FOB and DDP are not two prices for the same thing. They are two different points where your risk and your control begin. Under FOB the seller’s job ends when the goods are on the vessel, and everything after that port is yours to arrange and pay for. Under DDP the seller delivers to a named place in your country with import duty paid. The goods are identical; the exposure is not.
Stage by stage, under Incoterms 2020
| Stage | FOB (named port of shipment) | DDP (named place of destination) |
|---|---|---|
| Export clearance | Seller | Seller |
| Inland haulage to port | Seller | Seller |
| Loading on board | Seller | Seller |
| Ocean or air freight | Buyer | Seller |
| Marine insurance | Buyer (usually) | Seller |
| Import clearance | Buyer | Seller |
| Import duty and taxes | Buyer | Seller |
| Delivery to final address | Buyer | Seller |
| Risk transfers | When goods are on board at origin | At the named destination place |
| Who is importer of record | Buyer | Seller or its agent |
Source: the ICC Incoterms 2020 definitions of FOB and DDP. The named place matters – “DDP” without a destination address is not a term, it is an intention.
The two fields a DDP quote should always disclose
DDP is attractive because it produces a single landed number. That is also its weakness: duty is calculated from an HS code and a declared value, and both can be wrong. A quote that shows a total without showing its inputs cannot be checked, and cannot be compared with a competitor’s.
- The HS code the duty was calculated on. Ask for it in writing. The code decides the rate, and a misclassified product can be assessed differently on arrival – which either lands on the seller’s margin or was already padded into your price.
- The duty rate used, and the freight basis. A rate without a date goes stale; freight moves weekly. Ask what happens if duty is assessed higher than quoted, and get the answer in writing before the order, not after the container.
The other terms you will see quoted alongside them
FOB and DDP are two points on the same line. Knowing where the other common terms sit makes the comparison obvious.
| Term | The seller’s job ends | You then pay for |
|---|---|---|
| EXW | At the factory gate | Inland haulage, export clearance, freight, import, delivery |
| FOB | On board at the port of shipment | Freight, insurance, import clearance, duty, delivery |
| CIF | Arrived at the destination port, freight and insurance paid | Import clearance, duty, delivery from the port |
| DDP | At your address, duty paid | Nothing – the price is landed |
Source: ICC Incoterms 2020. CIF covers the goods to the destination port but does not move the risk point there – risk still passes when the goods are on board at origin, which surprises buyers who read the three letters as a guarantee.
The insurance gap on FOB
Under FOB the risk moves to you the moment the goods are on board – not when the vessel arrives, and not when the container is opened at your warehouse. A buyer who arranges insurance from arrival, or from the date the goods are expected, is uninsured for the part of the journey where losses actually happen. Insure from the loading date to your address, and keep the certificate with the shipment documents.
Which one to choose
One pattern worth knowing before you choose: DDP is easier on the first order and harder to scale. Once volume is regular, buying FOB and running your own freight account usually costs less and shows you the actual freight and duty you are paying. Many importers start on DDP and move to FOB in the second year, once they have a forwarder and a customs relationship of their own.
FOB suits a buyer who already has a freight forwarder, ships regularly, and wants to see and control the import charges directly. DDP suits a first order, a buyer without a customs relationship, or anyone who would rather pay one number and not manage a broker. Neither is more professional; they place the work in different hands.
Two practical notes. Under FOB you own the risk from the moment of loading, so insure from that point – not from arrival. Under DDP the importer of record is the seller or its agent, which means the customs entry is not in your name; if you need that record for your own accounting or a future claim, ask for a copy as part of the document set.
What to fix in writing, whichever you pick
- The Incoterm and the named place, spelled out – a port for FOB, a full address for DDP.
- The HS code and who is responsible if it is assessed differently on arrival.
- Who is the importer of record, and what document proves it.
- The document set and when each document is released – in particular what releases the balance.
The document side of this is where orders are actually lost. What an inspection produces before shipment is in the inspection article, and the release mechanics are on payment security.
Four mistakes that cost money at this stage
- Quoting DDP without a destination address. DDP names a place. A quote that says “DDP” and stops there cannot be compared with anything.
- Assuming DDP means the seller carries the customs risk. The seller clears the goods, so the entry is not in your name. If you need that record for your own accounts, ask for it as part of the document set.
- Reading the gap between an FOB and a DDP quote as margin. The gap is freight, insurance, duty and delivery – costs you would pay anyway, just through a different account.
- Leaving the HS code to the last minute. The code decides the duty rate, and it is usually the buyer’s product knowledge that settles it. Decide it before the order, not at the port.
Comparing two quotes properly
Put the same specification, the same quantity and the same destination address in front of both suppliers, and ask each for the Incoterm, the named place, the HS code and the duty rate used. Then line them up as four separate numbers: goods, freight, duty, and the fee or margin. A single landed total with no breakdown cannot be compared with anything – and it is the format in which expensive mistakes hide.
Where your money sits at each stage
Whatever the term, the money is normally split: a deposit to start production, and the balance against documents before the goods are released. The Incoterm decides who pays the freight and the duty; the payment split decides when you part with cash. They are negotiated separately, and the second one is where your leverage sits – which is why the release condition belongs in writing before production starts, not after the inspection.
Two questions to settle before you accept either term
First: who is the importer of record, and what document will prove it? Second: what happens if duty is assessed differently on arrival – who absorbs the difference, and does the quote say so? A supplier who answers both in writing is one you can build a landed cost with. A supplier who answers neither has given you a price, not a term.
Before you ask, it is worth knowing how often Chinese companies publish these answers at all. We count that across 12,951 company records in our data section – it tells you which fields arrive without being asked for, and which ones you will have to request in writing.
How we quote it
Our fee is 5% of the order value and it appears as its own line on the quotation, so the goods cost and our fee are visible separately. Freight, duty and inspection are shown as their own lines with the third-party document behind each one, so every number on the page can be checked against a source rather than taken on trust. The rate and what it covers are on pricing, and where the money sits between order and delivery is on payment security.
Send the product, the quantity and the destination address. You will get the goods price and the terms laid out separately, so you can decide whether you want the freight arranged for you or handled on your own account.