WayhomartFour trade terms settle three things: where risk passes, who buys freight and insurance, and who handles import and export clearance. Put a FOB quote next to a DDP quote and you are comparing two different service boundaries.
What follows follows the Incoterms 2020 definitions published by the International Chamber of Commerce. Trade terms allocate cost and risk. They say nothing about title, payment or product liability, which belong in other clauses of the contract.
The short version
FOB and CIF deliver at the port of shipment and apply to sea freight only. DAP and DDP deliver at destination, and the difference between them is who clears import and pays duty.
Split the four terms into three questions
| Term | Risk passes | Freight and insurance | Import clearance and duty | Mode |
|---|---|---|---|---|
| FOB | goods on board | buyer | buyer | sea and inland waterway |
| CIF | goods on board | seller pays freight, insures at minimum cover | buyer | sea and inland waterway |
| DAP | named place at destination, ready for unloading | seller | buyer | any mode |
| DDP | named place at destination, import cleared | seller | seller | any mode |
Four boundaries that get lost in practice:
- CIF passes risk at the same point as FOB, when goods are on board. The seller buys freight and insurance on the buyer’s behalf; that is not the same as carrying responsibility to the destination port.
- DAP does not include unloading. If the seller unloads, the term is DPU.
- DDP requires the seller to be able to clear import. Without an importer of record or a compliant broker at destination, the term cannot be promised.
- Trade terms do not cover title or payment. Those sit in the contract and the credit terms, outside Incoterms.
FOB and CIF: risk or freight?
Same risk point. The difference is who arranges main carriage and insurance.
A FOB price covers export clearance and costs up to loading. Main freight, insurance and import costs sit with the buyer. Under CIF the seller arranges main carriage and insurance, but cover is the minimum (usually Institute Cargo Clauses C), not all risks.
Two practical consequences:
- A CIF price looks higher and is not necessarily dearer overall. A buyer booking its own space may get a better rate, or may pay more for LCL consolidation on a small volume.
- CIF cover may not match the buyer’s risk requirement. If the buyer needs all risks or specific additional clauses, write them into the contract instead of assuming CIF already covers them.
FOB also applies to sea freight only. Container cargo is often handed over at a terminal before loading, and where the buyer nominates a forwarder to collect at the yard, FCA usually describes the actual handover better than FOB. This shows up most often on LCL shipments.
DAP and DDP: where the difference sits
Both deliver to a named place at destination. The difference is import clearance and duty:
- DAP: the seller delivers to the named place, the buyer clears import, pays duty and import taxes.
- DDP: the seller clears import and pays duty; the buyer usually just receives the goods.
DDP is the easiest for a buyer and needs three things from a seller: the ability to act as importer or appoint a compliant broker, the cash flow to carry duty and taxes, and the ability to meet destination labelling and compliance requirements. Where any one is missing, DDP is a term written on a quotation that cannot be performed.
For the buyer, DDP is not cost-free either. Duty and taxes sit inside the unit price, and sellers normally add risk and financing cost. Compare DDP with DAP on landed cost, not on unit price.
Why quotes under different terms cannot be compared
Put FOB, CIF, DAP and DDP in one table and compare unit prices and the conclusion is meaningless, because each number covers a different scope. Convert the quotes to one term first, or compare landed cost directly:
| Cost item | FOB | CIF | DAP | DDP |
|---|---|---|---|---|
| Product and packaging | included | included | included | included |
| Export clearance | included | included | included | included |
| Main freight | excluded | included | included | included |
| Insurance | excluded | minimum cover | usually included | usually included |
| Import clearance | excluded | excluded | excluded | included |
| Duty and import taxes | excluded | excluded | excluded | included |
DAP and DDP do not oblige the seller to insure. “Usually included” in the table describes common practice where the seller covers its own risk, not an Incoterms obligation.
For wire and metal home storage, which is bulky and relatively light, freight is a large share of landed cost, and volume can matter more than a small difference in unit price. That is why the same rack can sit far apart on FOB and DDP: the gap comes from what each number includes, not from factory margin.
Ask the supplier to break a quote into product, packaging, export charges, main freight, insurance, destination charges and duty. A quote that breaks down can be compared. A single total cannot.
When these terms do not fit
- The buyer has its own forwarder or a consolidation plan. FOB or FCA usually fits better; CIF takes freight control away from the buyer.
- Cargo moves by air or courier. FOB and CIF do not apply; use FCA, CPT, CIP or DAP.
- The seller cannot clear import. Do not accept DDP. Use DAP and write the import responsibility down.
- The buyer needs all risks or specific additional cover. Do not assume CIF covers it; specify the cover in the contract.
- Destination has special labelling or compliance requirements. Under DDP the seller carries them, and the boundary still belongs in the contract.
Next steps
- The 11 inputs an RFQ needs: dish rack RFQ checklist.
- Why freight matters so much on this product type: KD versus welded wire racks.
- Work through a real carton: WH-1001 dish rack.
- Have a quote and want the terms checked: contact us.
