When negotiating with international suppliers, two shipping terms come up more than any others: FOB (Free on Board) and DDP (Delivered Duty Paid). These Incoterms define who is responsible for shipping costs, insurance, customs clearance, and duties. Choosing the right one can save you thousands of dollars per shipment and significantly reduce your risk. Here is what you need to know.
What is FOB (Free on Board)?
Under FOB terms, the supplier is responsible for the goods until they are loaded onto the shipping vessel at the port of origin. Once the goods pass the ship's rail, responsibility transfers to you, the buyer. This means you arrange and pay for ocean freight, insurance, customs clearance at the destination, and last-mile delivery to your warehouse.
The main advantage of FOB is control. You choose the freight forwarder, the shipping line, and the insurance provider, which means you can negotiate your own rates and optimize your supply chain. Experienced importers who ship regularly often get better freight rates than their suppliers can offer. FOB also gives you visibility into every step of the journey since you are managing the logistics directly or through your own freight partner.
The downside is complexity. You need to understand customs procedures, coordinate with freight forwarders, manage documentation, and handle any issues that arise during transit. For newer importers, this can be overwhelming and mistakes can be costly -- incorrect customs declarations, for example, can result in delays, fines, or seizure of goods.
What is DDP (Delivered Duty Paid)?
DDP is essentially the opposite of FOB in terms of responsibility. The supplier handles everything: shipping, insurance, customs clearance, duties, taxes, and delivery to your specified destination. The price you are quoted includes all of these costs, giving you a single, predictable landed cost.
The key benefit is simplicity and predictability. You know exactly what each unit will cost delivered to your door, making it much easier to calculate margins and set pricing. There is no surprise customs bill, no freight invoice to reconcile, and no need to coordinate with multiple service providers. This makes DDP particularly attractive for businesses that are new to importing or that prefer to focus on selling rather than logistics.
However, DDP typically comes at a premium. Suppliers build in a margin on shipping costs and may not pass along the best freight rates. You also have less visibility and control over the shipping process, and if something goes wrong in transit, you are dependent on your supplier to resolve it.
Which Should You Choose?
Choose FOB When:
- •You ship frequently and have established freight relationships
- •Your order volumes justify negotiating your own shipping rates
- •You want full control and visibility over logistics
- •You have a customs broker or freight forwarder you trust
Choose DDP When:
- •You are new to international importing
- •You value simplicity and predictable landed costs
- •Your order sizes are smaller and do not justify managing freight
- •You prefer to focus on sales rather than logistics operations
Many businesses start with DDP to keep things simple and switch to FOB as they scale and build logistics expertise. At GWS, our managed logistics service gives you the best of both worlds -- we handle all shipping coordination, customs, and duties on your behalf, with full transparency on costs and real-time tracking. You get DDP-level convenience with FOB-level pricing.