A plain-English breakdown of FOB, CIF, and DDP shipping terms — and which one Australian importers should choose to protect margins and stay in control.
For years, I've watched Australian businesses get blindsided — not by dodgy suppliers, not by hidden duties, but by three innocent-looking acronyms on a supplier's quote: FOB, CIF, and DDP. You pick the wrong one, and suddenly your "great deal" from a Chinese factory comes with surprise port charges in Sydney that nobody warned you about. Your margins? Torched.
Here's the truth most suppliers won't tell you upfront: the shipping term you agree to determines who carries the risk, who controls the freight, and — critically — who gets hit when things go sideways. And in 2026, with global freight costs still volatile and Australian customs duties calculated on specific values, getting this right can mean thousands of dollars per container.
This guide breaks down FOB, CIF, and DDP in plain English, tells you which one is right for your situation, and explains the mistakes Aussie importers make again and again. Let's get into it.
Before we dive into the specifics, a quick primer: FOB, CIF, and DDP are all part of a set of standardised trade terms called Incoterms (International Commercial Terms), published by the International Chamber of Commerce. The most current version is Incoterms 2020, which most suppliers and freight forwarders worldwide use today.
Incoterms define two critical things in any import transaction:
Get this wrong, and you could be holding the bill for a damaged container that technically wasn't your problem — or paying duties on inflated CIF values that push your landed cost way over budget.
If you're new to importing, check out our complete guide to importing from China to Australia before diving deeper into these terms.
FOB (Free On Board) means the supplier's responsibility ends the moment your goods are loaded onto the vessel at the origin port (typically a Chinese port like Shanghai, Ningbo, or Shenzhen). From that point on, you — the buyer — control the freight, insurance, and everything that happens until your goods arrive at your door in Australia.
| Cost | Who Pays |
|---|---|
| Manufacturing | Supplier |
| Inland freight to origin port (China) | Supplier |
| Export clearance and documentation | Supplier |
| Loading onto vessel | Supplier |
| Ocean freight | Buyer |
| Marine insurance | Buyer |
| Destination port charges (Sydney/Melbourne) | Buyer |
| Australian customs clearance and duty | Buyer |
| Local delivery in Australia | Buyer |
When you use FOB, you select your own freight forwarder and negotiate your own shipping rates. This is massive. An experienced Australian freight forwarder who knows the Sydney or Melbourne port runs can often beat whatever rate your Chinese supplier tacks on under CIF — and they'll be transparent about every charge. No mystery fees, no inflated quotes.
Here's something that catches many first-time importers off guard: the Australian Border Force calculates import duties on the FOB value of your goods — that is, the value of the goods at the port of export, before freight and insurance are added. So when you're dealing in FOB terms, your supplier invoice value is exactly what the ABF uses to calculate duty. Clean, transparent, no guesswork.
Under FOB, the bill of lading is issued in your name. This gives you direct control over your shipment and full visibility throughout the journey. Under CIF, the supplier's nominated forwarder controls the bill of lading until it's transferred to you — which can complicate things if there's a dispute.
The minimum insurance required under CIF is notoriously low — typically only covering 110% of the invoice value for total loss. Under FOB, you can choose exactly the level of coverage that makes sense for your goods and your risk appetite.
CIF (Cost, Insurance, and Freight) means the supplier arranges and pays for the ocean freight and a minimum level of marine insurance, delivering goods to the destination port in Australia. Once the goods arrive at Sydney or Melbourne port, risk and cost transfer back to you.
Note a common misconception: under CIF, risk actually transfers to the buyer when the goods are loaded onto the vessel — just like FOB. So you're paying for the convenience of having the supplier organise freight, but you're still carrying the risk from the moment it leaves port.
Here's where CIF gets Aussie businesses into trouble: when your supplier arranges the freight, they typically use their preferred Chinese forwarder. That forwarder may add:
And because these fees are levied by the destination agent, they're not included in your CIF price. You only discover them once your container is sitting at the port and you're being asked to pay before you can collect your goods.
I've seen Australian businesses budget based on a CIF price, then get hit with an extra $800–$1,500 per container in destination charges they never anticipated. Under FOB with your own freight forwarder, those charges are agreed upfront.
