Choosing the Right Terms — A Simple Decision Framework for SMBs
Who it’s for: SMB distributors, small teams, emerging brands making term decisions per SKU or project.
Choosing the Right Terms: DDP, DAP/DDU, FOB, EXW — A Simple Decision Framework for SMBs
Summary: A plain-English framework to pick DDP, DAP/DDU, FOB, or EXW for custom manufacturing—balancing control, cash flow, risk, and speed.
What really changes with terms
- Control: who books freight, files customs, and sets cadence
- Risk: where risk transfers (factory gate / vessel / destination)
- Cash flow: who fronts freight, duties, taxes
- Visibility: tracking and documentation ownership
The decision framework (five questions)
- Ops bandwidth — Do you have time and know-how to manage freight/customs?
- No → favor DDP/DAP (vendor handles).
- Yes → FOB/EXW may reduce costs.
- Cost transparency — Do you need a full cost breakdown for pricing?
- Yes → FOB (clean split for modeling).
- No → DDP simplicity may win.
- Customs risk tolerance — Are you confident with HS, paperwork, and local rules?
- Low → DDP/DAP.
- High → FOB/EXW (but own the risk).
- Speed & reliability — Seasonal window? Frequent small drops?
- Yes → FOB + preferred forwarder or DDP with SLA (choose who you trust to protect cadence).
- Cash dynamics — Can you float duties/freight before revenue?
- Tight → DDP (supplier fronts, baked into price).
- Comfortable → FOB (often cheaper overall).
Practical picks (by scenario)
- First run / small team → DDP for simplicity; graduate to FOB once you have data.
- Multi-SKU consolidation → FOB with your forwarder to optimize cartonization and booking cadence.
- Rush or peak season → Whichever partner guarantees capacity; terms are secondary to reliability.
- Complex compliance (food-contact/kids) → DDP/DAP if you lack in-house customs expertise.
Documentation you’ll need (regardless of terms)
Commercial invoice • Packing list • HS guidance • Certificates/reports • Label/marking proofs • Booking references • Change log (materials/inks/packaging).
Red flags
- “DDP” that hides duties in vague lump sums (no audit trail)
- EXW with no control plan for pickup windows (factories won’t babysit)
- FOB locked to seller’s forwarder (defeats the point)
- Terms chosen by habit, not by landed-cost modeling
Mini-FAQ
Is DAP same as DDU? DDU is legacy; DAP is the modern equivalent (duties unpaid). Can I mix terms in one program? Yes—e.g., pilots on DDP, scale on FOB once stable. Will DDP always cost more? Often, but it may save admin time, avoid misclassification risk, and protect deadlines.
Choosing the Right Terms: DDP, DAP/DDU, FOB, EXW — A Simple Decision Framework for SMBs
Who it’s for: SMB distributors, small teams, emerging brands making term decisions per SKU or project.
