Short answer: The three letters on a quotation decide who pays for what and, more importantly, where the risk sits. FOB puts the goods on board a vessel at the loading port; from there the buyer owns the freight, the insurance and everything that follows. CIF makes the seller pay the main freight and a minimum marine insurance to the destination port, but the buyer still carries the risk from the moment the goods are on board. DDP moves nearly everything to the seller, including import clearance and duty — which is exactly why it is the hardest term to use in a market with a mandatory conformity scheme. Pick the term by what you can legally do at the destination, not by the number at the bottom of the page.
This guide is written from the buyer’s side by an independent trading company — not a manufacturer, and not an appointed distributor of any brand — so it describes terms as they behave on a real electrical order rather than as a definition list.
What an Incoterm settles, and what it does not
An Incoterm from the Incoterms 2020 rules defines four things: where the seller delivers, where risk transfers to the buyer, who arranges carriage, and who clears export and import. It does not say anything about who owns the goods at law, when payment falls due, which law applies, or what the goods must be certified for. Those sit in the contract and in the destination’s regulations.
The most common mistake is to read a term as a price band. It is not. It is a split of duties, and the same goods can be quoted FOB and DDP with two different sets of obligations behind the number.
The four terms you will meet on an electrical order
| Term | Seller pays to | Risk passes | Import clearance and duty |
|---|---|---|---|
| FOB (named loading port) | Export clearance and delivery on board the vessel | When the goods are on board | Buyer |
| CFR (named destination port) | Export clearance and main freight to the destination port | When the goods are on board | Buyer |
| CIF (named destination port) | CFR plus minimum marine insurance | When the goods are on board | Buyer |
| DDP (named place) | Everything to the named place, including import duty | On delivery, ready for unloading | Seller |
Read the risk column twice. Under CIF the seller arranges insurance and pays freight, but the buyer’s risk begins on board — the buyer is the one with the cargo interest and should satisfy itself that the cover is adequate. Under CIF the required cover is the minimum, not the wide form; if the load is valuable enough to want all-risk protection, that is a conversation to have, not an assumption to make.
FOB, CFR and CIF are sea terms — the others cross over
FOB, CFR and CIF exist only for sea and inland-waterway carriage. For containerised cargo that is loaded and handed over at a terminal, the any-mode equivalent of FOB is FCA, and it often fits a stuffed container better: the seller delivers to the carrier, and the buyer’s risk begins there rather than at a notional ship’s rail. If your forwarder presents an FCA quotation next to an FOB one, that is not a mistake — it is a cleaner fit for a container that never travels loose.
Above DDP on the any-mode side sit DAP and DPU: the seller delivers to the named place, but the buyer clears import and pays duty. DAP and DPU are frequently the honest choice when the destination has a scheme that only a local entity can hold.
DDP and the importer-of-record trap
DDP is attractive because it looks like a single landed number. It becomes difficult the moment the destination requires a conformity document that only a party in that country can hold. On several of our markets, the buyer — or a local entity — must be the importer of record, and the seller cannot legally stand in that place:
| Market | What gets in the way of a seller-held DDP |
|---|---|
| Nigeria (SONCAP) | Conformity runs through a product certificate held by the exporter plus a per-shipment certificate; clearance sits with the importer |
| Saudi Arabia (SABER) | Conformity is split into a product certificate and a per-shipment certificate, raised in the importer’s account |
| Russia and the CIS (EAC) | The certificate applicant must be a legal entity inside the customs union |
| Egypt (GOEIC) | Registration sits with the overseas factory or trademark holder before goods can clear |
In these markets the workable structure is usually FOB or CIF to the port, with the buyer or its appointed agent clearing on its own registration — and the conformity paperwork prepared so that the importer can use it. The two-page decision on which of these applies to you is in which certificate does my country require; the market-by-market list is in import certificates by country. For the scheme-specific routes, see SONCAP for Nigeria and SASO SABER for Saudi Arabia.
Which term fits which order
| Your situation | Term that usually fits | Why |
|---|---|---|
| First order, testing the supplier | FOB | You keep control of the forwarder and see the real cost lines |
| You have your own freight contract | FOB or FCA | Your carrier, your cut-off, your rates |
| You want the seller to handle carriage and insurance | CIF | One invoice to the port, but check the cover is more than the minimum |
| Destination requires a local importer of record | FOB or CIF, buyer clears | A seller-held DDP cannot satisfy the registration rules |
| Destination is simple and you want one landed number | DDP, agreed in writing | Only where the seller can lawfully be the importer of record |
| Sample or spare-parts shipment | As agreed per shipment | Small shipments are usually quoted on the simplest term that clears |
The mistakes that cost the most
- Reading CIF as insurance certainty. CIF requires a minimum cover, and risk has already passed to the buyer on board. If you want all-risk protection, say so.
- Assuming DDP solves certification. It moves the duty, not the conformity scheme. If the destination needs a local registered importer, DDP does not remove that requirement.
- Using FOB for a container collected inland. For a stuffed container handed to a carrier, FCA is often the more accurate term.
- Treating the term as the whole contract. Payment terms, title, inspection rights and the certificate for the exact ordering code still have to be written down.
Because a mixed order usually travels as a set of cartons from more than one supplier, the practical question is rarely which single term applies — it is which term keeps the documents coherent when the load is put together. That is the other half of this, covered in mixed container consolidation and in CBM and weight for a mixed container.
FAQ
Q: Is FOB always cheaper than CIF?
A: Not necessarily — it depends on which freight rates each party can get. FOB is cheaper when your own forwarder has better rates; CIF is simpler when you would rather not arrange carriage. The decisive difference is control of the forwarder, not the headline price.
Q: What does DDP include that CIF does not?
A: Import clearance and duty. Under CIF the seller pays freight and minimum insurance to the destination port, but the buyer clears import and pays duty, and the buyer carries the risk from when the goods are on board. DDP moves clearance and duty to the seller, and risk passes on delivery at the named place.
Q: Can you quote DDP to my country?
A: Sometimes, and it depends on whether the destination can be cleared by us or needs an importer of record in the country. Where a conformity scheme requires a local holder — as in Nigeria, Saudi Arabia, Russia and Egypt — the working structure is FOB or CIF with your side clearing. Tell us the destination and we will say which applies.
Q: Who insures the goods under CIF?
A: The seller arranges a minimum marine cover and pays for it, but the buyer holds the cargo interest and the risk from the moment the goods are on board. If you need wider cover than the minimum, arrange it or ask for it in writing before shipment.
Q: Do Incoterms decide when I own the goods?
A: No. Incoterms deal with delivery, risk, carriage and clearance. Ownership and payment timing are set by the contract, so the sale agreement and the Incoterm are two separate documents doing two separate jobs.
Q: Which term should a first-time importer choose?
A: FOB is the usual starting point, because it keeps the freight in your hands and shows you the real cost lines. Once you know your markets and your forwarder, CIF or DDP can be convenient — but only where the destination’s rules allow the seller to stand in the importer’s place.
Related: Mixed container consolidation · CBM and weight for a mixed container · Importing circuit breakers from China · Which certificate does my country require · Import certificates by country · Request a quotation