These three terms are used the most, and are also the easiest to mix up. Look at booking, payment, insurance and customs clearance as four separate matters, and the boundaries of responsibility become clear immediately.
One-sentence definitions of the three terms
FOB: The seller delivers the goods to the port of shipment and loads them on board; everything after that belongs to the buyer.
CIF: The seller pays the main freight and insurance to the port of destination, but risk transfers when the goods are loaded on board at the port of shipment.
DDP: The seller delivers to the destination, completes import customs clearance and pays all duties and taxes; risk transfers only at the destination.
Key difference: Under CIF the seller pays all the way to the port of destination, yet risk passes to the buyer early; under DDP the seller carries both cost and risk all the way to the end.
Responsibility boundaries in one table
| Item | FOB | CIF | DDP |
|---|---|---|---|
| Main carriage booking | Buyer | Seller | Seller |
| Main freight | Buyer | Seller | Seller |
| Cargo insurance | Buyer (not mandatory) | Seller (minimum ICC(C)) | Seller (not mandatory, usually self-insured) |
| Export declaration | Seller | Seller | Seller |
| Import clearance | Buyer | Buyer | Seller |
| Import duties | Buyer | Buyer | Seller |
| Point of risk transfer | Loaded on board at port of shipment | Loaded on board at port of shipment | Delivery at destination |
The biggest misconception about CIF: insurance is not risk
Under CIF the seller buys insurance, but risk passes to the buyer the moment the goods are loaded on board at the port of shipment.
So if something happens to the cargo at sea, it is the buyer who claims with the policy, not the seller.
The insurance the seller is required to take out is only the minimum ICC(C) cover, which covers major incidents only; ordinary knocks and damp damage are not included.
If the buyer feels the cover is insufficient, it can take out additional insurance itself, or ask the seller to switch to ICC(A) all-risks cover.
Why DDP is the hardest to do
Under DDP the seller bears import clearance and all duties and taxes in the destination country, the heaviest responsibility of all.
The seller usually has no import entity status in the destination country and needs to arrange a separate customs clearance channel.
US tariff tiers are complex, so DDP quotations easily become inaccurate and often need frequent re-quoting.
If tariff policy changes, a DDP price already quoted can turn straight into a loss.
How to choose: look at three things
| Scenario | Recommended term | Reason |
|---|---|---|
| First cooperation, want to control risk | FOB | Seller's responsibility ends at loading on board, clear boundary |
| Buyer has a stable import channel | FOB | Buyer controls the transport itself |
| Want convenience, cargo value not high | CIF | Seller covers freight and insurance, less for the buyer to worry about |
| Buyer has no import qualification | DDP | Seller covers everything, but the seller bears the greatest risk |
Four pitfalls that are easy to fall into
Duties are not listed separately in the DDP quotation, leading to disputes over supplementary charges later.
Treating CIF as "everything is handled on arrival", ignoring that destination port charges still fall to the buyer.
Under FOB the buyer delays booking, the cargo sits at the port and detention charges arise.
The contract only states the term abbreviation, without the version or the named place.
