FOB vs CIF vs EXW: which value to declare at customs, and who pays what

Three letters, three prices that don't mean the same thing

Your Shenzhen supplier quotes "$18,000 FOB." A competitor negotiated the same lot "EXW factory," another "CIF Felixstowe." Three quotes, three numbers — and three different splits of who pays for transport, when risk passes, and which value customs will use to compute your duty. Confusing these three Incoterms means mispricing your margin.

FOB, CIF, and EXW are three of the eleven Incoterms published by the International Chamber of Commerce (Incoterms 2020 edition). They are not interchangeable: picking the wrong one can turn a "good price" into a higher final bill. This guide explains what each covers, who pays what, and how the declared customs value is built depending on the destination country.

EXW, FOB, CIF: what each one really covers

EXW (Ex Works) is the seller's minimum commitment. It makes the packed goods available at its premises and stops there. The buyer takes on everything: loading, carriage to the port, export formalities, ocean freight, insurance, import clearance. Risk passes at the factory gate.

FOB (Free On Board) applies only to sea or inland-waterway transport. The seller delivers the goods on board the vessel at the port of departure and clears export; from that point the buyer pays the main freight, insurance, and import. Risk passes once the goods are loaded on board.

CIF (Cost, Insurance, Freight), also sea-only, goes further: the seller pays freight and insurance to the destination port. The key subtlety: risk still passes at the origin port, on loading — exactly as under FOB. The seller is only obliged to buy minimum cover (Institute Cargo Clauses Clause C, at 110% of value).

Table: who pays what, and where risk passes

Cost split between seller (S) and buyer (B) by Incoterm (Incoterms 2020 framework, ICC):

Key takeaway: CIF is the only one of the three where cost and risk part ways. The seller advances freight and insurance to destination, but if cargo is damaged at sea, it is the buyer — who has held the risk since the origin port — who must pursue the claim against the seller's insurer.

The customs value: CIF or FOB depending on the country

This is where the costliest mistake hides. The Incoterm says who arranges transport; the destination country says what enters the duty base. The rule follows the WTO Customs Valuation Agreement, but application differs:

• United Kingdom, India, most of the EU: CIF base (cost + insurance + freight to the border). Duty is computed on the goods price plus international freight and insurance. India's assessable value is explicitly the CIF value, with freight added statutorily where not shown.
• United States: FOB base. The dutiable value is the goods price at the port of export; international ocean or air freight is deductible. The same container therefore bears duty on a lower base in the US than in the UK.

Direct consequence: an EXW or FOB invoice is not enough to declare in the UK or India. You must rebuild the CIF value by adding transport to the border. Conversely, declaring a CIF figure in the US without deducting freight means overpaying duty.

Three worked examples

Example 1: EXW purchase in China, import into the UK

The "cheap" $10,000 EXW price actually produces a base of $11,640. A first-time importer who doesn't budget the $1,640 of transport sees the margin shrink before resale even begins.

Example 2: FOB vs CIF, same lot into the US

In the US, declaring FOB protects the importer: the $2,500 freight stays out of the base. The same shipment on a CIF base (typical of the UK and India) adds $150 of duty. Across a hundred-container annual flow, the base difference becomes structural.

Example 3: CIF Nhava Sheva, the surcharge trap

India assesses on CIF value: freight inflated by the seller enters the base and lifts the duty too. By switching to FOB and booking its own freight, the importer saves on transport and on the duty sitting on top of it.

Which Incoterm fits your situation

The right choice depends on your logistics maturity. Three practical markers:

• You are just starting: favor FOB. The seller handles export from its country, you regain control of the freight through your own forwarder, and you keep visibility on the surcharges (BAF, CAF, THC) that CIF tends to blur.
• You have an integrated forwarder and steady volume: EXW can maximize end-to-end control, provided you have an agent able to clear export inside the supplier's country.
• You want simplicity without steering transport: CIF remains acceptable for a one-off shipment, but always ask for the freight + insurance breakdown to spot a mark-up on the seller's side.

In every case, state the Incoterm and the named port on the commercial invoice: "FOB Shanghai" and "CIF Felixstowe" do not commit the same costs nor the same point of risk transfer.

Conclusion: the Incoterm sets the price, the country sets the base

Hold two distinct layers in mind. The choice between EXW, FOB, and CIF determines who arranges and pays each leg of transport and where risk passes. The duty base — CIF or FOB — depends instead on the destination country, not on the Incoterm printed on the invoice. A savvy importer first negotiates the Incoterm that gives cost control, then declares the value under the country's rule, neither overpaying nor under-valuing.

To dig deeper, see our complete Incoterms guide, our briefing on the six customs valuation methods, and our DDP vs DAP comparison for flows where the seller carries through to final delivery.