CIF are written for goods handed over at the ship, which made sense when cargo was loaded piece by piece. Containerised goods are handed to a carrier at a yard days earlier, and air freight never touches a vessel at all. For those, the terms drafted for the purpose are FCA, CPT and CIP. Most container business quoted as FOB is really FCA. It rarely causes harm on a routine shipment, and it causes considerable confusion on the one shipment where something goes wrong and everybody has to work out who held the risk at the moment it did.

Under EXW, export clearance is the buyer's responsibility. In China a foreign buyer generally cannot act as exporter of record — the declaration has to be made by a registered domestic entity. So the seller, or an agent the seller introduces, performs the clearance regardless of what the term says, and charges for it.

The practical consequence is that an EXW figure is an opening position rather than an input to a landed cost. Before it can become one it needs export handling, document fees, inland haulage to the port and origin terminal charges added back — and those are quoted by parties you have not yet met. Ask for the FOB equivalent from the same supplier at the same quantity. A supplier that cannot produce one is telling you it does not export, which is a fact worth having early.

Incoterms allocate transport, clearance and risk. They are silent on a long list of things that will nonetheless appear on your side of the ledger.

• Import duty, levies and destination taxes.
• Destination terminal handling, delivery order fees and agency charges at the arrival port.
• Demurrage and storage if clearance takes longer than the free period — which it will, if a document was obtained late.
• Inland delivery from the destination port to where the goods are actually needed.
• Certification, type approval and conformity assessment for the destination market.
• Samples, tooling, moulds and artwork, and the question of who owns a tool you paid for.
• Spare parts, and the freight cost of returning a defective unit to China under warranty.

DDP appears to solve this and mostly does not. It is complete only against the assumptions the seller made about duty and compliance at a destination it has never imported into, and those assumptions are routinely wrong, quietly excluded in the small print, or both. A Chinese supplier quoting DDP into West Africa is pricing a risk it cannot assess.

Send the same list to every supplier and record the answers in the same table. Suppliers who will not both answer are not both in your comparison — and finding that out is part of what the exercise is for.

1. 01Which incoterm, which named place, and which edition of the rules?
2. 02At what quantity is this price? Quote at our volume, not at your minimum.
3. 03What is the minimum order quantity, and what changes below it?
4. 04How long does this price hold?
5. 05What is the lead time, and from which event does it start — contract, deposit received, artwork approved, or sample signed off?
6. 06What is in the carton: charger, cable, spare battery, dock, mount, manual, and in which language?
7. 07Carton dimensions, units per carton, gross and net weight, pallet configuration. Without these you cannot compute freight, and without freight you cannot convert an EXW price into anything comparable.
8. 08Who is the exporter of record, and in whose name is the commercial invoice issued?
9. 09Payment terms, and what event triggers each stage.
10. 10One-off costs: tooling, moulds, artwork, samples, certification and testing — and who owns the tooling afterwards.

Convert every quotation to a single basis before you look at any of them — usually landed cost at your destination port, at your own volume, in one currency, on one date. Only then are the differences between unit prices real differences. Comparing an EXW number against a CIF number is not a close call badly made; it is not a comparison.

Check independence at the same time. Two quotations from firms that share a normalised web domain are one quotation, and averaging them produces a market rate that does not exist. That is a real finding from the pilot shortlist, not a hypothetical.

And read each document for internal contradiction before you read it against the others.

Every price you capture should be recorded with its term, its named place, its quantity, its validity, the date it was given and the source it came from. A price missing any of those is indicative, and it should be labelled indicative everywhere it appears — including in your own internal working figures, where the label is least convenient and most necessary.

This costs nothing and it prevents the most common failure in sourcing: an optimistic number from a chat message becoming a planning assumption six weeks later, by which time nobody remembers where it came from and everybody remembers how good it was.