Incoterms decide who pays for what and where risk passes. FOB is the most common for project buyers because it lets you use your own forwarder and see the freight cost. CIF bundles freight and insurance but hides the margin. DDP is simplest but the most opaque, and it puts customs valuation in the seller hands.
FOB: buyer pays freight, insurance, duty and clearance.
CIF: seller pays freight and insurance to the port.
CFR: seller pays freight, buyer insures.
DDP: seller pays everything to site, but the cost is opaque.
Use one term per shipment and state it on the invoice.
1. What Incoterms do
Incoterms are three-letter rules that allocate cost, risk and responsibility between buyer and seller. They do not set the price; they set who pays which part of it. The same cabinet can be quoted FOB, CIF or DDP and the headline number will differ, even though the product is identical.
2. FOB, CIF, CFR, DDP compared
| Term | Seller pays | Buyer pays | Risk passes |
|---|---|---|---|
| FOB | To on board at origin port | Freight, insurance, duty, clearance | On board |
| CFR | Freight to destination port | Insurance, duty, clearance | On board |
| CIF | Freight and insurance to port | Duty, clearance, inland | On board |
| DDP | Everything to site | Nothing at import | At site |
The table is a simplification. The named place matters: FOB Shanghai is not FOB Ningbo, and DDP to a city address is not DDP to a port.
3. FOB in practice
Under FOB the seller delivers on board at the named port, and the buyer takes over from there. The buyer books freight, insures the cargo, pays duty and clears customs. That is more work, but it is transparent: every cost line is visible, and the buyer can compare forwarders.
4. CIF and CFR
CIF and CFR have the seller paying freight to the destination port. CIF also includes insurance; CFR does not. Both are convenient, but the freight is bundled into the product price, which makes it hard to see whether the freight rate is competitive. For a project buyer, that opacity is the main drawback.
5. DDP
DDP puts everything on the seller, including duty and clearance. It is the simplest for the buyer and the most opaque. The seller controls the customs valuation, which can create compliance risk for the importer of record, and the price rarely shows what duty was actually paid. Use it for small or one-off orders, not for projects where cost control matters.
6. Risk transfer and insurance
Risk passes at the named point, not at the destination. Under FOB and CIF, risk passes on board; under DDP, at site. Insurance should cover the gap between risk transfer and delivery, which is why the buyer under FOB must insure from the moment the goods are on board.
7. Choosing a term
For project buyers, FOB is usually the right default: it is transparent, it lets you use your own forwarder and it keeps the customs relationship in your hands. CIF suits buyers without a forwarder; DDP suits small orders where simplicity matters more than cost control. The landed cost guide shows how to compare them.
8. Common mistakes
Three mistakes recur: comparing an FOB price with a DDP price as if they were the same, forgetting insurance under CFR, and naming a port or place too vaguely. Each is easy to avoid by stating the term and the named place on the invoice and the packing list.
9. A checklist before you commit
Before you sign, confirm six things: the board grade, the hardware model, the finish system, the packing standard, the inspection scope and the payment schedule. Each should be in writing, not in a call. The quote checklist turns the six into a one-page comparison.
10. Common mistakes
The most common mistake is comparing a factory price with a landed cost. The second is leaving the inspection out of the budget. The third is paying the balance before the inspection is signed off. Each is avoidable with a written scope and a pre-shipment inspection.
11. How to measure the room
Measure each wall at three points, top, middle and bottom, and use the smallest. Walls are rarely square, and a 10 mm bow over three metres changes the filler. Measure the ceiling at each corner and note sockets, radiators and soil pipes before drawing. A measured survey saves more time than a faster drawing, and the measuring guide has a printable sheet.
Frequently asked questions
Which Incoterm is best for a project buyer?
FOB, because it lets you use your own forwarder, see the freight cost and control insurance. CIF bundles freight and insurance but hides the margin.
What does FOB mean exactly?
Free On Board: the seller delivers the goods on board the vessel at the named port. Risk passes at that point; the buyer pays freight, insurance, duty and clearance.
What is the difference between CIF and CFR?
Both have the seller paying freight to the destination port. CIF also includes insurance; CFR does not, so the buyer insures.
Is DDP easier?
It is simpler, because the seller handles everything to site. But the cost is opaque and the seller controls the customs valuation, which can create compliance risk for the importer.
Where does risk pass under FOB?
On board the vessel at the port of shipment. Before that, the seller carries risk; after that, the buyer does.
Can I mix Incoterms in one order?
Not within one shipment. Use one term per shipment, and state it on the invoice and the packing list.
