FOB, CIF or DDP: Who Pays for What on a Canton Fair Order

Three Terms, Three Different Bills

A quotation from a Chinese exporter usually carries one of three sets of letters. FOB means the price stops at the port in China. CIF means it also covers ocean freight and insurance to your port. DDP means it covers everything including duty, all the way to your address.

What buyers consistently misread is that these terms divide costs and risk separately. FOB is cheap because it hands you the expensive half — the ocean leg, the destination charges, the clearance, the delivery. It is not a discount; it is a boundary. Knowing where the boundary sits is the whole point of the term.

FOB: What the Supplier Pays, and Where Your Risk Starts

Under FOB the seller delivers the goods on board the vessel at the named port and handles export clearance. That is the entire obligation. Trucking to the terminal, terminal handling at origin, the ocean freight, destination terminal charges, import clearance, duty and inland delivery are all yours.

The risk transfers when the goods are on board, not when they reach you. From that moment the cargo is at your risk, which is why a cargo insurance policy is not optional on FOB terms — and why the buyer, not the supplier, has to arrange it.

CIF: The Insurance Is Minimum Cover

CIF adds ocean freight and marine insurance to FOB, up to the named destination port. It stops at the port: unloading, terminal charges at destination, import clearance, duty and delivery are still the buyer's.

The detail worth knowing is the insurance. Under CIF the seller's obligation is minimum cover, conventionally 110 percent of the invoice value on Institute Cargo Clauses (C). That is a named-perils policy: it responds to the ship sinking, catching fire or colliding, and it does not respond to a container that took on water, cargo that was dropped during handling, or theft from a terminal. Buyers who want that protection buy their own policy on broader clauses, and it costs less than most people assume.

DDP: Convenient, and Not Always Possible

DDP is the term that reads best to a buyer who wants one number. The seller clears export, pays freight and insurance, clears import, pays duty and delivers to the named place. It is genuinely convenient for small, straightforward shipments to markets where the seller has a compliant route.

It is also the term that most often goes wrong, for four reasons.

• The seller cannot legally be the importer. Many countries require a local tax registration, an EORI number, a VAT number or a licensed importer of record. A Chinese factory does not have those, so the DDP is executed through a third party whose name is on the entry — and your name is not.
• The duty estimate is a guess. A DDP price includes duty at a rate the seller assumed. If customs classifies the goods differently, someone absorbs the difference, and it is usually resolved after delivery by an invoice you did not expect.
• You lose visibility. The entry is not in your name, so you cannot see the classification, the valuation or the duty actually paid — records you may need for your own tax filings.
• Regulated goods are excluded. Batteries, food, cosmetics, medical devices and toys with mandatory certification frequently cannot travel DDP because the compliance obligations belong to the importer, not the shipper.

DDP works well as a term for samples and small parcels. It works badly as a term for a first container into a market you have never imported into.

Who Pays for What

Simplified for the three terms buyers meet most often at the fair. Incoterms also include EXW, FCA, CFR, CPT, CIP, DAP and DPU, each with its own boundary; ask which one a quotation actually uses rather than assuming.

Which One to Choose

Choose FOB when you have, or intend to appoint, a forwarder who works for you. It gives you the routing, the rate and the visibility, and it is the standard for buyers who ship regularly. The cost is that you also own the coordination.

Choose CIF when the supplier has materially better freight rates than you can get, which happens on some lanes and some volumes, and when you accept that the insurance is thin. Then insure it properly yourself on top.

Choose DDP when the shipment is small, the destination is one where the seller genuinely has a compliant route, and the goods are unregulated. Treat it as a convenience for parcels, not as a strategy for containers.

And in every case, price the whole chain before comparing. A FOB quote at 100 plus your own freight, insurance, destination charges and duty is not comparable to a DDP quote at 145 until both are landed costs — and the distance between them is where buyers discover they saved money on the wrong line.

The Trap in a Very Cheap Quote

When one quotation is far below the others on the same goods, the difference is rarely generosity. Three structures account for most of it.

• Under-declared value. The invoice shows a fraction of the price to reduce duty. The saving is real until an examination reassesses it, at which point the penalty, the storage and the record land on the importer of record.
• Charges moved to destination. A low freight rate with a destination handling charge three times the normal figure. The total is the same or worse, and it is paid in a currency you did not budget in.
• A term that is not what it says. A quotation labelled DDP that stops at the port, or a CIF that excludes the origin terminal handling. Ask for the term plus the named place, written out, on the quotation itself.

The question that exposes most of this is simple: "Which Incoterms 2020 term is this, and at which named place does your responsibility end?" A supplier who answers that clearly is a supplier who has shipped before.

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