If you've ever received a price quote for international goods, you've seen terms like "FOB Shanghai" or "CIF Los Angeles" — but do you actually know what they mean for your business? Incoterms (International Commercial Terms) define exactly who pays for what and who bears risk at each stage of an international shipment. Choosing the wrong one — or misunderstanding the one you've agreed to — can cost thousands of dollars and serious legal headaches.
This guide focuses on the three most widely used Incoterms in global trade: FOB, CIF, and DDP. We'll explain each one clearly, compare them, and help you decide which is right for your situation.
Incoterms (International Commercial Terms) are a set of 11 standardized trade terms published by the International Chamber of Commerce (ICC). The latest version, Incoterms 2020, defines where the seller's obligations end and the buyer's begin — covering cost allocation, risk transfer, and documentation responsibilities.
FOB — Free On Board
FOB [named port of shipment]
Under FOB, the seller is responsible for delivering goods onto the vessel at the named port of origin. Once goods are loaded on board the ship, risk transfers to the buyer. The buyer then pays for and arranges the main ocean freight, insurance, import customs clearance, and all destination-side costs.
What the seller pays under FOB:
- All costs to get goods to the origin port
- Export customs clearance
- Loading onto the vessel
What the buyer pays under FOB:
- Main ocean or air freight
- Marine insurance (optional but recommended)
- Import customs clearance and duties
- All destination costs (port handling, inland delivery)
Best for: Experienced importers who want to control freight booking and costs. FOB is the most common Incoterm in Asia-origin shipments, especially for Amazon FBA sellers sourcing from China and Vietnam.
Strictly speaking, FOB is designed for bulk and breakbulk cargo loaded directly onto a ship. For containerized cargo, the ICC recommends using FCA (Free Carrier) instead, because the risk transfer happens when the sealed container is handed to the carrier — before it goes on board the vessel. In practice, many traders still use FOB for containers.
CIF — Cost, Insurance and Freight
CIF [named port of destination]
Under CIF, the seller pays for the main ocean freight AND arranges minimum marine insurance (110% of the CIF value, "Clause C" cover) to the named destination port. However — and this is a crucial point many buyers miss — risk still transfers to the buyer when goods are loaded onto the vessel at the origin port, not when they arrive at destination.
What the seller pays under CIF:
- Everything under FOB, plus:
- Main ocean freight to destination port
- Minimum marine insurance (Clause C — basic coverage only)
What the buyer pays under CIF:
- Import customs clearance and duties
- All destination costs (unloading, port charges, inland delivery)
- Any additional insurance beyond the minimum
Best for: Buyers who want the simplicity of having the seller arrange freight, and for commodity trades where CIF is the market standard. Widely used in letter of credit (L/C) transactions.
The biggest misunderstanding about CIF: buyers think "the seller is responsible until goods arrive at my port." They're not. Under CIF, risk transfers at the origin port. If the ship sinks mid-ocean, you (the buyer) bear the loss — you only have the minimum insurance the seller arranged. For valuable cargo, always request additional insurance coverage, or use CIP (the multimodal equivalent with all-risk Clause A insurance).
DDP — Delivered Duty Paid
DDP [named place of destination]
DDP is the maximum obligation for the seller. Under DDP, the seller is responsible for absolutely everything: export clearance, main freight, insurance, import customs clearance, import duties and taxes, and delivery to the buyer's named location. The buyer simply receives the goods at their door — fully cleared and duty-paid.
What the seller pays under DDP:
- All costs and risks from seller's premises to buyer's door
- Export customs clearance
- Main freight and insurance
- Import customs clearance and all import duties/taxes
- Last-mile delivery to named destination
What the buyer pays under DDP:
- The agreed DDP price — nothing more
- (Usually) unloading at the destination
Best for: Buyers who want zero logistics complexity and total cost predictability. Common in direct-to-consumer (DTC) e-commerce and when selling through online marketplaces.
DDP is extremely demanding on sellers. You must be able to act as the Importer of Record in the buyer's country — which may require a local legal entity or customs registration. If you can't legally import into the destination country, you cannot offer DDP terms. Many sellers offer "DDU" (Delivered Duty Unpaid) informally, which means everything except duties — but DDU is not an official Incoterms 2020 term.
FOB vs CIF vs DDP — Quick Comparison
| Responsibility | FOB | CIF | DDP |
|---|---|---|---|
| Export clearance | Seller | Seller | Seller |
| Origin freight (to port) | Seller | Seller | Seller |
| Loading onto vessel | Seller | Seller | Seller |
| Main ocean freight | Buyer | Seller | Seller |
| Marine insurance | Buyer | Seller (min.) | Seller |
| Risk during transit | Buyer (from port) | Buyer (from port) | Seller (until delivered) |
| Import clearance & duties | Buyer | Buyer | Seller |
| Last-mile delivery | Buyer | Buyer | Seller |
Which Incoterm Should You Choose?
Choose FOB if:
- You're an experienced importer who wants to control your own freight rates
- You have relationships with freight forwarders who offer better rates than the seller
- You're importing to the US from Asia (FOB is standard here)
- You want clarity on exactly where your responsibility starts
Choose CIF if:
- You're new to importing and prefer the seller to handle freight
- You're buying commodities where CIF is the market standard
- Your bank requires CIF terms for an L/C transaction
- You trust your supplier to book freight at a reasonable rate
Choose DDP if:
- You want zero logistics involvement — fully delivered, duties paid
- You're selling online and want to offer customers a single all-inclusive price
- Your customer is a small buyer who cannot handle customs themselves
- You can legally act as importer of record in the destination country
Start with FOB. It gives you control over freight costs (often the biggest variable), keeps the contract clean, and is the standard in most Asia-to-US sourcing. Use our Export Profit Calculator to model FOB vs CIF vs DDP profits side by side.
Model FOB vs CIF vs DDP profit with our free calculator
Enter your costs and see exactly how much each Incoterm earns you — or costs you.
💰 Export Profit Calculator 📚 Full Incoterms Guide