Incoterms are the standard three-letter trade terms — published by the International Chamber of Commerce, current edition Incoterms 2020 — that define exactly where a supplier’s responsibility ends and yours begins. On China quotes you will mostly meet EXW, FOB and CIF, and the difference between them can move your landed cost by double-digit percentages.
- An incoterm splits three things: who arranges transport, who pays for it, and where risk transfers.
- EXW (Ex Works) hands you everything from the factory gate; FOB (Free On Board) hands over once goods are loaded at the Chinese port.
- CIF (Cost, Insurance, Freight) looks convenient but gives the supplier control of freight — and its margins.
- The 2020 edition defines 11 terms; 4 of them (FOB, FAS, CFR, CIF) are for sea freight only.
- The incoterm changes the payable invoice amount — confirm it before you price or pay anything.
The three terms you will actually see
| Term | Supplier’s job ends | You pay from | Risk passes to you |
|---|---|---|---|
| EXW (Ex Works) | Goods ready at factory | Factory gate onwards | At the factory |
| FOB (Free On Board) | Goods loaded on vessel | Ocean freight onwards | On board at China port |
| CIF (Cost, Insurance, Freight) | Goods + freight + minimum insurance to your port | Destination port charges onwards | On board at China port — not at arrival |
The CIF surprise sits in that last cell: even though the supplier pays freight to Mombasa or Dar es Salaam, risk still transfers when the goods are loaded in China. If the vessel loses the container, the claim runs on the insurance the supplier bought — at minimum required cover — not on the supplier.
Why the cheap-looking term is not always cheap
Suppliers quote CIF because it looks turnkey, and they often make margin on the freight leg. A factory booking freight at volume rates and billing it inside a CIF price can add several hundred dollars per container versus what your own forwarder would charge. Destination charges — the fees at your port — are also notoriously inflated on supplier-arranged freight, because the Chinese freight agent recovers its cheap ocean rate through the destination agent’s local charges.
FOB usually gives an East African importer the best of both: the supplier handles Chinese inland transport, export clearance and loading — things they do better and cheaper than you can from Nairobi or Kampala — while you control the ocean leg with your own forwarder and see every cost.
How the incoterm changes what you pay the supplier
The incoterm defines the invoice amount you settle. On a hypothetical order with 100,000 yuan of goods:
- EXW invoice: 100,000 yuan — you separately pay Chinese inland freight, export clearance, ocean freight, insurance and everything after.
- FOB invoice: perhaps 103,000–105,000 yuan — inland freight and export formalities are now inside the supplier’s price.
- CIF invoice: perhaps 110,000–115,000 yuan depending on the season’s freight market — ocean freight and minimum insurance are inside the price.
Customs duty at your end is then assessed on the CIF value of the goods regardless of which term you bought on — in Kenya, import duty, VAT and levies all key off a customs value that includes freight and insurance. Your clearing agent needs the breakdown either way, so insist on itemised invoices.
Choosing a term: a simple decision path
- 1First-time importer with small volumes: CIF is acceptable to learn the ropes — budget for higher destination charges and buy your own top-up insurance.
- 2Regular importer with a forwarder you trust: FOB is the workhorse — supplier handles China-side, you control the sea leg and costs.
- 3Consolidating cartons from several factories: EXW or FOB into your consolidator’s Chinese warehouse; the consolidator becomes your freight controller.
- 4Never accept a quote whose incoterm is missing: "USD 8,400 CIF Mombasa, Incoterms 2020" is a price; "USD 8,400" is not.
Frequently asked questions
Which incoterm is best for a Kenyan importer?
For most repeat importers, FOB: the supplier does the China-side work while you keep control and visibility of the ocean freight. CIF suits first orders; EXW suits consolidation runs with an agent in China.
Does the incoterm affect my customs duty?
The duty calculation uses the customs value including freight and insurance (a CIF-basis value) however you bought. The term does not change the duty formula, but it changes which invoices evidence the numbers.
Under CIF, is my cargo fully insured?
Only to the minimum cover the term requires (Institute Cargo Clauses C under Incoterms 2020) unless more was agreed. Many importers buy their own all-risk cover on top — it typically costs a fraction of 1% of cargo value.
SilkBridge helps importers in Kenya, Uganda and Tanzania pay Chinese suppliers in RMB — documented, reviewed in Nairobi, and tracked to payout.
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