A first-time buyer in Auckland compared three quotes for the same goods and concluded that three Surat suppliers could not agree on their own pricing. They agreed on pricing perfectly well. They were quoting EXW, FOB and DDP, and until she normalised all three terms to her warehouse door, every comparison she made was measuring the wrong thing. Incoterms are not freight jargon; they decide who pays for what, who owns the goods at each stage, and whose problem it is when something goes wrong.
The Whole Ladder in One Table
| Term | Seller pays and arranges until | Risk passes to buyer | Import clearance and duty | |---|---|---|---| | EXW | goods packed at our gate | at our gate | buyer | | FCA | delivery to your carrier, export cleared | at handover to carrier | buyer | | FOB | loading on board at Nhava Sheva or Mundra | goods on board | buyer | | CFR | ocean freight to your named port | on board at origin, despite paid freight | buyer | | CIF | freight plus insurance to your port | on board at origin, despite paid freight | buyer | | DAP | delivery to your named place | before unloading at your door | buyer | | DDP | duty paid, delivered ready to unload | effectively on delivery at your door | seller |
Read the third column twice, because that is where the surprises live. Two of these terms hand you risk while the seller still holds the freight invoice, and one of them asks the seller to become a taxpayer in your country.
EXW, FCA and FOB: The Origin Terms
EXW, ex-works, means we make goods available packed at our gate and everything after that is yours, including Indian export clearance. The catch is real: export documentation needs an Indian entity, and a foreign buyer with no agent on the ground cannot generate it alone. EXW works for buyers with established Indian forwarding relationships and quietly traps everyone else.
FCA, free carrier, fixes exactly that. We clear the goods for export and hand them to your nominated carrier at a named point. For containerised cargo, where containers often reach the port terminal days before the vessel sails, FCA is the technically correct term and the one logistics professionals quietly prefer. In day-to-day garment trade, though, almost nobody speaks FCA at the quotation stage, and it is worth knowing mainly to recognise what your forwarder is suggesting.
FOB, free on board, remains the classic. Goods delivered on board the vessel at a named port, FOB Nhava Sheva or FOB Mundra written into the contract, with export clearance and origin terminal handling on our side of the line. The handover point is clean, physical and verifiable, which is a large part of why FOB survived containerisation even though its theory predates containers by decades.
CFR and CIF: The Halfway Terms
CFR, cost and freight, adds paid ocean freight to your named destination port. CIF, cost, insurance and freight, adds seller-arranged insurance on top. Both share the subtlety buyers miss most: risk still transfers when goods go on board at origin. The seller paying the freight does not mean the seller owns the journey, and if the box is lost mid-ocean, the claim is the buyer's, on a policy the seller chose.
That last phrase is CIF's hidden insurance problem. CIF defaults to minimum cover, typically Institute Cargo Clauses C insured at a standard formula of the CIF value, chosen to keep the quote competitive rather than the cargo protected. Experienced buyers respond in one of two ways: under CIF, contract up front for fuller cover with the claim beneficiary named properly, or under FOB, simply buy their own policy from their own broker and never think about it again.
DAP and DDP: The Door Terms
DAP, delivered at place, means goods arrive at your named address with import clearance and duty on your side, while the seller has managed the entire journey to get them there. For buyers who want door delivery without surrendering control of their own customs position, DAP is the sane version of "delivered".
DDP, delivered duty paid, goes the whole way: the seller imports the goods into your country, pays your duty and taxes, and hands them over ready to unload. Which sounds wonderful, and for a first-time importer it is usually a mistake. To clear goods into the US the seller needs an American tax presence; into the UK, a VAT registration; into the Gulf, a local sponsorship arrangement. Most exporters have none of those, so DDP quotes either come from specialists priced with a generous buffer for exactly the risks above, or they come apart at the border. There is a subtler problem too: under DDP, clearance speed and demurrage sit with a seller whose incentive is the cheapest possible clearance, and slow clearance is your stock sitting in a port you cannot control.
Why FOB Is the Surat Default
Most of our long-term buyers run FOB, and the reasoning is structural rather than habitual. The exporter controls what only the exporter can do well, export clearance, stuffing and origin handling. The buyer controls the ocean leg, the insurance and everything at destination, where their own forwarder has relationships we never will. Risk passes at a moment both sides can witness, on the deck of a named vessel at a named port.
FOB also keeps quotes comparable. FOB from three suppliers lands on one page and competes honestly. DDP from three suppliers embeds three different guesses about your customs regime, your duty rates and your local charges, and the differences you see in those quotes are mostly differences of imagination.
Our own honest admission: for some first orders we still quote CIF or CFR, because one counterparty and one number genuinely helps a nervous first-timer get started, and that is worth something real. We say it openly, and we say the next part too: by the second or third shipment, most buyers are better served on FOB with their own forwarder, and the good ones switch.
Who Pays Demurrage Under Each Term
Demurrage, the charge for a container overstaying its free time, follows the party responsible for cargo sitting still. Under EXW, FCA, FOB, CFR and CIF, that is the consignee at destination, you, because destination handling is yours even when the freight was ours. Under DAP and DDP it sits with the seller until delivery, though buyer-caused delays, a warehouse not ready, documents withheld, get rebilled and argued about. The practical lesson after the theory: whichever term you trade on, the free-time and per-diem terms negotiated with the shipping line matter more to demurrage outcomes than the Incoterm itself.
Comparing Quotes Across Terms
Normalise before comparing. EXW plus export clearance plus cartage; FOB plus ocean plus insurance; DDP minus nothing: all expressed to your warehouse door, on one sheet, per piece or per carton. Ask any supplier to quote two structures on the same proforma, which reasonable desks do without drama, and keep a cost sheet of your last three shipments by term and port. Patterns appear inside three shipments that no amount of quote-shopping reveals.
Frequently Asked Questions
Which Incoterm should a first-time textile importer use?
FOB with your appointed forwarder if you have one, or CIF for the very first shipment when one counterparty and one number help you start. Avoid EXW without an Indian agent on the ground, and avoid DDP until you understand your own customs regime deeply.
What is the difference between FCA and FOB?
Both put origin work on the seller and the journey on the buyer. FCA hands goods to your carrier at a named point, export cleared, and is technically correct for containers that reach the terminal before sailing. FOB delivers on board the vessel and remains the trade's default vocabulary.
What is the difference between CFR and CIF?
One policy. CIF adds seller-arranged marine insurance to CFR's paid freight, and under both, risk passes on loading at origin. Watch CIF's default minimum cover, and either contract better cover up front or buy your own policy under FOB.
Is DDP ever a good idea for garment imports?
Occasionally, for buyers with no import infrastructure buying from specialists who price it properly. For first-time importers it is usually a mistake, because the seller must act as importer of record in your country, and the quote carries a buffer for every risk the seller cannot control.
Who pays demurrage under each Incoterm?
The party responsible for cargo sitting still: under EXW through CIF, the consignee at destination; under DAP and DDP, the seller until delivery, with buyer-caused delays rebilled. In practice, negotiated free time with the shipping line matters more than the term itself.
How do I compare quotes made on different terms?
Normalise every quote to your warehouse door: add origin charges to EXW, ocean and insurance to FOB, and unpack DDP's assumptions. Ask suppliers to quote two terms on one proforma, and track your last three shipments' true costs by term.
If you are structuring a first or fifth shipment and want two terms laid side by side on one proforma, tell our desk the destination and the volumes and we will draft it that way. Serious buyers can request courier samples in parallel, while the freight arithmetic matures, because the fabric decision should never wait on the terms discussion.
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