Why do companies sell under DDP, not FOB?

One can say that FOB has many advantages associated with it, both for importers and exporters alike . There are fewer risks taken by importing companies who decide to work under this mode than those who go with other options such as CIF or DDP. This is because the exporting company only ships the products once they are paid, while under other modes there might be some hostilities that can result in delays or even worse. However, many people find DDP to be the ideal mode for their business because it shows them exactly how much money is required to do business with a certain country.

Why Companies Sell Under DDP Instead of FOB

Do you wonder why so many companies are moving away from the age-old mode of doing business, which is free on board? Well, it is because there are tons of benefits to being done under this new mode. First of all, one has to understand that FOB was a very popular term in international trade used for years and years . Today, many sellers, especially those shipping direct to consumers, sell under DDP so that buyers receive their goods without paying extra duties or taxes on delivery. The change from FOB to DDP may seem minimal, but this new mode of doing business opens up more opportunities for both importer and exporters alike.

Under DDP (Delivered Duty Paid), the seller bears all costs and risks of transporting the goods to the named place of destination, including import clearance, import duties and import VAT, while the buyer only has to unload the goods. This means that if something goes wrong before delivery, the risk lies with the seller, not the buyer. Another advantage of this mode is that there are no hidden costs involved, which can increase the prices of products sometimes to an extent where the prices cannot be justified. Payment terms are agreed separately from the Incoterm, but the buyer knows the full landed cost upfront because the seller has already included transport, duties and taxes in the price.

Sellers who use DDP also keep control of the entire shipment, from their premises to the customer's door. This gives them the chance to better organize their inventory and never end up with out of stock products. Moreover, they can ship their items according to their own terms which shows that this mode is flexible in nature . It is also cost-effective for companies because all the expenses are calculated beforehand, so there are no hidden costs for them.

On the other hand, exporters may find themselves at a small disadvantage when compared to DDP. However, it does not mean that FOB is better than DDP, but rather than some disadvantages people might see while doing business under this mode. The major one is that under DDP the seller carries the risk of loss or damage until the goods are delivered at destination, whereas under FOB its risk ends once the goods are loaded on board the vessel at the port of shipment. In other words, exporters should not for a second think that they are at a disadvantage when doing business under FOB, because there are better advantages awaiting them as well. Selling DDP into the EU or UK also means the seller acts as importer: it usually needs an EORI number and a local VAT registration (and, in many EU countries, a fiscal representative), or the Import One Stop Shop (IOSS) for B2C consignments worth up to €150, and since 1 July 2026 a flat €3 EU customs duty applies to each tariff category of item in low-value parcels.

One of the advantages that exporters have when doing business under FOB is that they only pay the costs of delivering the goods on board the vessel at the port of shipment, including export clearance. On the other hand, the buyer has to pay the main sea freight, insurance and all import costs, which can be expensive. Another advantage of FOB over DDP for the seller is that it only handles export clearance, while the buyer handles import clearance, duties and VAT in the destination country. Note that FOB should only be used for sea and inland waterway transport; for containerised or air freight, FCA is the more suitable Incoterms® 2020 rule.

While both DDP and FOB sound pretty good, one cannot ignore that there are several other modes used in international trade as well, such as CIF. One should also keep in mind that CIF stands for cost, insurance and freight, which means that the price quoted by the exporter includes freight and minimum insurance cover to the destination port, although the risk passes to the buyer once the goods are on board at the port of shipment.

Overall, one can say that FOB has many advantages associated with it, both for importers and exporters alike . There are fewer risks taken by importing companies who decide to work under this mode than those who go with other options such as CIF or DDP. This is because the exporting company only ships the products once they are paid, while under other modes there might be some hostilities that can result in delays or even worse. However, many people find DDP to be the ideal mode for their business because it shows them exactly how much money is required to do business with a certain country.

Chat with us