Confused by FOB, CIF, EXW and DDP? This plain-English guide breaks down every shipping Incoterm that matters when importing goods from China or Vietnam to the UK.
In summary: Incoterms are the internationally agreed shipping terms that define who pays for freight, insurance, and customs clearance — and at which point risk transfers from seller to buyer. For UK importers sourcing from China or Vietnam, the four most important Incoterms are FOB (Free On Board), CIF (Cost, Insurance and Freight), EXW (Ex Works), and DDP (Delivered Duty Paid). FOB is the most commonly used for sea freight from China and gives UK buyers the best balance of cost control and manageable risk. Understanding these terms before you sign a purchase order can save you thousands of pounds and prevent nasty surprises at UK customs.
Let me tell you a quick story. A few years back, a client came to us at Epic Sourcing absolutely furious. He had ordered 2,000 units of branded gym bags from a factory in Guangzhou. The price looked brilliant — well under budget. The samples were spot on. He placed the order, paid the deposit, and waited.
Then the invoice arrived. On top of the agreed product cost, there was a line for freight to the port. Another for export customs clearance. Another for container loading. He had agreed to buy EXW — Ex Works — without fully understanding what that meant. By the time the goods reached Felixstowe, his "bargain" gym bags had cost him nearly 30% more than he had budgeted.
True story. And it happens more often than you would think.
Incoterms — short for International Commercial Terms — are published by the International Chamber of Commerce and they define exactly who is responsible for what during an international shipment. They tell you who pays for freight, who arranges insurance, who handles export and import customs, and — crucially — at what point the risk of loss or damage transfers from the seller to you.
Get the Incoterm wrong and you could end up paying for costs you thought were included, or worse, discovering that you were liable for damaged goods you assumed were the factory's problem. So let us break down the four Incoterms that actually matter when you are shipping from China or Vietnam to the UK.
FOB stands for Free On Board, and it is by far the most popular Incoterm for sea freight shipments from China to the UK. Here is how it works:
The seller (your Chinese or Vietnamese factory) is responsible for manufacturing the goods, transporting them to the port of departure, clearing export customs, and loading the goods onto the vessel. Once the goods are on the ship, everything else becomes your responsibility — ocean freight, marine insurance, UK import customs clearance, duty, VAT, and delivery to your warehouse.
Why do most UK importers prefer FOB? Because it gives you control over the shipping leg. You choose your own freight forwarder, negotiate your own rates, and pick your own insurance cover. The factory handles everything on their end — getting the goods out of China — and you handle everything on your end. Clean, clear, and fair.
Sourcing Hack #1: When you get a quote from a Chinese factory, always ask: "Is this price FOB [port name]?" The port matters. FOB Shenzhen and FOB Shanghai can have different inland freight costs baked in. Pinning down the exact port eliminates ambiguity and gives you a true like-for-like comparison when you are evaluating multiple suppliers. If you need help finding trustworthy suppliers, our guide to finding reliable manufacturers in China walks you through the whole process.
Seller pays: Product manufacturing, inland transport to Chinese port, export customs clearance, loading onto vessel.
Buyer pays: Ocean freight, marine cargo insurance, UK port handling, import customs clearance, UK duty and VAT, delivery to final UK destination.
FOB is the standard we recommend to most of our UK clients at Epic Sourcing. It keeps things simple, it is well understood by Chinese factories, and it gives you maximum control over the logistics chain on this side of the water.
CIF stands for Cost, Insurance and Freight. With CIF, the seller arranges and pays for ocean freight and basic marine insurance to the destination port — typically Felixstowe, Southampton, or London Gateway for UK importers.
On paper, CIF sounds convenient. The factory handles shipping and insurance, so all you need to worry about is clearing the goods through UK customs and getting them to your warehouse. But here is the catch: convenience comes at a cost.
