What Incoterms Do — And Don’t
Define delivery point, risk transfer, who pays what (cost responsibilities).
Do not define ownership/title transfer, payment terms, or when you get paid.
Quick Definitions
FOB (Free On Board) — Port of Shipment
Seller handles export clearance and loading on the vessel at the origin port; risk transfers when goods are on board.
DAP (Delivered At Place)
Seller pays to deliver goods to the named place at destination; risk transfers there; buyer handles import clearance and duties/taxes.
DDP (Delivered Duty Paid)
Seller pays for delivery to the named place and handles import clearance plus duties/taxes; highest seller responsibility.
Responsibility & Risk Matrix (FOB vs DAP vs DDP)
| Task / Risk | FOB | DAP | DDP |
| Export customs (China) | Seller | Seller | Seller |
| Main carriage (ocean/air) | Buyer | Seller | Seller |
| Insurance (optional) | Buyer | Buyer/Seller (agree) | Buyer/Seller (agree) |
| Import customs entry | Buyer | Buyer | Seller |
| Duties & taxes | Buyer | Buyer | Seller |
| Final delivery (named place) | Buyer | Seller | Seller |
| Risk transfer point | On board at origin port | At named place (before import clearance) | At named place (after import clearance) |
Note: DDP requires a compliant Importer of Record (IOR) setup in the destination.
Cost Transparency — What to Ask in Quotes
For FOB
Buyer must price: ocean/air freight, destination charges, customs, duties/taxes, delivery.
For DAP
Confirm what’s included at destination (terminal, handling, delivery) and what’s excluded (customs, duties/taxes).
For DDP
Ask for itemized landed‑cost (freight + destination + customs brokerage + duties/taxes + any disbursement fees). Confirm IOR responsibility and product compliance costs.
Decision Factors
Compliance & IOR/EORI/VAT Readiness
If buyer has destination compliance and wants control, DAP/FOB can fit.
If buyer lacks local entity/IOR, DDP may be considered for eligible goods via a vetted IOR solution.
Cash Flow & Budgeting
DDP gives a single landed cost but shifts duty/VAT cashflow to the seller.
DAP/FOB leave duties/VAT to the buyer, improving seller cash flow.
Control & Visibility
FOB gives buyer full control over freight and destination handling.
DAP/DDP offer the buyer convenience; seller (or seller’s forwarder) controls logistics.
Product & Risk Profile
High‑risk/compliance‑heavy goods (batteries, cosmetics, food, RF devices) often safer under DAP/FOB with the importer handling regulatory steps.
Common Use‑Case Scenarios
Amazon FBA Sellers (US/UK/EU)
Prefer DAP to the FC or DDP for low‑value parcels where compliant (EU IOSS ≤ €150; US Section 321 ≤ $800). Ensure labels/appointments handled.
New Importers Without Local Entity
DDP can work if a legitimate IOR solution exists and goods are eligible; avoid misdeclaration or “borrowed” IDs.
Experienced B2B Importers
FOB or DAP to maintain carrier choice, routing control, and brokerage relationships.
Samples and Urgent Launches
DAP by air for speed and predictability; buyer pays duties/VAT at arrival.
Compliance Watch‑outs by Destination
United States
ISF 10+2 for ocean; customs bond for formal entries; Section 301 tariffs may apply; Section 321 de minimis for low‑value B2C.
European Union
VAT/EORI; safety & security filings handled by carrier/forwarder; EPR (packaging/WEEE/battery) may apply; IOSS for B2C ≤ €150 (not for B2B).
United Kingdom
GB EORI, import VAT (PVA available), UK customs via CDS; £135 B2C VAT rule (VAT at point of sale); do not confuse with EU IOSS.
Red Flags and Mistakes to Avoid
“DDP” that relies on undervaluation or wrong HS codes.
No IOR clarity; using consignee’s ID without consent.
DAP quotes that hide destination terminal/handling surcharges.
FOB with unclear origin fees or export documentation.
FAQs
Is DDP legal?
Yes—DDP is an official Incoterm. It’s compliant only when import declarations, duties/taxes, and product regulations are correctly handled by a legitimate IOR or agent.
Can the seller be the IOR?
Sometimes via a local entity or a vetted IOR service; not for restricted goods or where regulations prohibit third‑party IOR.
Which term is best for first‑time buyers?
DAP or DDP for simplicity; FOB if the buyer already has a forwarder and broker.
Do Incoterms determine when I get paid?
No—payment terms are separate (e.g., LC, TT); Incoterms define delivery/risk/cost responsibilities.
Sources
ICC Incoterms overview: https://iccwbo.org
U.S. CBP import basics: https://www.cbp.gov/trade/basic-import-export
EU VAT/IOSS: https://taxation-customs.ec.europa.eu/ioss_en
UK importing goods & VAT: https://www.gov.uk/import-goods-into-uk