Two suppliers can quote what looks like the same price and deliver very different landed cost, because the quote is priced to a trade term. Understanding the term is the difference between comparing prices and comparing offers.
Trade terms — the Incoterms rules published by the International Chamber of Commerce and revised periodically — define three things for every shipment: where the seller's responsibility ends, where risk transfers from seller to buyer, and which party arranges and pays for freight, insurance and customs clearance. Because the rules are revised, the version in force should be confirmed when a contract is drafted rather than assumed.
Most pet food and supplement shipments are quoted under one of six terms. They fall into two families: terms where the buyer takes over at a named place in the exporting country, and terms where the seller carries the goods further.
| Term | Seller's responsibility ends | Who arranges main freight | Who clears import |
|---|---|---|---|
| EXW | At the seller's premises, before loading | Buyer | Buyer |
| FOB | Once goods are on board the vessel at the named port | Buyer | Buyer |
| CFR | On board the vessel; seller pays freight to destination | Seller | Buyer |
| CIF | On board the vessel; seller pays freight and insurance | Seller | Buyer |
| DAP | At the named destination, ready for unloading | Seller | Buyer |
| DDP | At the named destination, import duties paid | Seller | Seller |
Two details in this table cause most of the confusion. First, under FOB the seller's risk ends when the goods are on board, even though the buyer arranged the vessel — which is why the loading point and the port must be named precisely. Second, CIF includes insurance arranged by the seller, but the cover required by the rule is minimum cover unless the contract specifies otherwise; buyers who assume the insurance is comprehensive are often mistaken.
The term does not change the underlying cost of moving goods. It changes who buys each component of that cost, at what price, and with what visibility.
A seller who quotes CFR or CIF is buying freight at their negotiated rates and can often do so more cheaply than a first-time importer could, simply because of volume. The trade-off is transparency: the freight cost is embedded in the price rather than shown separately, so a buyer comparing two CFR quotes is comparing freight and goods together.
A buyer who quotes FOB retains control of the freight forwarder, the routing and the insurance, which makes cost components visible and allows consolidation with other suppliers. The trade-off is administrative work, and the risk that a delay in booking a vessel leaves goods sitting at the port of loading.
DDP sits at the other extreme: the seller handles everything, including import duty, and invoices a single landed cost. It is convenient and popular with buyers who do not want a customs process — but it requires the seller to be able to clear customs in the destination market, which is not something every manufacturer can do, and the resulting price hides more of the cost structure than many buyers expect.
Four points tend to settle the decision.
Choose the term that matches who has the better freight relationship. If you ship regularly from the same region, your own forwarder agreements may outperform the supplier's. If not, using the supplier's logistics is usually cheaper than building your own for one shipment.
Name the delivery point precisely. FOB without a named port, or DAP without a named address, is an incomplete term and a future dispute. Precisely stated terms are also easier to compare between suppliers.
Decide who is responsible for import formalities before shipment, not at arrival. A shipment arriving under a term that leaves clearance ambiguous is expensive to fix, and the cost is usually in storage.
And check the interaction with payment and insurance. Where a letter of credit is involved, the credit may require specific documents that only certain terms produce — for example, a bill of lading in a particular form — and that constraint can make one term impractical even when it looks cheaper on paper.
It reduces the buyer's coordination work, which has real value on a first order, but the freight and insurance cost is embedded in the price rather than visible. That is a trade-off, not an automatic answer.
Because the price bundles goods, freight, insurance and destination duties, so the buyer loses visibility of each component. It also depends on the seller being able to clear customs in the destination market.
The exact term and the named place, who arranges freight and insurance, who clears export and import, and whether the term fits the document requirements of any letter of credit.
Planning the logistics of a first order? Shandong Guihe Pet Food Co., Ltd. manufactures pet supplements and pet food in Yishui County, Linyi, Shandong, with a 12,000 m² plant and 30,000 tons of annual capacity. See our OEM & ODM services, read about export documentation, or see labeling by market.