When a Chinese factory quotes you CIF, they are adding their own freight and insurance costs to the product price. And those costs are almost always higher than what you would pay if you booked freight yourself through a UK-based forwarder. Factories often use their preferred shipping lines and brokers — and their incentive is to mark up those costs, not to find you the best rate.
There is another risk: with CIF, the factory only needs to provide minimum insurance cover (typically 110% of the invoice value under Institute Cargo Clause C). That is the most basic level. If your container of protein shakers gets damaged in a storm, Clause C might not cover it. You would need to arrange your own top-up policy or accept the risk.
Sourcing Hack #2: If a factory insists on quoting CIF and will not give you an FOB price, that is a yellow flag. It could mean they have a freight arrangement that earns them a commission, or they are padding the shipping cost into the product price. Always request both FOB and CIF quotes so you can compare the difference. If the CIF premium looks steep, book your own freight instead. Our team at Epic Sourcing can help you find competitive UK freight rates through our logistics partners.
CIF can work well for small, low-value shipments where the hassle of arranging your own freight outweighs the cost saving. If you are ordering a single pallet of samples or a small LCL (less than container load) shipment, letting the factory handle freight can save you time. But for full container loads, FOB almost always wins on cost.
EXW stands for Ex Works, and it means the seller's only obligation is to make the goods available at their factory or warehouse. Everything else — inland transport to the Chinese port, export customs clearance, loading, ocean freight, insurance, UK customs, delivery — is your responsibility.
EXW gives you the lowest possible product price because the factory is not including any logistics costs whatsoever. But unless you have a freight forwarder with a strong presence in China, managing the inland Chinese leg from the UK is a headache no small business wants to deal with.
Here is the reality: most UK SMEs do not have the logistics infrastructure to handle Chinese export customs clearance. Your freight forwarder can do it, but they will charge you for the service — and those charges often wipe out any savings you made by buying EXW instead of FOB.
Sourcing Hack #3: If a factory quotes you EXW and the price looks unbelievably low, add 8–15% on top for inland freight, export clearance, and port handling in China. That will give you a rough FOB-equivalent cost. If the adjusted price is still competitive, EXW might work — but only if your freight forwarder can handle door-to-port collection in China. For most first-time importers, we strongly recommend sticking with FOB. It is simpler, safer, and avoids you having to navigate Chinese export bureaucracy remotely. For more on how small businesses can cut costs when sourcing directly, we have a dedicated guide.
DDP stands for Delivered Duty Paid, and it is the polar opposite of EXW. With DDP, the seller is responsible for everything — from manufacturing to delivery at your UK door, including ocean freight, insurance, UK customs clearance, import duty, and VAT.
DDP sounds like the dream, does it not? You pay one price and the goods show up at your warehouse ready to sell. But there are significant downsides for UK importers:
You lose all control over logistics. The factory chooses the shipping line, the route, the insurance level, and the customs broker. If anything goes wrong, you are relying on their supply chain, not yours.
Duty and VAT are baked into the price. When a Chinese factory pays UK import duty and VAT on your behalf, they cannot reclaim the VAT (because they are not UK VAT-registered). That means you are paying VAT as a hard cost rather than reclaiming it on your next VAT return. For a VAT-registered UK business, this is throwing money away.
The price is opaque. With DDP, you have no visibility into the breakdown of costs. Is the freight competitive? Is the insurance adequate? Are they classifying the goods under the correct HS code? You simply do not know.
Sourcing Hack #4: DDP can work well for very small, low-value sample orders or if you are testing a new product before committing to a full container. But for regular bulk imports, avoid DDP. The hidden costs and loss of VAT reclaim make it the most expensive Incoterm for UK businesses in the long run. If you are unsure about duty rates and VAT, our Complete Guide to Importing from China to the UK has a full breakdown of costs.
Here is a simple decision framework we use at Epic Sourcing when advising UK clients:
You are shipping a full container load (FCL) or a sizeable LCL shipment. You want control over freight costs and insurance. You have a reliable UK freight forwarder. This covers about 80% of our clients.
