Incoterms Explained: FOB, CIF & DDP for First-Time Importers

An Incoterm answers three questions: who arranges transport, who pays for each segment, and where risk transfers if the goods are damaged or lost in transit. It does not set the price, the payment terms, or the transfer of legal title — those live in your contract. The current standard is Incoterms 2020, and a complete term always names a place: "FOB Qingdao" or "DDP Los Angeles." Without the named place, the term is incomplete.

Under EXW (Ex Works), the seller simply makes the goods available at the factory; you handle everything from there, including export clearance — maximum control, maximum responsibility, and rarely ideal for a first import. FOB (Free On Board) is the workhorse term for ocean freight: the seller delivers the goods, cleared for export, onto the vessel at the named port, and risk passes to you there. You arrange and pay the main sea freight, insurance, and the import side. FOB makes competing quotes directly comparable because each one stops at the same point.

Under CFR (Cost and Freight) and CIF (Cost, Insurance and Freight), the seller arranges and pays the ocean freight to your destination port — and under CIF, also a minimum level of marine insurance. It looks convenient, but note that risk still transfers to you once the goods are loaded at origin, even though the seller booked the freight. CIF can simplify a first shipment, but the seller chooses the carrier and the insurance is only minimum cover, so many experienced buyers move to FOB once they have their own freight forwarder.

DAP (Delivered At Place) and DDP (Delivered Duty Paid) push responsibility furthest toward the seller. Under DAP the seller delivers to your named address with everything handled but import clearance and duty; under DDP the seller handles even import customs and duties, so the price approaches a true door-to-door landed cost. DDP is the simplest to receive, but you pay for that convenience, and the seller's duty and brokerage handling is outside your visibility — so confirm exactly what "duty paid" includes, since destination taxes like VAT or GST are often excluded.

If you are new to importing and want simplicity, a delivered term (DAP or DDP) gets goods to your door with the fewest moving parts. Once you have a freight forwarder and some volume, FOB usually wins on cost and control. The golden rule when comparing suppliers: put every quote on the same Incoterm to the same place before you compare. A FOB price and a DDP price are not the same number give or take a little freight — they bundle different costs and different risk. Ask each supplier to quote the same term, then compare like with like.