A trade term is not a three-letter decoration on a quotation. It decides who books the space, who insures, who clears customs, where risk passes, and who pays when something goes wrong. These are the six questions we are asked most before a quote is issued.
Q1. What is the difference in one line?
FOB — the seller delivers on board; risk and cost pass there; the buyer books the main carriage, insures and clears import. CIF — the seller pays freight and insurance to the destination port, but risk still passes on board. DDP — the seller delivers to the door, clears import and pays duty and import tax. DDU / DAP — the seller delivers to the door, but the buyer clears and pays import charges.
| Term | Risk passes | Main carriage | Insurance | Import clearance and duty |
|---|---|---|---|---|
| FOB | On board | Buyer | Buyer | Buyer |
| CIF | On board | Seller to destination port | Seller, minimum cover | Buyer |
| DDP | At destination | Seller | Seller | Seller |
| DDU / DAP | At destination, uncleared | Seller | Seller | Buyer |
Q2. Under CIF, is the seller done once the cargo reaches the port?
No. CIF means the seller pays freight and insurance to the destination port; risk passes when the goods are on board. The insurance is normally minimum cover (Institute Cargo Clauses C). Discharge, storage, clearance and onward transport at destination sit with the buyer, who also arranges import entry and pays duty.
Q3. Why are DDP and DDU so often confused?
Both deliver to the door. The difference is who stands in front of customs. Under DDP the seller, or its forwarder, is the importer of record and pays duty and import VAT; under DDU (now normally written DAP) the buyer does. The confusion comes from quotes labelled “DDU, tax included”, which is not DDU at all.
Q4. What does the buyer carry under FOB?
Booking, ocean or air freight, insurance, destination port charges, import clearance, duty and VAT, and the inland leg to the door. FOB suits a buyer with an importer number and a carrier contract. Without either, DDP or DAP is usually calmer.
Q5. Can one shipment mix two terms?
Not inside one contract. “FOB Shanghai plus DDP Los Angeles” sounds tidy, but it splits responsibility in the middle and leaves both sides arguing when a delay or a damage claim arrives. The workable structure is two contracts: one FOB to the port, one DAP or DDP to the door, each with its own risk point.
Q6. Where does customs compliance usually fail?
- HS classification: one chapter wrong changes the duty rate and the regulatory conditions
- Declared value: undervaluation is the most common penalty; related-party prices need support
- Origin: it decides additional duties and marking; assembly is not origin
- Document consistency: invoice, packing list, bill of lading and entry must tell the same story
- Product compliance: FDA, FCC, CPSC, CE or UKCA depending on the goods
- Sanctions and denied-party screening: cheaper before shipping than after
Q7. What happens when the term is written wrongly?
Three common outcomes: a risk gap where nobody insured the leg, duty paid twice because both sides acted as importer, and a declaration that does not match the documents. Insurers also decline claims when the term in the contract contradicts the term on the transport document.
How to choose: three questions
- Who has the importer number and tax registration? If yes, FOB, CIF or DAP. If no, DDP.
- Who should carry the transit risk? High value or complex routing usually justifies the seller doing more (CIF, DAP).
- Who gets the better freight rate and clearance resource? Let that side carry more of the chain.
Before a term goes into a contract, put three things on the quotation: the point where risk passes, the point where costs split, and who is responsible for clearance. Three lines are cheaper than a month of argument.
If you want a term-by-term comparison for a specific shipment, or a check on how a contract already reads, send the origin, destination and cargo value to us on WhatsApp and we will answer in writing.