How to compare quotes with different Incoterms

Why the numbers do not line up

Three suppliers can quote the same part at three different Incoterms and produce three numbers that look easy to compare. They are not. An EXW price excludes the inland haul to the port. An FOB price includes it but stops at the ship's rail. A DDP price includes freight, duty and delivery, and hides the margin the supplier has added to each line.

If you put those three numbers side by side, the DDP quote usually looks highest and the EXW quote looks lowest. The conclusion is backwards: the EXW quote has the most cost still to come, and the DDP quote has the most cost already inside it.

The fix is to pick one basis and convert every quote to it. The basis should match the way you actually buy and the way you can verify the cost. Most buyers use FOB or EXW for the comparison because the lines are visible, then add their own freight and duty assumptions.

What each term includes

Incoterms 2020 defines eleven terms. For engineered parts, the ones that appear most often are EXW, FCA, FOB, CIF, DAP and DDP. Each one sets a point where cost and risk pass from seller to buyer.

EXW puts almost everything on the buyer, including loading at the supplier's premises. FCA is often a better choice than EXW because the seller handles export clearance and loading. FOB applies to sea and inland waterway transport and places the goods on board the vessel. CIF adds insurance and freight to the destination port, but the risk still passes at the port of shipment. DAP delivers to the named place without import clearance or duty. DDP delivers with duty paid.

The risk point matters as much as the cost point. Under CIF, the seller pays the freight and insurance, but the buyer carries the risk once the goods are on board. That is why a CIF quote can look complete while leaving the buyer exposed for the main voyage.

For containerised cargo, FOB and CIF are often used even though the risk point sits at the terminal rather than the ship's rail. That is a commercial convention, not a precise description of the physical handover. If the distinction matters, use FCA at the named place and arrange the main carriage yourself.

Move every quote to one basis

Choose a target basis, then add or remove lines until each quote sits on it. Adding the missing lines to the less inclusive quotes is usually safer than trying to strip cost out of a DDP price, because the DDP breakdown is often not visible.

Use the same freight rate, insurance rate, duty rate and inland delivery assumption for every option. The point is to compare suppliers, not to compare your freight forwarder with theirs. If a supplier insists on DDP, ask for the underlying assumptions and check them against your own.

1. 01

   Fix the basis

   Choose FOB, DAP or another single term and named place for every quote.

2. 02

   Check the place

   A term without a named place is incomplete. Confirm the port or address.

3. 03

   Add the missing lines

   Freight, insurance, duty, clearance and inland delivery as required.

4. 04

   Use one set of rates

   Apply the same freight, duty and insurance assumptions to every option.

5. 05

   Divide by good parts

   Use the expected good parts received, not the quantity ordered.

An illustrative normalisation

The table below is illustrative and does not represent a real route or rate. Three suppliers quote the same part. Supplier A quotes EXW, Supplier B quotes FOB and Supplier C quotes DDP. The target basis is DAP the buyer's warehouse.

Supplier A needs inland haul, export clearance, main freight, insurance and inland delivery added. Supplier B needs main freight, insurance and inland delivery. Supplier C is already DDP, so the duty must be removed to reach DAP, using the rate the supplier states. Once all three sit on DAP, the ranking is clear and the gap is much smaller than the raw quotes suggested. If the supplier will not disclose the duty inside a DDP price, treat the quote as unverified and ask for an FOB or DAP alternative.

What to ask each supplier

Ask for the Incoterm and the named place in writing, and for the cost breakdown behind a DDP or CIF price. A supplier who cannot explain the freight and duty inside the price is either marking it up without visibility or carrying a risk they have not priced.

Ask which party arranges insurance and at what value. Ask who clears the goods and who pays the terminal charges. Ask what happens if the shipment is held at customs. These questions surface the assumptions that decide the real cost.

Also ask for the quotation validity and the currency. A quote that is valid for thirty days at a fixed exchange rate is a different offer from one that is valid for a year with a currency clause. Normalise the commercial basis as well as the Incoterm, and write the assumptions beside the price so the comparison can be defended later.

Currency and validity

A price in a foreign currency carries an exposure between the quote date and the payment date. Convert every quote to your reporting currency at the same rate and the same date, and note that rate beside the comparison.

If the programme is long, ask whether the supplier will accept a currency clause or a fixed rate for a defined period. A supplier who carries the currency risk will price it, so a fixed price is not free. The comparison should show whether the cost of that protection is worth it.

Validity matters for the same reason. A quote that expires in two weeks may not survive the approval cycle. A quote that is valid for a year may include a material escalation assumption that is not visible. Read the terms, not just the number.

The errors that distort a comparison

The first is comparing a DDP price with an FOB price and calling the FOB quote cheaper. The second is applying the buyer's freight rate to one supplier and the supplier's rate to another. The third is ignoring the duty on one route because the supplier said it was included.

A fourth error is using the order quantity instead of the good parts received. Scrap, damage and short shipments change the effective cost per part, and they vary by supplier and route.

A fifth is treating the Incoterm as a shipping detail rather than a commercial term. It decides who pays, who insures and who carries the risk. A comparison that ignores it is not a comparison; it is a list of numbers.

A sixth is using a spot freight rate as if it were a fixed cost. Freight moves with capacity, fuel and season. If the comparison will be used for a year, test it with a higher and a lower freight rate and see whether the ranking survives.