Incoterms Explained: FOB, CIF, DDP and When to Use Each
Incoterms are three-letter rules published by the International Chamber of Commerce. They define where cost and risk pass from seller to buyer — and getting them wrong is one of the most common causes of surprise charges.
FOB — Free On Board
The supplier delivers goods onto the vessel at the origin port. From there, freight, insurance and import costs are yours. FOB gives buyers control of the shipping and is the most common term for experienced importers.
CIF — Cost, Insurance & Freight
The supplier pays freight and minimum insurance to your port, but risk still passes at origin. Convenient, but you have less control over carrier choice and destination charges.
DDP — Delivered Duty Paid
The supplier delivers to your door with duties paid. Simplest for the buyer, but you pay for that convenience in the unit price and depend on the supplier’s logistics.
How to choose
- First import, small volume: consider DDP or DAP for simplicity.
- Regular container volumes: FOB with your own forwarder usually gives the best landed cost.
- Consolidating several suppliers: FOB or EXW into a consolidation warehouse.