Two suppliers quote you for the same goods and one is noticeably cheaper. Very often the difference is not the goods at all — it is three letters at the end of the quote. The incoterm decides which costs are inside the price and which are still coming, and separately, at what moment the goods become your risk. Those two things are not the same, which is where people get caught.
Why the term matters more than the price
An incoterm is shorthand for the division of duties between seller and buyer: who arranges carriage, who pays for what leg, who clears the goods, and where risk passes from one to the other. It is not a payment term and it is not a legal jurisdiction — it is the split of the job.
You cannot compare two quotes until you know their incoterms. A lower EXW price and a higher CIF price can be the same deal, or the EXW one can be far more expensive by the time it reaches you.
The four you will actually be quoted
EXW — Ex Works
The seller makes the goods available at their premises and that is the end of their involvement. Everything after that — collection, export clearance, freight, insurance, import clearance, duty, VAT and delivery — is yours.
Looks cheapest, usually is not. EXW is the maximum-responsibility term for a buyer, and the least suitable for a first-time importer who does not yet have a forwarder.
FOB — Free on Board
The seller delivers the goods on board the vessel and handles export clearance. Risk passes to you once they are loaded. From there you pay the sea freight, any insurance, and everything on the South African side.
This is the common one, and a sensible one to buy on — it gives you control of the freight leg and a clear line of responsibility. Just do not mistake the FOB price for the landed cost.
CIF — Cost, Insurance and Freight
The seller pays freight and insurance to the destination port. You still handle import clearance, duty, VAT and delivery from there.
Convenient, and often the right choice for a smaller shipment. But see the trap below, and understand that the freight is inside a price you cannot itemise — you are not getting it free, you are getting it un-broken-out.
DDP — Delivered Duty Paid
The seller bears the cost and risk all the way to your door, including import clearance and duties. Maximum responsibility on the seller, minimum on you.
Before agreeing DDP into South Africa, ask two questions: who will be shown as the importer, and who receives the customs documentation? Your own import record and your ability to account for import VAT depend on the answers. Get them in writing before you agree, not after the goods land.
The CIF trap: paid freight is not carried risk
Under CIF the seller pays for the sea freight — but the risk still passes to you at origin, when the goods are loaded. If something happens to the cargo in transit, it happened to your cargo.
Buyers reasonably assume that whoever pays for the voyage carries the voyage. Under both FOB and CIF, they do not. This is exactly why the insurance question deserves a direct answer rather than an assumption — under CIF the seller arranges cover, and you should know what that cover actually is before you rely on it.
What does not change, whatever you agree
The incoterm decides who pays and when risk passes. It does not change how South Africa calculates what is owed:
SARS calculates import VAT on the customs value, plus any duty levied on the goods, plus 10 per cent of the customs value, at 15%. Where goods originate in and come from Botswana, Lesotho, Namibia or Eswatini, the 10% addition does not apply.
What the incoterm does affect is what sits inside the price, and therefore the value the calculation starts from. So the term changes both who pays and, indirectly, the size of the base. It never changes the method. See what importing actually costs.
Comparing two quotes honestly
- Write down the incoterm for each quote. If it is not stated, ask before anything else.
- For each, list what is not included: export clearance, freight, insurance, port charges, clearing, duty, VAT, inland delivery.
- Price the missing legs with your forwarder or clearing agent, not by estimate.
- Add duty and VAT on the SARS basis above — for both quotes, since the customs value may differ.
- Only now compare the two totals. That is the first moment the numbers mean anything.
The supplier is not hiding anything by quoting FOB. They are quoting their side of the job. The mistake is treating their side as the whole job.
Frequently asked questions
- My supplier quoted FOB. What am I still paying for?
- Everything after the goods are loaded on the vessel: sea freight, insurance if you want it, South African port and terminal charges, clearing, duty and import VAT, and inland delivery. FOB is a good term to buy on, but the quote is a fraction of the landed cost.
- Is CIF better than FOB because the supplier pays the freight?
- Not necessarily. Under CIF the seller pays freight and insurance to the destination port, but the risk passes to you at origin once the goods are loaded. You also still handle import clearance, duty and VAT. You are paying for the freight either way - under CIF it is inside a price you cannot see the components of.
- Should I just ask for DDP so there are no surprises?
- DDP puts everything on the seller, including import clearance and duties, which is simple - but ask who will be shown as the importer and who receives the customs documentation, because that affects your own records and your ability to reclaim import VAT. Get that answered before agreeing, not after.
- Does the incoterm change how much duty and VAT I owe?
- It does not change the method. SARS calculates VAT on the customs value, plus any duty, plus 10% of the customs value. What the incoterm changes is what sits inside the price and therefore the value the calculation starts from, and who is responsible for paying.
Next steps
Once you know which costs are yours, check the two things that decide whether the goods arrive at all: registration and permits and what gets a shipment held.