Why the Incoterm matters
Two quotations for the same product are not comparable unless they use the same Incoterm and the same named place. FOB Karachi and CIF Felixstowe include very different costs. Incoterms 2020, published by the International Chamber of Commerce, is the current version.
The terms buyers use most
| Term | Seller arranges | Risk passes to buyer |
|---|---|---|
| EXW, Ex Works | Goods ready at the seller’s premises. Nothing else. | At the seller’s premises |
| FCA, Free Carrier | Export clearance and handover to your carrier at a named place, for example a container terminal | At handover to the carrier |
| FOB, Free On Board | Export clearance and loading on the vessel at the named port, for example FOB Karachi | When goods are on board at origin |
| CFR, Cost and Freight | As FOB, plus sea freight to your port | When goods are on board at origin |
| CIF, Cost, Insurance and Freight | As CFR, plus minimum cargo insurance | When goods are on board at origin |
| DAP, Delivered at Place | Delivery to a named place in your country, not unloaded or import-cleared | At the named destination |
| DDP, Delivered Duty Paid | Everything, including import duties and taxes | At the named destination |
FOB vs CIF: which should you choose?
FOB suits buyers who have a freight forwarder, or want control over the shipping line, cost and timing. You pay the freight and insurance directly, so you can see exactly what they cost.
CIF suits buyers who want one price to their port. Note two points: under CIF, risk still passes to you when the goods are loaded in Pakistan, not when they arrive; and the seller only has to buy minimum insurance cover (Institute Cargo Clauses C). Many buyers ask for broader cover.
FOB, CFR and CIF are intended for sea freight. For containerised goods the ICC recommends FCA, CPT or CIP, because the container is usually handed over at a terminal before it is loaded on the ship.
EXW and DDP: use with care
EXW makes the buyer responsible for export clearance in Pakistan, which is difficult to arrange from abroad. FCA is usually a better choice. DDP makes the seller responsible for your import duties and taxes, which needs a seller registered to import in your country.
Pakistan specifics
Most sea exports from Karachi leave from Karachi Port or Port Qasim. Orders can ship as a full container (FCL) or a shared container (LCL); LCL suits smaller first orders but adds handling at both ends. Agree the port, container type and named place in the quotation.
Questions buyers ask
Is FOB or CIF cheaper?
Neither is cheaper in itself: CIF includes freight and insurance in the price, FOB leaves them for you to buy. Compare the FOB price plus your own freight and insurance against the CIF price.
Who pays import duty under CIF?
The buyer. Under CIF the seller pays freight and minimum insurance to your port, but import clearance, duties and taxes are the buyer’s responsibility.
Which Incoterms do you quote?
We quote the Incoterm and named place you ask for, commonly FOB Karachi or CIF your port, and state it on every quotation so offers can be compared like with like.