FOB, CIF, EXW — before your first shipment from China or Vietnam arrives, you need to understand what these terms mean for your costs, your risk, and your relationship with HMRC.
In summary: Incoterms (International Commercial Terms) define who is responsible for shipping costs, insurance, and risk when importing goods. For UK importers buying from China or Vietnam, the three most important terms are FOB (Free On Board), CIF (Cost, Insurance & Freight), and EXW (Ex Works). Understanding these before you sign a purchase order can prevent thousands of pounds in unexpected costs and liability headaches.
Picture this. You've placed your first order with a manufacturer in Guangdong. The samples were perfect. The price was right. You can already see your products arriving in perfect condition, ready to fulfil your customers' orders. Then the factory sends the proforma invoice with "EXW Shenzhen" printed at the top, and you suddenly have absolutely no idea what you've agreed to pay for.
Twas' a simpler time, before Incoterms entered your life. But here's the good news — they're not nearly as complicated as they first appear. After this guide, you'll understand exactly what FOB, CIF, and EXW mean, which one is right for your situation, and how to negotiate the best terms with your Asian suppliers.
Incoterms — short for International Commercial Terms — are a set of standardised trade terms published by the International Chamber of Commerce (ICC). First introduced in 1936 and now in their 2020 edition, they appear on virtually every purchase order, commercial invoice, and bill of lading issued by manufacturers in China and Vietnam.
They govern two critical things: who pays for what in the shipping chain, and where risk transfers from seller to buyer. Miss these details, and you can find yourself liable for freight costs you didn't budget for, holding uninsured cargo, or owning the responsibility for goods the moment they leave a factory gate in Shenzhen.
There are 11 Incoterms in the 2020 edition, but for UK importers sourcing from China and Vietnam, three terms cover the vast majority of transactions: EXW, FOB, and CIF. Know these three and you'll be ahead of most first-time importers.
Understanding your shipping terms is just as important as understanding your product. For clothing importers specifically, our guide on sourcing branded-style clothing from Asia for UK brands covers the full import picture from factory to UK shelf.
EXW is the most seller-friendly Incoterm — and therefore the least buyer-friendly. Under Ex Works, the seller's obligation ends the moment goods are ready for collection at their premises. From that point, every cost and risk in the logistics chain is the buyer's responsibility: export clearance, local transport to the port, loading onto the vessel, ocean freight, marine insurance, UK customs clearance, import duty, and final delivery.
This means an EXW quote from a factory in Shenzhen gives you the absolute bare minimum — the factory gate price. It tells you nothing about your true landed cost. If something goes wrong with the goods before they've even been loaded onto a truck, that's your problem under EXW.
For most UK importers — particularly those placing their first orders from Asia — EXW is rarely the right choice. It only makes practical sense if you have a trusted freight forwarder with in-country China or Vietnam operations who can handle the full export process efficiently from the factory gate.
Sourcing Hack #1: If a factory quotes EXW, always ask them to requote FOB. Most reputable Chinese and Vietnamese manufacturers work regularly with freight forwarders and can arrange export clearance and port delivery without issue. Moving from EXW to FOB shifts a significant administrative burden off your plate — and in many cases, the factory's established freight partner will offer more competitive rates than you'd find independently as a new importer.
FOB is the most widely used Incoterm for UK businesses importing from Asia, and for very good reason. Under Free On Board, the seller is responsible for the goods until they are loaded onto the vessel at the named port of shipment — for example, "FOB Ningbo" or "FOB Ho Chi Minh City". From that point, risk transfers to the buyer.
In practice, this means the factory handles export clearance and transport to the port, while you — or your freight forwarder — arrange ocean freight from Asia to the UK, marine insurance, and UK customs clearance. It's a clean, well-understood split of responsibilities that gives you full visibility and control over your freight costs and choice of logistics partners.
When factories quote FOB, you know exactly what you're paying them for the goods. Your freight forwarder then quotes separately for the ocean freight and insurance leg. This separation makes it far easier to compare supplier quotes, negotiate freight rates, and calculate your true landed cost accurately before committing to an order.
Sourcing Hack #2: Always get a full landed cost breakdown from your freight forwarder before committing to any order. Take the FOB factory price, add ocean freight, marine insurance, UK import duty, and import VAT — that's your real cost per unit. Many first-time importers forget to include duty and VAT and end up significantly underestimating their cost base. Our complete guide to importing from China to the UK includes a worked landed cost calculation example you can use as a template.
CIF means the seller arranges and pays for ocean freight and marine insurance to the named destination port — for example, "CIF Felixstowe" or "CIF Southampton". Risk technically transfers at the same point as FOB (when goods are loaded onto the vessel), but because the seller has contracted the freight, the cost is bundled into their quoted price.
On the surface, CIF sounds wonderfully convenient. The factory sorts the shipping. You wait for the goods to arrive. Simple, right? Experienced importers know better, for a few important reasons.
First, because the factory selects the freight forwarder and insurance policy, you have no control over either. The carrier may be cheaper and less reliable. The insurance coverage may be minimal. And because freight is baked into the CIF price, you can't easily compare quotes or negotiate the freight element separately.
Second — and this catches many new importers off guard — CIF does not mean your goods are delivered to your door. UK import clearance, import duty, and VAT remain the buyer's responsibility under CIF, regardless of what the Incoterm covers.
