What does FOB actually mean?
FOB stands for Free On Board. It is one of the eleven Incoterms rules published by the International Chamber of Commerce (the current set is Incoterms 2020), the standard trade terms that define exactly where the seller's job ends and the buyer's begins. An FOB price covers everything the factory does to get your goods onto the vessel at the named Chinese port: production, export packing, inland trucking to the port, export clearance, and loading. The instant the goods are on board, cost and risk pass to you.
From that point, the bill is yours: ocean freight, marine insurance, import duty and import VAT or GST at your end, customs clearance, and the final truck to your warehouse. FOB is always quoted with a port name, so you will see it written as FOB Shenzhen, FOB Ningbo, or FOB Shanghai.
One technical note. FOB is strictly a sea and inland-waterway term for goods physically loaded onto a ship. For a container handed over at a yard before loading, the precise Incoterm is FCA. In day-to-day China trade almost everyone still quotes and ships on "FOB [port]" by convention, so that is the word you will work with.
What does DDP actually mean?
DDP stands for Delivered Duty Paid, the maximum-obligation term in Incoterms 2020. The supplier quotes a single price and takes responsibility for delivering the goods all the way to your address with everything paid along the way: export clearance, freight, insurance, import duty, import VAT or GST, and customs clearance in your country. You unload the truck and you are finished. It is the closest a cross-border order gets to buying from a domestic supplier.
Who pays for what
The split is the whole point of choosing a term. Here is the same shipment under each:
- Production and export packing: seller pays on both FOB and DDP.
- Inland transport to the Chinese port and export clearance: seller pays on both.
- Loading onto the vessel: seller pays on both. This is where FOB ends.
- Ocean freight and insurance: you pay on FOB; seller pays on DDP.
- Import duty and import VAT or GST: you pay on FOB; seller pays on DDP.
- Customs clearance in your country: you arrange on FOB; seller arranges on DDP.
- Final delivery to your door: you pay on FOB; seller pays on DDP.
FOB hands you the goods at the rail of the ship. DDP hands you the goods at your loading bay. Everything between those two points is the difference.
Why FOB is the importer's default
For any order past the sample stage, FOB is the term most experienced importers use, for four concrete reasons.
- You see and control the freight. Ocean freight rates move constantly and a factory bundling freight into a DDP price has no reason to pass you the best rate. On FOB you put the same shipment out to your own forwarders and book the rate you choose.
- The customs declaration is in your name. You are the importer of record, so the goods are declared at their real value under the correct HS code, and the paper trail is yours. That matters the day customs has a question.
- You hold the bill of lading. The cargo is consigned to you, so you control it. If the supplier relationship sours or a forwarder underperforms, you can act instead of waiting on someone in China to release your container.
- Quotes become comparable. An FOB price is just the goods at the port, so five FOB quotes line up like for like. A DDP price mixes goods, freight, and duty into one figure you cannot break apart.
When DDP makes sense
DDP is not a trap by itself. It is the right call in a few situations:
- Samples and small first orders, where you do not yet have a freight forwarder or a customs setup and the duty exposure is small.
- You want a fixed landed price with zero logistics work, and you are willing to pay a margin for that convenience.
- Low-value goods where the cost of getting clearance wrong is trivial and speed matters more than control.
The trade is always the same: DDP buys you simplicity and costs you visibility. As your order sizes grow, that visibility is worth more than the convenience.
The DDP duty trap to watch for
The most common problem with cheap DDP offers from China is how the price is kept cheap. Some suppliers quote a low all-in DDP number and then make the math work by under-declaring the cargo value or putting the goods under a wrong HS code to lower the duty at your border. The headline price looks great. The exposure is real, because in most countries the legal responsibility for a correct customs declaration sits with the importer of record in the destination country, which is often still you. If customs audits the entry, the back-duty and the penalty land on you, not on a factory on the other side of the world.
Two more things to check before you accept DDP:
- What "to the door" actually includes. Some DDP quotes quietly exclude import VAT or GST, or exclude unloading at your end. Get the inclusions in writing.
- Who controls the cargo. Under DDP the goods move on the supplier's forwarder under their bill of lading. In a payment or quality dispute, that container becomes the pressure point against you.
If you do buy DDP, insist the declared value matches the real commercial invoice. A price that only works through a false declaration is not a saving, it is a deferred liability.
Where Mila Sourcing fits
We quote and ship on FOB by default, so you keep control of the freight, hold the bill of lading, and get a clean customs declaration in your own name. The part that usually scares first-time importers off FOB is the logistics, so we coordinate the forwarder, the booking, and the pre-shipment inspection inside the same WhatsApp thread you already use for the order. FOB without doing the freight legwork alone. When a small order genuinely suits DDP, we make sure the value is declared honestly so you are never the one holding an audit risk. That is built into Sourcing Activation and Full Production Management.
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