What does FOB mean in shipping?

FOB stands for Free On Board. Under FOB terms, the supplier's responsibility ends when goods are loaded onto the vessel at the origin port. From that point, the buyer is responsible for freight costs, insurance, and any loss or damage that occurs during transit. FOB gives buyers more control over carrier selection and freight rates but requires them to actively manage bookings and coverage.

What is the difference between CIF and FOB?

Under FOB (Free On Board), the buyer arranges and pays for freight and insurance from the origin port. Under CIF (Cost, Insurance, and Freight), the supplier pays to ship goods to the destination port and arranges insurance. The key downside of CIF is that the supplier typically purchases minimum insurance coverage under Institute Cargo Clauses C, which covers only a narrow list of named perils. Buyers also lose the ability to negotiate their own freight rates under CIF.

What does DDP mean in international shipping?

DDP stands for Delivered Duty Paid. Under DDP terms, the supplier handles all logistics including freight, customs clearance, import duties, and final delivery to the buyer's location. While this appears convenient, the supplier estimates duty costs and adds a margin on top of that estimate, meaning buyers often pay more than the actual duty without visibility into the true breakdown. DDP became risky for buyers when tariffs shifted sharply in 2018 and 2022.

Which Incoterm is best for importers?

There is no single best Incoterm for all importers. FOB gives buyers the most control over freight costs and insurance but requires active management of bookings and coverage. CIF is simpler but provides limited insurance and less freight flexibility. DDP removes all logistics burden but at a cost premium and with no visibility into actual duty charges. The right choice depends on your team's logistics capability, the value and sensitivity of the goods, and current trade tariff conditions.

What is Institute Cargo Clauses C and why does it matter under CIF?

Institute Cargo Clauses C is a minimum-coverage marine insurance policy that covers only a specific named list of perils such as fire, explosion, stranding, sinking, or collision. It does not cover general average contributions, theft, water damage from rain or condensation, or many other common causes of cargo loss. Under CIF terms, suppliers typically purchase this minimum coverage. If cargo is damaged by a cause not listed in Clause C, the buyer may have no recourse — despite having paid for insurance as part of the CIF price.

Incoterms Cheat Sheet: FOB, CIF, DDP Explained

Yuneva Stock Count
May 31
2 min read

Cargo shipping container on ocean vessel illustrating FOB CIF DDP Incoterms risk transfer

A container goes overboard in the South China Sea. Or clears customs with a $40,000 duty bill nobody budgeted for. Or arrives at your dock damaged and nobody can agree whose insurance pays. In every one of those situations, the first question is the same: which Incoterm was on the purchase order?

FOB — Free On Board — means the supplier's job ends when the goods are loaded onto the vessel at the origin port. From that moment, the risk is yours. You're paying freight, you're arranging insurance, and if that ship hits a storm, the loss is your problem. FOB is common in ocean freight because importers often have better freight rates than their suppliers. It gives you control, but it means you actually have to use that control — booking carriers, getting coverage, tracking the shipment.

CIF — Cost, Insurance, and Freight — flips part of that. The supplier pays to get the goods to your destination port and they arrange the insurance. Sounds easier. The catch is that the insurance they buy is usually minimum coverage, something like Institute Cargo Clauses C, which covers a narrow list of named perils. If your goods arrive damaged by something that isn't on that list, you're arguing with a policy you didn't write and didn't choose. CIF also makes it harder to shop your freight, since the supplier controls the booking.

DDP — Delivered Duty Paid — is the one that looks like a dream on paper. The supplier handles everything: freight, customs clearance, duties, delivery to your door. Your team just receives the shipment. The risk here is buried in the math. Suppliers pricing DDP are estimating what duties will be, and they're building margin on top of that estimate. You often pay more than the actual duty cost and have no visibility into what you're actually being charged. When trade tariffs shifted hard in 2018 and again in 2022, a lot of DDP buyers found out exactly how little control they had.

None of these is the right answer for every situation. What matters is knowing which one you're operating under before freight moves, not after something goes wrong.

More on the operational side of supply chain at www.yuneva.com. If your team is counting inventory on clipboards, there's a better way at www.count-inventory.com.

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Incoterms Cheat Sheet: FOB, CIF, DDP Explained

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