Incoterms for Apparel Buyers, Without the Jargon
By The Velocity Wear Team
Incoterms are standard three-letter codes that answer two questions: who pays for each step of getting goods from factory to you, and at what point the risk of loss transfers. They appear on quotes without explanation and they change the meaning of the price completely.
The ones you will actually encounter
- 1**EXW — Ex Works.** The price is the goods, available at the supplier’s door. You arrange and pay for everything else, including export clearance. The lowest headline number and the most work.
- 2**FOB — Free On Board.** The supplier gets the goods through export clearance and onto the vessel. You take it from there. Common in apparel and a reasonable middle ground if you have a freight forwarder.
- 3**CIF — Cost, Insurance and Freight.** The supplier pays sea freight and insurance to the destination port. You handle import clearance, duty and onward transport. Note that risk transfers earlier than cost does, which surprises people.
- 4**DAP — Delivered at Place.** The supplier delivers to your address. You pay import duty and taxes.
- 5**DDP — Delivered Duty Paid.** The supplier delivers to your address with duty and clearance handled. Highest headline number, fewest surprises, and the closest thing to buying domestically.
Why the cheapest term is rarely the cheapest outcome
An EXW quote looks better than a DDP quote for the same garment because it excludes several real costs you will then pay separately. Comparing an EXW price against a DDP price without adding freight, clearance and duty to the first is the most common costing error in importing.
It is also a work question. EXW means you are booking freight, arranging export clearance in a country you may not operate in, and handling import. That is a job. For a buyer ordering a few hundred garments, that job frequently costs more in time and errors than the difference in price.
The risk transfer point matters more than people think
Each term also sets where risk of loss or damage passes to you. Under FOB it is when goods are loaded; under DAP it is at your address. If a container is damaged in transit under FOB, that is your loss to claim, not the supplier’s.
Insurance follows this. Check whether you are insured for the leg where you carry the risk, because assuming the supplier’s cover extends to your risk period is a bad discovery to make after a loss.
What most apparel buyers should choose
If you do not have a freight forwarder and an import process, buy delivered — DAP or DDP. You get one number, one counterparty and no clearance to manage. It is not the theoretical minimum cost, and it is usually the lowest total cost once your own time and the risk of a mistake are counted.
Move to FOB when your volume justifies a forwarder relationship and you can genuinely negotiate freight better than your supplier can. That is a real threshold, and it is higher than most people assume.
What to confirm on any quote
Which term applies, what is included, who clears the goods, who pays duty, and where risk transfers. Five questions, and they turn a quote into a number you can actually compare.
