An Incoterm is three letters that decide who arranges transport, who pays for what, where risk passes from seller to buyer, and who has to be registered with a customs authority. Choosing the wrong one rarely stops a shipment. It just quietly moves cost and liability to a party that had not priced for either.
The short answer
FOB puts the buyer in control of the main carriage. DAP puts the seller in control but leaves import clearance with the buyer. DDP puts everything on the seller, including being importer of record in a country they may not be registered in. Buyers who import regularly should want FCA or FOB. Sellers offering a landed price should think hard before agreeing DDP.
FOB, Free on Board
The seller delivers the goods on board the vessel at the named port of shipment and clears them for export. Risk and cost pass to the buyer at that point.
- Seller pays: goods, packing, inland haulage to the port, export clearance, loading on board.
- Buyer pays: ocean freight, insurance, import clearance, duties and taxes, delivery.
- Risk passes: when goods are on board.
Important caveat: FOB is written for bulk and break-bulk, not containers. With a container you hand over at a terminal or container yard days before loading, so between handover and loading nobody is clearly carrying the risk. The correct term for containerised cargo is FCA, where delivery happens when the goods are handed to the carrier at the named place. FOB remains overwhelmingly the most used term for container trade anyway, out of habit. Knowing that it is technically the wrong tool is worth something when a claim arises for damage at the terminal.
DAP, Delivered at Place
The seller delivers to the named destination, ready for unloading. The buyer handles import clearance and pays duties and taxes.
- Seller pays: everything to the named destination, including export clearance and main carriage.
- Buyer pays: import clearance, duties and taxes, unloading.
- Risk passes: at the named destination, on arrival ready for unloading.
DAP is the sensible middle ground and is under-used. The seller controls the logistics they understand; the buyer retains the customs role they are already registered for. Two practical points: name the destination precisely, because "DAP Germany" is not a place, and remember that unloading is the buyer's, so a site with no forklift needs to be discussed rather than assumed.
DDP, Delivered Duty Paid
Maximum obligation on the seller. They deliver to the buyer's premises having cleared the goods for import and paid all duties and taxes.
- Seller pays: everything. Export clearance, freight, insurance, import clearance, duty, VAT, final delivery.
- Buyer pays: the purchase price and nothing else.
- Risk passes: at the buyer's named premises.
The trap in DDP is not cost, it is registration. DDP requires the seller to act as importer of record in the destination country. In many jurisdictions a non-resident company cannot simply do that: it may need VAT registration, a fiscal representative, or a local entity. Sellers routinely agree DDP without checking, then discover their forwarder cannot file an entry in their name. And where the seller cannot reclaim destination VAT, that VAT becomes an unrecoverable cost buried in the price.
DDP is genuinely right for B2C and ecommerce, where the buyer is a consumer who cannot be expected to clear customs, and for low-value samples where simplicity beats optimisation.
Side by side
- Export clearance: seller under all three.
- Main carriage: buyer under FOB; seller under DAP and DDP.
- Import clearance: buyer under FOB and DAP; seller under DDP.
- Duties and import VAT: buyer under FOB and DAP; seller under DDP.
- Unloading at destination: buyer under all three.
- Insurance obligation: none of these three obliges anyone to insure. Only CIF and CIP do, and only at minimum cover.
That last point surprises people. Under FOB, DAP and DDP there is no contractual duty on either party to buy cargo insurance, so uninsured cargo is a common and avoidable exposure. See how much cover to buy.
Choosing
Buy FOB or FCA if you import with any regularity. You see the real freight cost rather than a margin buried in the unit price, you choose the forwarder, and you control the schedule. The trade is that you now have to manage it.
Buy DAP if you want the seller to handle transport but you keep customs. Usually the right answer for a buyer who imports occasionally and is already registered.
Buy DDP if you want a single landed number and no involvement, accepting that you are paying for the seller's freight margin and their risk premium, and that you lose visibility of the underlying cost.
As a seller, be cautious of DDP into a country where you are not established, and never agree it without confirming you can legally be importer of record there. Whichever you choose, state the term with the named place on the quotation, the contract and the commercial invoice, and make sure all three agree; the documentation checklist covers why that consistency matters.