You are shipping a small order and want the factory to handle freight. You are comfortable with basic insurance cover. You have compared CIF and FOB quotes and the premium is reasonable.
Your freight forwarder has a strong China presence and can collect from the factory door. You are an experienced importer who wants maximum control (and can handle Chinese export customs). The EXW price plus Chinese logistics is genuinely cheaper than FOB.
You are importing a very small sample or test order. You are not UK VAT-registered and cannot reclaim VAT anyway. You want zero involvement in logistics (and accept the cost premium).
If you are working with a sourcing agent like Epic, we will advise on the best Incoterm for each order based on the product, volume, destination, and your experience level. There is no one-size-fits-all answer, but FOB is the right starting point for the vast majority of UK importers.
While FOB, CIF, EXW, and DDP are the big four for China-to-UK trade, you might occasionally see these:
FCA (Free Carrier): Similar to FOB but more flexible — the seller delivers goods to a carrier or named place (not necessarily a port). Increasingly used for containerised cargo.
CFR (Cost and Freight): Like CIF but without the insurance. The seller pays for freight to the destination port, but you arrange your own insurance. Less common but worth knowing about.
DAP (Delivered at Place): The seller delivers to a named place in the UK but does not clear customs or pay duty and VAT. You handle import clearance. A middle ground between CIF and DDP.
For most UK importers sourcing from China, sticking with FOB keeps things clean and cost-effective. If you are also considering Vietnam as a sourcing base, the same Incoterms apply — and our team can help you navigate both markets. Whether you are looking at a white label, private label, or Secret Label product, getting the shipping terms right is the foundation of a profitable import.
And if you are sourcing electronics or tech accessories, make sure you also read our UKCA and CE compliance checklist for electronics accessories — getting the compliance paperwork right is just as important as getting the shipping terms right.
FOB (Free On Board) is the most commonly used and recommended Incoterm for UK importers buying from China. It gives you control over ocean freight, insurance, and UK customs clearance while the factory handles everything on the China side including export customs and loading onto the vessel.
With FOB, you arrange and pay for ocean freight and insurance yourself. With CIF, the seller includes freight and basic insurance in the price. FOB typically works out cheaper because you can negotiate freight rates directly, whereas CIF prices often include a markup from the factory.
EXW (Ex Works) makes you responsible for everything from the factory door, including Chinese inland transport and export customs clearance. Most UK small businesses lack the logistics infrastructure to manage this efficiently, and the extra costs often eliminate any savings from the lower product price.
If the Chinese seller pays UK import VAT under DDP terms, they typically cannot provide you with the customs entry documentation needed to reclaim that VAT on your UK VAT return. This makes DDP more expensive for VAT-registered UK businesses compared to FOB or CIF, where you clear customs yourself and reclaim the import VAT.
Yes. HMRC calculates import duty based on the customs value, which varies by Incoterm. For CIF, the customs value includes freight and insurance. For FOB, you may need to add freight and insurance costs to declare the correct customs value. Getting this right ensures you pay the correct duty and avoid penalties from HMRC.
We recommend FOB for nearly all first-time importers. It offers the best balance of cost control, manageable risk, and simplicity. Your factory handles the China side, your freight forwarder handles the shipping, and you stay in control of costs. If you want help setting up your first import, our Alibaba importing guide is a great companion resource.
Choosing the right Incoterm is one of those decisions that seems small but can swing your margins by thousands of pounds. At Epic Sourcing, we negotiate shipping terms, vet freight forwarders, and manage the entire logistics chain from factory floor to your UK warehouse door.
Whether you are shipping your first pallet of eco-friendly water bottles or your fiftieth container of private label fitness gear, we have got you covered.
Let us talk: Book a free strategy call or drop us an email at hello@epicsourcing.co.uk. We will help you pick the right Incoterm, find competitive freight rates, and make sure your goods arrive in the UK without any costly surprises.
TK Wang, Founder & Director @ Epic Sourcing
