In short: Incoterms are international rules that set out, in a sale, who pays for what (freight, insurance, customs) and at what point the risk passes from seller to buyer. For a retailer importing from China, the three most common are FOB (you handle everything from the port of departure), CIF (the seller pays freight and insurance to the port of arrival) and DDP (everything is handled up to your door, duties and taxes included). DDP is the simplest; FOB gives you the most control.
What is an Incoterm?
Incoterms® are published by the International Chamber of Commerce (ICC). The current version dates from 2020. Each Incoterm is a three-letter code followed by a place (for example "FOB Ningbo" or "DDP Brussels"). They do not set the price, but how costs and risks are shared.
FOB: Free On Board
The seller delivers the goods loaded on board the ship at the agreed port of departure. From that point, freight, insurance, customs clearance on arrival and delivery are your responsibility, and the risk passes to you.
Who is it for? Buyers who have their own freight forwarder and want to control shipping. Note: FOB applies to sea freight.
CIF: Cost, Insurance and Freight
The seller pays for sea freight and insurance to the port of arrival. But be careful: the risk passes to you as soon as the goods are loaded at the port of departure, just as with FOB. Customs clearance and final delivery remain your responsibility.
Who is it for? Those who want a price that includes freight while handling the arrival themselves. Note: the insurance provided is often minimal; check what it covers.
DDP: Delivered Duty Paid
The seller takes care of everything up to the agreed address: freight, insurance, customs clearance, import duties and taxes. You receive goods ready to sell.
Who is it for? Retailers who want simplicity and a cost known in advance. Note: check that the price really includes every cost up to your door.
Side by side
| FOB | CIF | DDP | |
|---|---|---|---|
| Main freight paid by | You | The seller | The seller |
| Insurance | You | The seller (minimal) | The seller |
| Customs and taxes on arrival | You | You | The seller |
| Risk passes | On loading | On loading | On delivery |
| Simplicity for you | ★ | ★★ | ★★★ |
Which one should you choose?
- You are starting out or want simplicity: DDP.
- You have a freight forwarder and want to optimise: FOB.
- You want to handle the arrival yourself: CIF, after checking the insurance.
Other Incoterms exist (EXW, CFR, DAP…). They are explained in our glossary.
Frequently asked questions
Does the Incoterm change the price? Yes, indirectly: a DDP price includes more services than a FOB price. Always compare quotes based on the same Incoterm.
Which Incoterm for air freight? FOB and CIF are designed for sea freight. For air, other Incoterms (such as FCA, CPT or DAP) are better suited.
Sources and useful links
- Incoterms® 2020 rules: iccwbo.org
- Import glossary: sourcetrium.com/glossary
General information, for guidance only. The official text of the Incoterms® is published by the ICC.
Would you rather receive your order without dealing with customs? We offer delivered duty paid (DDP) shipping. → Create my client space