What each Incoterm actually transfers, why FOB is the usual default out of China, and what a DDP price hides when you compare it against an FOB one.
The term moves risk and cost, and nothing else
Incoterms are published by the ICC and the current set is Incoterms 2020. A term names the moment delivery happens, who arranges and pays for each leg, and who carries the risk of loss or damage on either side of that moment. It says nothing about when title passes, when payment is due, or how a dispute is resolved — those live in the sale contract, and a purchase order naming only a term has left most of itself unwritten. A term is also incomplete without a named place and the rule version, because FOB Ningbo and FOB Shanghai are different obligations.
- Write the term, the named place and the version: FOB Shenzhen (Incoterms 2020)
- Title, payment terms and dispute resolution are contract matters, not Incoterm matters
- Only CIF and CIP oblige the seller to insure; under every other term, cargo insurance is yours to arrange or to go without
EXW, FOB and DDP out of China
Under EXW the goods are made available at the supplier's premises and everything after that is yours — loading, inland transport, export formalities and freight, including export clearance in a country where you have no presence. Under FOB the supplier clears the goods for export and delivers them on board the vessel you nominate, and risk passes at that point; FOB is a sea and inland-waterway term, so seeing it quoted for an air or courier shipment usually means the quote was written from habit. Under DDP the supplier delivers to your named destination with import duty and taxes paid, which is the maximum obligation a seller can take on.
- EXW: lowest headline number, most obligations — including an export clearance you cannot easily perform yourself
- FOB: supplier handles export clearance and delivery on board; you choose the forwarder and control the main leg
- DDP: one delivered figure, but the supplier is arranging clearance in a market where it may not be able to act as importer of record
Why a DDP number is hard to compare and easy to prefer
A DDP quote is a single figure covering goods, freight, duty and clearance, so it cannot be set against an FOB quote without being split back apart — and a supplier quoting DDP has estimated a duty rate for your market, which is your customs broker's determination to make rather than theirs. The practical risks are documentary rather than dramatic. Goods entered under someone else's arrangement can leave you without the import records you need to recover VAT or to evidence compliance later, and if a shipment is held, the party who can answer customs is not you. DDP suits low-value, repeat, uncomplicated shipments where convenience outweighs opacity. For anything you have to account for, quote FOB and build the landed cost yourself.
- Ask for any DDP quote to be broken into goods, freight, duty and clearance before comparing it
- Confirm who is named as importer of record, and which records you will actually receive
- Duty rates come from your broker; a supplier's estimate is not a classification
Authoritative references
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