Sourcing Hack #3: If a supplier insists on CIF pricing, ask them to provide a breakdown showing the FOB component and the freight/insurance component separately. This lets you compare their bundled freight rate against what your own forwarder would charge on FOB terms. In the majority of cases, using your own freight forwarder on FOB terms delivers better service, more competitive rates, and greater control — particularly as your import volumes grow.
For the vast majority of UK businesses importing from China or Vietnam, FOB is the recommended term. It provides a clean, comparable factory price, lets you choose your own freight forwarder and negotiate rates, gives you control over insurance coverage, and is the industry standard that every experienced logistics provider understands immediately.
EXW should generally be avoided unless you have established in-country logistics support. CIF can work for very low-value, one-off test shipments where simplicity outweighs cost control — but for any regular importing, FOB gives you significantly more transparency and control over your cost base.
When Epic Sourcing manages sourcing on behalf of our clients, we almost always negotiate FOB terms with manufacturers as part of building a professional, scalable supply chain. Our White Label and Private Label packages both include logistics guidance and introductions to trusted freight forwarders.
DDP is worth a mention because it sounds incredibly appealing to first-time importers. Under Delivered Duty Paid, the seller handles everything: export clearance, freight, UK import duty, VAT, and delivery to your specified address. One price. Goods appear at your door.
The catch? You're at the mercy of the seller's logistics provider for every element of the chain, with no visibility or control. More importantly, under DDP, the UK customs entry is typically made in the seller's name — not yours. This creates complications if HMRC ever audits your imports, and may prevent you from reclaiming import VAT. For any importer with meaningful volumes, DDP is generally inadvisable.
Sourcing Hack #4: Use DDP only for small one-off test orders where simplicity and speed are the priority. Once you're importing on any regular basis, establish proper FOB arrangements with a licensed UK customs broker and a freight forwarder. The cost control, VAT reclaim, and supply chain transparency are well worth the administrative setup. Read more about the role of sourcing agents in China and how they help structure these arrangements for growing importers.
This is a critical point that trips up many new importers. Regardless of which Incoterm you agree with your supplier, if you are the UK importer of record, you are responsible for UK import duties and VAT. HMRC does not care about your Incoterm — import charges are calculated on the customs value of the goods, which is generally the CIF value at the UK port of entry.
Your customs broker handles the import declaration and duty calculation. What you need in place: an EORI number (free from HMRC’s website), a licensed UK customs broker, and the correct shipping documentation — commercial invoice, packing list, bill of lading, and any product-specific certificates required for your goods.
For brands importing for the first time and wondering whether a sourcing agent could help manage the full logistics chain, our post on how small businesses cut costs sourcing directly is a good place to start. And if you're navigating importing from Alibaba to the UK, that guide covers the platform-specific logistics considerations you need to know.
For guidance on finding and vetting the right manufacturers in the first place, our comprehensive guide on how to find reliable manufacturers in China walks through the full process from initial search to factory audit.
Under FOB, the seller loads goods onto the vessel — from that point, the UK buyer arranges and pays for ocean freight and insurance. Under CIF, the seller includes freight and insurance in their quoted price to the named destination port, though risk still transfers at the vessel loading point. FOB gives the buyer more cost transparency and control over logistics providers. CIF bundles freight into the seller's price, reducing your visibility. For UK importers, FOB is generally the preferred term for regular shipments.
"FOB Shanghai" means the factory price covers all costs until your goods are loaded onto the vessel at Shanghai port. From that point, you are responsible for ocean freight to the UK, marine insurance, UK customs clearance, import duty, and VAT. It's the most common pricing term for UK businesses buying from Chinese manufacturers and represents a clean, well-understood point of cost handover between seller and buyer.
The UK importer of record always pays UK import duty and VAT, regardless of which Incoterm is agreed with the seller. Incoterms govern the logistics cost split between parties — they do not affect your obligations to HMRC. Whether you're importing on EXW, FOB, CIF, or any other term, UK customs charges are your responsibility as the importer of record.
Technically possible under DDP terms, but not recommended for regular importers. UK customs clearance is best handled by a licensed UK customs broker familiar with HMRC requirements, able to correctly classify goods and ensure import VAT is properly recorded for reclaim. Under DDP, the customs entry may be in the seller's name, which complicates your VAT position. Your freight forwarder can typically provide or recommend a customs brokerage service alongside their freight offering.
FOB is almost always the right choice for first-time UK importers. It provides a clear factory price to compare between suppliers, lets you engage a UK freight forwarder of your choice for competitive freight rates, and is the standard term your logistics partners will expect to work with. Engage a UK freight forwarder with Asia experience before placing your order — they can advise on logistics, insurance, and customs clearance from day one, and help you calculate your full landed cost before you commit to the order.
Incoterms aren't complicated once you know them — but they're the kind of thing that costs real money when you get them wrong at the start. Getting your logistics structure right from the very first shipment is one of the most valuable things a professional sourcing partner can do for a new importer.
At Epic Sourcing, we negotiate FOB terms with suppliers on behalf of our clients, recommend trusted UK freight forwarders, and help structure an importing process that's efficient, HMRC-compliant, and cost-effective from day one.
Ready to get your supply chain set up properly? Book a free strategy call with us or email hello@epicsourcing.co.uk. We're always happy to help.
If you're also building a clothing brand from Asia, our companion guide on sourcing branded-style clothing from Asia (legally) for UK brands covers the full picture from factory sourcing to UK shelf — including all the import compliance requirements you need to know.
TK Wang, Founder & Director @ Epic Sourcing
