Incoterms 2020 decision guide: DDP vs DAP vs FOB vs EXW

Incoterms are short three-letter codes — DDP, DAP, FOB, EXW — that tell you who pays for what in an international shipment. They look like jargon, but the choice between them determines whether you pay the customs duty, who handles the freight, who insures, and what happens if a shipment is lost.

This is a decision guide for the 11 Incoterms 2020 rules, with a focus on the four that matter most for e-commerce: DDP, DAP, FOB, and EXW.

What Incoterms actually do

The International Chamber of Commerce (ICC) publishes Incoterms — the 2020 edition is current — as a global standard for stating who in a buyer-seller relationship is responsible for carriage, insurance, customs export clearance, customs import clearance (including duty payment), risk transfer, and cost transfer.

An Incoterm does not cover ownership transfer (a contract law question), payment terms, or what happens if the goods are non-conforming. It is purely a shipping responsibility framework.

The 11 rules in 2020

Incoterms 2020 organises the 11 rules into two groups.

Any mode of transport (7 rules): EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid to), DAP (Delivered at Place), DPU (Delivered at Place Unloaded), DDP (Delivered Duty Paid).

Sea and inland waterway only (4 rules): FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight), CIF (Cost, Insurance and Freight).

The sea-only rules are designed for bulk shipments via vessel. For containerised cargo (most modern trade), the multimodal rules are correct even though FOB and CIF are still widely (and incorrectly) used in container contexts.

Risk transfer and cost transfer at a glance

The single most important distinction for e-commerce: DDP is the only Incoterm where the seller pays the import duty. Every other rule puts that responsibility on the buyer.

DDP — Delivered Duty Paid

The seller takes responsibility for everything: export, freight, insurance, import clearance, duty payment, last-mile delivery to the buyer's address.

Use DDP when you sell to consumers (B2C) and want a frictionless experience, you want to display "all-in" landed prices on your website, and you can confidently calculate duty in advance.

Avoid DDP when you don't have a robust process for classifying products and calculating duty, the destination has complex VAT rules you cannot reliably navigate, or your margins cannot absorb classification errors.

DDP requires the seller to have an "importer of record" status in the destination country, which can be impractical for some markets. Many sellers use a customs broker or a 3PL with importer-of-record services.

Warning: DDP that under-declares value or misclassifies HS codes exposes the seller to penalties, not the buyer. Get the classification right before you commit to DDP terms.

DAP — Delivered at Place

Seller handles freight to the buyer's destination, but the buyer is responsible for import clearance and paying duty. The buyer is the importer of record.

Use DAP when selling B2B to a buyer who has their own customs broker and import processes, you want to simplify your operations but the buyer prefers to handle import duty, or you sell into a market where DDP is impractical.

Avoid DAP when your buyer is a consumer and may be surprised by duty bills on delivery (the #1 reason for "abandoned at customs" packages).

FOB — Free on Board

Seller delivers the goods on board the buyer's chosen vessel. From that point, the buyer pays freight, insurance, import clearance, duty, and last-mile.

Use FOB when you're shipping containerised cargo and want a clean handover at the origin port, the buyer has a freight forwarder relationship and prefers to control the shipping leg, or for B2B large-volume orders.

Avoid FOB when your goods are not actually delivered on board a vessel (FCA is the correct multimodal alternative), or you need to know the goods arrived to recognise revenue (FOB transfers risk before arrival).

The historical FOB-CIF dichotomy is residual in modern container trade; FCA and CIP are more accurate for non-bulk container shipments. But because FOB is universally understood, it persists.

EXW — Ex Works

Buyer takes possession at the seller's factory or warehouse, then handles everything: export clearance, freight, insurance, import clearance, duty, last-mile.

Use EXW when the buyer wants total control and has the operational capability, or you want minimal involvement.

Avoid EXW when you're a sophisticated exporter — EXW puts you at the mercy of the buyer's export documentation, and if they don't file proof of export, you have a domestic transaction with VAT/sales tax exposure.

EXW looks attractive ("nothing for the seller to do") but creates compliance risk because the seller needs proof of export to zero-rate the transaction for VAT purposes.

E-commerce decision framework

For most e-commerce sellers, the practical choice is between DDP and DAP.

B2C (selling to consumers)? Use DDP — consumers will not pay duty bills on delivery.

Market where you can reliably calculate duty? Use DDP — preserves the all-in landed price on your storefront.

High AOV (>$1,000) and a sophisticated B2B buyer? Consider DAP or FOB — buyer's logistics team will prefer control.

Container quantities? FOB or FCA — origin handover.

Common Incoterms mistakes

Mistake 1 — Using FOB for air freight or containerised cargo. FOB is a sea-only term. For air freight or containers, use FCA. CBP and EU customs increasingly reject FOB declarations on non-vessel cargo.

Mistake 2 — Selling DDP without realising it includes VAT. DDP requires the seller to pay import VAT in addition to duty. For EU-bound shipments, that's 17–25% VAT depending on member state. Many sellers price DDP based on duty alone and absorb the VAT loss without realising it.

Mistake 3 — Stating Incoterm without naming the place. "DDP" alone is not a complete Incoterm. It must be "DDP, [named place], Incoterms 2020."

Mistake 4 — Treating the Incoterm as the contract. The Incoterm is one clause of a sales contract. Payment terms, dispute resolution, force majeure, governing law — none of these are addressed by the Incoterm.

Tip: major Incoterms 2020 changes from 2010: DAT renamed to DPU; FCA can specify on-board notation for shipped cargo; insurance levels for CIF/CIP differ (CIP now requires "all risks" cover, CIF still ICC-C basic).

Quick reference card

B2C, consumer expects all-in pricing — DDP.

B2B, buyer has customs operations — DAP.

Container shipment, buyer has freight forwarder — FOB or FCA.

Buyer wants total control, you want minimal effort — EXW.

Sea cargo, buyer pays freight, you arrange insurance — CIF.

Multimodal, buyer pays freight to named destination — CPT or CIP.