When shipping, you must pick the right Incoterm; we compare two of the most common head to head, CIF (Cost Insurance and Freight) and DDP (Delivered Duty Paid). These are just 2 of the 11 Incoterms. CIF vs DDP?
For a full summary of all incoterms, check out our guide: Incoterms 2020, Shipping, and Trade Terms defined // Complete Guide.
Introduction To CIF & DDP Incoterms For Your Business
What is the main difference between the CIF and DDP Incoterms in 2020? This guide will cover the fundamental differences between these two incoterms and cover details in terms of responsibility, duties, and taxes. CIF stands for ‘Cost, Insurance, and Freight,’ while DDP stands for ‘Delivered Duty Paid.’
In CIF shipping, the term means that the seller assumes responsibility for the cargo until they reach the final destination port. The term DDP refers to all taxes/duties the seller has to pay upon delivery of the shipment. These short acronyms are known as INCO terms of incoterms – please read more about 2020 incoterms here.
Many businesses in the US and internationally assume that if they import cargo from international destinations, they will save money by making the vendor pay for the transportation/duty costs with each shipment. The reality of the situation is that there are some hidden costs when you import this way.
Delays On CIF vs. DDP Shipping
If you use CIF or DDP shipping, you retain little control over the way your shipment arrives in the country. The shipment requirements apply to all US, EU, and Canadian ports. Most buyers use the cheapest shipping option and care little as to the time it takes for the shipment to arrive in the country. The big question is: Does the speed of the shipment have a severe impact on your capital? If you can wait for your shipment, you will do well with both CIF and DDP shipping.
Legal Disputes: CIF vs DDP
If your carrier causes damage along the way, there will be disputes regarding the party responsible for the loss. CIF/DDP arrangements benefit the buyer, and the seller has to bear the responsibility. While this can be worked out in the court of law, it may take a lot of time and effort to resolve the disagreement.
- According to the incoterm 2020 standard, published by the International Chamber of Commerce, there is a clear definition of the transfer of risk, and the guidelines can help prevent these disputes.
Under Incoterm 2020 DDP and CIF guidelines, the seller is responsible for damaged/lost goods in transit. In rare cases, the seller is responsible for the damage of the products during transport, which is why you have to define the exact point of the transfer of ownership to stay safe.
DDP vs CIF Hidden Fees
If you choose these shipping methods, be prepared for hidden charges which may arise when you have to pick up the merchandise in the United States. While the initial costs of shipping CIF/DDP may seem lower in theory, the seller always determines how and when your cargo will be shipped.
The seller’s freight forwarder may add additional charges that haven’t been included in the original price quote you got from the seller. The most significant “hidden fee” is the ‘Destination Terminal Handling Charge’ (DTHC), which you pay on delivery in the US port.
Is DDP the best Trade Term for Alibaba and FBA sellers?
DDP is very popular for first-time buyers who are sourcing from Alibaba and selling on FBA, due to the fact this Incoterm requires the seller to ship the item at their own expense to the final destination. For FBA sellers, that final destination is an Amazon Fulfilment center. To be clear, the buyer will almost always pay more for DDP vs FOB or CIF, when they arrange the shipping. None the less, DDP allows the buyer to not worry about transportation or other issues and can make a single payment.
CIF vs DDP, Which is better?
CIF vs DDP? Which one is better depends on the project and what the client wishes, but the decision is ultimately the buyers’ decision. The main reason that buyers choose to use CIF is that it requires the supplier to pay for the insurance. DDP is a popular option for first-time shippers as it requires the supplier or an agent hired by the supplier, to handle every aspect of the shipment.