CIF isn't always wrong. It can work well for very small first orders where you don't yet have a freight forwarder relationship, LCL shipments where the supplier's consolidated freight rates may be competitive, and suppliers you trust completely and have worked with long-term. For most established Aussie importers doing regular container loads, FOB is the smarter play.
DDP (Delivered Duty Paid) is the maximum obligation term for the seller. The supplier handles absolutely everything: export clearance, international freight, Australian customs clearance, import duties, and delivery to your nominated address. You literally just wait for a truck to show up.
DDP suppliers mark up their logistics and customs costs. You have no visibility over what they actually paid for freight or duty — so you can't verify you're getting a fair deal. For high-volume importing, this opacity adds up fast.
If your supplier makes an error in the customs declaration — and it happens — you're still the importer of record. Australian customs doesn't care that you chose DDP; if there's a classification error or undervaluation, you could be held liable.
Under DDP, the supplier pays Australian import duty. But who claims the GST input tax credit? In most cases, the supplier — who isn't registered for Australian GST — can't claim it. And you, the buyer, often can't claim it either because you didn't pay it. This is a meaningful cost for businesses that would otherwise recover GST.
For high-value regular importing, DDP simply isn't the right tool. Our supply chain management services team can help you build a proper freight strategy that keeps costs transparent and controlled.
While we're at it, let's briefly cover EXW (Ex Works) — the term where the buyer takes responsibility from the factory gate. You organise everything: pickup from the factory, export clearance, freight, insurance, the lot.
For Australian importers without a China-side logistics partner, EXW is a nightmare. Export clearance in China requires a licensed Chinese customs broker. If your supplier isn't helping, you need a freight forwarder with China-side capabilities — and most Australian forwarders outsource this anyway.
The only situation where EXW works well is when you have a trusted sourcing agent or third-party logistics provider operating in China who can manage the factory pickup and export clearance on your behalf. Our OutSource program includes exactly this kind of on-the-ground China support.
| Factor | EXW | FOB | CIF | DDP |
|---|---|---|---|---|
| Seller's responsibility | Factory gate | Origin port (loaded) | Destination port | Your door |
| Buyer's control | Maximum | High | Medium | Minimum |
| Cost transparency | Medium | High | Low | Very low |
| Best for | Experienced buyers with China-side ops | Most Australian importers | Small orders / beginners | One-off purchases |
| Risk transfer | Factory gate | Origin port | Origin port | Destination |
| Australian duty calculation | FOB value | FOB value | FOB value | Included in price |
Let's say your container is damaged in transit — a forklift incident at Ningbo port before loading. Here's how each term handles it:
Under FOB: Your goods aren't yet your risk until loaded. If the damage happens before loading, it's the supplier's problem. You can claim from the supplier.
Under CIF: Same as FOB — damage before loading is supplier's risk. Damage after loading is yours (covered by the CIF insurance, but remember, that's minimal coverage).
Under DDP: Damage is entirely the supplier's problem until goods arrive at your address. Great in theory — but getting a Chinese supplier to actually pay a damage claim is another matter entirely.
Understanding how to negotiate with Chinese suppliers is critical regardless of which shipping term you choose. A good contract backed by proper Incoterms is only as strong as your supplier relationship.
After working with hundreds of Australian businesses importing from China and Vietnam, here's our practical take:
For regular container loads from China: FOB is almost always the right call. Pair it with a good Australian freight forwarder who knows Sydney and Melbourne port conditions, and you have full cost control and visibility.
For your first order or small LCL shipments: CIF can reduce complexity while you're learning the ropes. Just make sure you ask your supplier's forwarder for a full breakdown of destination charges before you commit.
For dropshipping or small one-off orders: DDP is fine. The premium is worth it for the simplicity when volumes are low.
Never use EXW unless you have reliable China-side logistics support — which is exactly what our OutSource program provides.
Choosing the right shipping term is one piece of a bigger puzzle. You still need the right supplier, the right product specification, proper quality control, and a freight partner who understands Australian customs requirements.
At Epic Sourcing Australia, we handle all of this for our clients — from factory sourcing and supplier vetting right through to logistics management and Australian delivery. Whether you're doing your first import or your fiftieth, we can help you source smarter.
Ready to take the guesswork out of your supply chain? Talk to our team and let's build a sourcing strategy that actually makes sense for your business.
Give us a bell at gday@epicsourcing.com.au — we're always up for a yarn about how to make importing work harder for your business.
