You see a factory quote: 15 USD per unit. You think that's your landed cost. You're wrong. That's just the quote term, and which term it is changes your actual cost by 20-40% before the goods even arrive in your warehouse.
Most brand founders don't understand incoterms, so they end up comparing quotes from different factories using different terms without realising they're comparing apples to motorcycles. One factory quotes EXW. Another quotes DDP. The numbers look comparable. The actual cost difference is massive, and one brand absorbs costs they didn't budget for.
The four terms you'll encounter: EXW (Ex Works), FOB (Free on Board), CIF (Cost, Insurance and Freight), and DDP (Delivered Duty Paid). Each one defines who pays for transportation, insurance, and duties. Each one shifts risk and cost differently.
EXW: Cheapest quote, maximum risk
EXW means the factory's responsibility ends at the factory gate. You pay for everything after that: transport from their facility to the port, international shipping, insurance, import duties, customs clearance, and inland transport to your warehouse. The quote looks lowest because the factory is charging you the least. But you're now responsible for organising and paying for the entire supply chain yourself.
If you don't have freight forwarding relationships in place, you'll overpay. If the shipment gets held at customs, you're managing it. If the goods arrive damaged, you're proving the claim. It's administratively heavy and cost-inefficient for brands shipping small volumes. Use EXW if you already have trusted freight partners and high shipment frequency. Otherwise, avoid it.
FOB: Cheaper than CIF, but you carry the insurance risk
FOB is free on board at the port of departure. The factory pays for inland freight to the port and handles export documentation. You pay for international shipping, insurance, import duties, and customs clearance. The goods are yours once they're loaded on the vessel.
This is where most mid-market brands operate. The quote is lower than CIF, but only by the cost of insurance. You're responsible for insuring the shipment. If you skip it to save money and something happens mid-ocean, you're absorbing the full loss. Most freight forwarders will include insurance as standard, but you need to confirm and budget for it.
Under FOB, you own the goods once they're on the vessel. That means you're managing the shipping risk, the customs clearance, and the duties. It's more control, but more liability. Most mid-market brands use FOB because it offers control without requiring complex freight infrastructure.
CIF: Higher quote, but the factory handles logistics
CIF is cost, insurance and freight. The factory pays for shipping and insurance to your port of arrival. You pay for customs clearance, duties, and inland transport from the port. The goods remain the factory's responsibility until they arrive at your port of discharge.
The quote is higher than FOB (by the cost of shipping and insurance), but you're delegating supply chain risk to the factory. That matters if you don't have customs experience or freight relationships. The tradeoff is you're paying for their shipping rates, which are often less efficient than what you'd negotiate independently.
DDP: Highest quote, no surprises
DDP is delivered duty paid. The factory delivers the goods to your location and pays for absolutely everything: transport, insurance, duties, customs clearance, inland delivery. The quote is highest because they're absorbing all the risk and cost variables. But you see zero surprises after you sign the order.
Use DDP if clarity and simplicity matter more than price, or if you're a small brand without customs infrastructure. The factory absorbs the duty variable, which is actually valuable because they can often clear goods faster and more cheaply than you can. The downside is you have zero visibility into what you're actually paying for shipping, customs, and clearance.
The real calculation
To compare quotes properly, you need to work backwards. Take each quote, identify the term, and calculate your all-in landed cost including duties. For bags and accessories, UK import duties are typically 12% of CIF value. So a CIF quote of 15 USD means you're actually paying approximately 16.80 USD once duties are included.
- EXW quotes are lowest but require you to have freight and customs infrastructure already in place
- FOB quotes suit mid-market brands who want control without full complexity
- CIF quotes delegate logistics but lock you into factory-selected shipping rates
- DDP quotes are highest but offer maximum simplicity and predictability
The mistake most brands make is treating the per-unit cost as the full story. It's just the starting point. The incoterm is the plot. Calculate your all-in landed cost before you decide which factory to work with, and you'll stop being surprised by invoices that don't match the original quote.
