FOB, CIF, DDP: What Those Letters on Your Quote Actually Mean

FOB, CIF, DDP: What Those Letters on Your Quote Actually Mean

Why two quotes for the same boxes can look completely different, and how to compare them properly.

Here's a situation I run into all the time. A buyer gets a quote from us and a quote from another factory for what's basically the same box, and ours looks more expensive. They come back a little suspicious, asking why we're higher. Then we look closer, and it turns out the other quote was FOB and ours was DDP. We weren't more expensive at all. We'd just included the shipping, the duties and the delivery to their door, and the other factory hadn't. On paper their number was smaller. In reality it wasn't.

Those three-letter terms on your quote, FOB, CIF, DDP and the rest, are called Incoterms, and they trip up almost every first-time importer. They look like alphabet soup designed to confuse you. They're not. They're just a way of dividing up one simple question: along the journey from my factory to your warehouse, who pays for which part, and where does the handoff happen? Once you see them that way, the whole thing gets a lot less intimidating.

Let me walk you through the ones that actually matter for ordering packaging.

The one idea that makes all of this click

Before the letters, the single most useful thing I can tell you: the number that matters is your landed cost. That's the total it takes to get the boxes sitting in your warehouse, ready to use. Everything else is just a question of which of those costs are baked into the quote and which you'll pay separately later.

A low quote with a term that stops at the port isn't cheaper. It just hands you the rest of the bill afterward. So when you compare suppliers, never compare a sticker number against a different term. Get everything onto the same basis, ideally all the way to your door, and then compare. That one habit will save you more money and more nasty surprises than anything else in this article.

EXW, cheapest on paper, most work for you

EXW (Ex Works) means the price covers the boxes, and that's it. They're sitting at our factory and everything from there is yours: arranging a truck, handling Chinese export clearance, booking the ocean freight, insurance, import duties, all of it.

The quote looks fantastic because it's the smallest possible number. But unless you have people who genuinely know how to handle export formalities out of China, EXW is usually more headache than it's worth. I rarely recommend it to anyone ordering from overseas for the first time. The low number is real, but so is everything it leaves out.

FOB, the China default

FOB (Free on Board) is the most common term in China export, and for good reason. We handle getting the goods to the port, loaded onto the vessel, and cleared for export. From the moment they're on the ship, it's your side: ocean freight, insurance, and everything at the destination.

FOB works really well if you already have a freight forwarder you trust, because they take over at the port and manage the rest for you. A lot of experienced buyers prefer it precisely because it gives them control over the shipping leg and their own negotiated freight rates. If you don't have a forwarder yet, FOB means you'll need to find one, which brings us to the terms where we carry more of the load.

CIF, we get it to your port, but read this carefully

CIF (Cost, Insurance, Freight) means we arrange and pay the ocean freight and insurance all the way to your destination port. That sounds close to "delivered," and here's the misunderstanding I have to clear up constantly: it isn't.

With CIF, the goods arrive at your port, and from there it's still on you. You handle import customs clearance, you pay the import duties and taxes, and you arrange the last leg from the port to your warehouse. CIF takes the ocean shipping off your plate, which is genuinely helpful, but it stops at the water's edge of your country. If you sign off on a CIF quote thinking boxes will appear at your door, you're going to be surprised at the port. I'd rather tell you now than let you find out then.

DDP, confirm the named delivery point and import responsibilities

Under DDP, the seller is responsible for delivery to the named destination and the applicable export and import formalities, duties and taxes. Check whether the seller can meet those obligations in the destination country. Agree the delivery point, unloading arrangements and any separate insurance requirement in the contract; DDP itself does not require the seller to arrange insurance.

Compare the proposed DDP quote with other terms on the same destination and shipment specification. Ask for the named delivery point, customs and tax treatment, unloading arrangements, insurance scope and any separately agreed charges to be stated before accepting the quote.

The two costs that ambush people

Check import charges and the final delivery leg against the selected rule and named place. The allocation depends on the agreed term and contract; ask which charges are included in this quotation and which responsibilities remain with each party.

Import duties, taxes and local delivery charges need to be checked for the destination and the agreed shipment. Ask which charges are included in the written quotation, who handles customs clearance and how delivery from the named destination to your premises will be arranged. The applicable charges and responsibilities should be confirmed for that order.

So which term should you pick?

If you want the supplier to arrange more of the delivery route, ask which terms are feasible for your destination. Compare the quoted costs, responsibilities and risk-transfer point before choosing.

If you've imported before and you have a freight forwarder you like, FOB usually gives you the best control and often the best total cost, because you're running the shipping leg yourself on your own rates.

Tell us the delivery destination, shipping mode and where you want to take responsibility for the goods. Ask for the agreed Incoterms rule, named place or port, version, quoted charges and any exclusions to be stated in writing.