What does EXW, FOB & DDP Mean? A Basic Incoterms Guide

June 11, 2023
Ram Radhakrishnan
Founder & CEO


EXW, FOB & DDP... there are a lot of complicated incoterms. We break down them for you and help you understand how they apply to your business.

With today’s supply chain more convoluted than ever, simplicity is a must. Incoterms are a must-have addition to your vocabulary list if you want to work with international transportation.

Incoterms is short for International Communication Terms, designed to simplify a fundamentally complex process. These terms were introduced nearly 85 years ago and have been adjusted several times to keep up with evolving norms. Whether you’re a buyer or a seller, learning these terms will ensure nobody is confused on pricing, experience, or transportation type.

From the blockage of the Suez Canal to a maritime worker shortage, there are a lot of obstacles to finding the most compatible shipping resource. We’ll break down the most commonly used Incoterms so you can enjoy a more seamless buyer or seller experience.

Depending on the Incoterm you choose, you may have to keep in mind the following obligations:

There are more responsibilities to remember, but we’ll explore them below with the most commonly used Incoterms.

Related: Guide to Affordable & Sustainable Clothing

The Most Used Incoterms

The following Incoterms are famous for their simplicity. Remember that a Buyer is any party paying for goods or a service (also known as a Brand Owner). A Seller is a manufacturer or business selling goods, services, or both.

If you’ve ever seen a quote filled with these acronyms, you already have an idea on how they’re used to clarify the purchasing process.

Ex Works (EXW)

EXW is an Incoterm that states the Seller will make their goods readily available at a specific location. The Buyer will then be responsible for the protection and transportation of the goods.

Buyer’s Obligations

Below is a basic list of the Buyer’s obligations when working under an EXW Incoterm.

Seller’s Obligations

Below is another list of the Seller’s obligations with an EXW Incoterm.

Free On Board (FOB)

The FOB Incoterm is a little different than the EXW Incoterm in terms of responsibility. The Seller is obligated to protect and transport goods until they arrive at a previously agreed upon port.

Upon arrival, the Buyer will then have the responsibility to oversee the goods until they reach the final destination.

Buyer’s Obligations

Many of the obligations here are similar to the EXW Incoterm.

Seller’s Obligations

Likewise, the Seller’s obligations are similar to the EXW Incoterm contract.

Related: 5 Ways COVID-19 Pandemic Has Disrupted Supply Chains

Delivered Duty Paid (DDP)

Last but not least, one of the most common Incoterms is DDP. This responsibility rests heavily on the shoulders of the Seller, so you should only agree to this contract if you trust who you’re working with.

Buyer’s Obligations

The Buyer’s obligations are extremely simple with this Incoterm.

Seller’s Obligations

The Seller takes on the majority of responsibility in the DDP contract.

We know how complex shipping logistics are. We’ve combined a team of technology specialists and fashion experts to keep your business viable.

wide blue warehouse with white lights, workers, and trucks at rest

Other Incoterms Worth Knowing

Free Carrier (FCA)

The FCA Incoterm requires the Seller to be responsible for both export clearance and delivery of goods to the designated carrier.

Remember that a carrier is defined as any person or business that takes the carriage. These carriers can look like the following:

Free Alongside Ship (FAS)

Likewise, the FAS Incoterm gives the Seller the responsibility to clear goods for export. The name refers to how the Seller needs to place said goods alongside the vessel before departure.

Not any port will be allowed, either. A loading dock or a barge is acceptable, but not a container port. This Incoterm is considered exclusive to ocean or inland waterways.

Related: Let’s Find You Some Container Space!

Cost and Freight (CFR)

Most responsibilities in the CFR Incoterm are under the Seller, but the Buyer still needs to be aware of their own obligations. A CFR contract has the Seller clearing goods for export, delivering them to the ship, and paying for transport.

The Buyer will then pay for any extra transportation costs such as import clearance.

Cost, Insurance, and Freight (CIF)

The Seller has a significant amount of responsibility here, required to pay costs, insurance, and freights to the destination port. However, the Buyer has to protect the goods once they’re on the ship.

Carrier and Insurance Paid (CIP)

The Seller oversees the risks of cost of carriage and insurance until the goods reach their first carrier. The Buyer will then accept all the responsibility of risk afterwards.

Delivered at Place (DAP)

The Seller bears the majority of responsibility under DAP, transporting goods all the way to the final destination. The Buyer takes care of all the steps before transportation such as customs clearance or import duties.

the inside of a warehouse filled with cardboard boxes

Incoterms Final Thoughts

Incoterms are a vital part of your shipping and loading vocabulary. No single term is suited for all occasions, so make sure you pay attention to the smaller details.

The most commonly used Incoterms include the following:

Other terms to be aware of include FCA, FAS, CFR, CIF, CIP, and DAP.

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