Incoterms explained: FOB vs CIF vs EXW

If you're going to import goods to Costa Rica, sooner or later your supplier will ask which Incoterm you want to work under. And if you're not clear on what those three letters mean —FOB, CIF, EXW— you could end up overpaying, taking on risks that aren't yours, or discovering hidden costs once the cargo is already on its way.

The good news: you don't need to be an international trade expert. In this guide we explain, in plain language, what Incoterms are, how the three most common ones work, and which one suits your case.

What Incoterms are

Incoterms (International Commercial Terms) are a set of standardized rules published by the International Chamber of Commerce (ICC). They define, universally, how far the seller's responsibility goes and where yours begins as the buyer in an international trade transaction.

Specifically, every Incoterm answers three key questions:

• Who pays for transport, insurance and paperwork in each leg?
• At which exact point does risk for the goods transfer from seller to buyer?
• Who handles export and import customs clearance?

The current version is Incoterms 2020. There are 11 terms in total, but in practice, importing to Costa Rica, you'll almost always run into these three: EXW, FOB and CIF. Let's take them one by one.

EXW (Ex Works): the most responsibility on you

EXW means "Ex Works". It's the Incoterm where the seller does the minimum: they just make the goods available at their warehouse or factory. From there, everything is on you: pickup, inland transport in the origin country, export formalities, international freight, insurance, and import into Costa Rica.

In theory EXW looks cheap because the product price is the lowest. In practice, it brings the most surprises if you don't have a freight forwarder coordinating the entire origin for you —including export clearance, which a foreign buyer often can't easily handle.

FOB (Free On Board): the most popular

FOB means "Free On Board". It's probably the Incoterm you'll see most, especially importing from Asia. Under FOB, the seller handles the entire origin side: they take the goods to the port of departure, pay inland transport and export formalities, and load it onto the vessel.

Risk transfers to you the moment the cargo is on board the ship at the origin port. From there on, you pay the international ocean freight, insurance (if you want it), and all arrival costs in Costa Rica: customs clearance, duties and transport to your warehouse.

Why is it so popular? Because it gives you control over the international freight. You choose the carrier or freight forwarder, compare rates, and know exactly what you pay for each leg. It's transparent.

CIF (Cost, Insurance and Freight)

CIF means "Cost, Insurance and Freight". It's like FOB but the seller goes one step further: on top of getting the cargo onto the ship, they pay the international ocean freight and minimum insurance to the destination port in Costa Rica.

It sounds convenient —and for small volumes it can be— but there's a catch: risk still transfers to you at the origin port, just like FOB, even though the seller pays the freight. In other words, if something happens to the cargo at sea, it's your problem, even though the supplier booked the freight.

Comparison table: who pays what

This table sums up the differences between the three Incoterms at a glance, assuming an ocean import into Costa Rica:

FOB vs CIF: which suits you?

This is the million-dollar question, and the short answer is: for most importers, FOB is the better choice. Here's why.

With FOB, you control the international freight. That means you can quote with your own freight forwarder, compare rates and, almost always, get a lower and more transparent total cost. When the supplier handles the freight (CIF), they usually add a margin on the transport and you have no visibility into how much.

With CIF, you gain convenience: the supplier takes care of the freight and it arrives "all-in" to the port. It can make sense if you're just starting out, if the volume is very small, or if you don't yet have a trusted freight forwarder.

Common mistakes that cost you money

• Comparing FOB prices against CIF prices. They're not the same. A "cheaper" supplier on CIF can end up costing more than another on FOB once you add everything up.
• Believing CIF covers you fully. The minimum insurance covers very little and the risk at sea is still yours.
• Accepting EXW without an agent at origin. You can get stuck getting the cargo out of the factory.
• Forgetting destination costs. No Incoterm (except the D group) covers customs clearance and duties in Costa Rica. That's always on you.

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