A supplier sends you a quote that says: FOB Toronto. Another says: Freight prepaid. A third quotes: DDP your warehouse. They may all be talking about getting the same product from Point A to Point B, but those few letters can dramatically change who arranges transportation, who pays for it, who is responsible if something goes wrong, and what costs ultimately land on your invoice. In food and beverage sourcing, freight is rarely just a line item. It affects landed cost, margins, inventory planning, delivery timing and sometimes whether one supplier is actually more competitive than another. The challenge is that terms such as FOB, prepaid, collect, EXW and DDP are often used together - and sometimes used incorrectly. Here’s how to understand what they mean and, more importantly, how they relate to one another.

Start With Two Different Questions

Many freight misunderstandings happen because two separate concepts get mixed together.

1. Who is responsible for the shipment and when does risk transfer?

This is addressed by delivery terms such as:

2. Who pays the freight bill?

This is addressed by terms such as:

Freight Prepaid
Freight Collect
Prepaid & Add
Collect & Allowed
Third-Party Billing

They are related, but they are not the same thing.

A seller can pay the carrier while the buyer carries the transportation risk, for example.

That is why a statement such as “freight prepaid” does not necessarily tell you who is responsible if the shipment is damaged in transit.

What Does FOB Mean?

Free On Board (FOB)

FOB formally stands for Free On Board.

Under the Incoterms® rules, FOB is intended for sea and inland-waterway transportation. The seller is responsible for getting the goods to the named port and loading them aboard the vessel selected by the buyer.

Once the goods are on board, the risk transfers to the buyer.

The buyer then generally assumes responsibility for the main transportation from that point.

Important distinction: FOB is often used differently in North America

In domestic North American trade, you may also encounter:

FOB Origin / FOB Shipping Point

The seller's delivery responsibility generally ends when the goods are handed over to the carrier at the shipping point.

The buyer typically assumes transportation risk from there.

FOB Destination

The seller generally remains responsible for the shipment until it reaches the named destination.

This is why FOB Origin and FOB Destination should not automatically be treated as the same thing as the international Incoterms® FOB rule.

If a quote simply says “FOB Toronto,” ask what the supplier actually means.

FOB vs FCA: An Important Difference

FCA - Free Carrier is often more appropriate than FOB when goods are being transported by truck, rail, air or multimodal transportation.

With FCA, the seller delivers the goods to the buyer's nominated carrier at an agreed location.

FOB, by contrast, is specifically intended for goods loaded aboard a vessel.

So if you're buying pallets of ingredients from an Ontario supplier and they're being picked up by truck, FCA may describe the transaction more accurately than FOB, even if people in the industry casually use FOB.

The important thing is not just the acronym. It is making sure both parties understand exactly where delivery occurs and when responsibility transfers.

Freight Prepaid vs Freight Collect

These terms primarily tell you who pays the carrier.

Freight Prepaid

The seller or shipper pays the freight carrier.

That does not automatically mean the seller bears the transportation risk for the entire journey.

Freight Collect

The buyer or receiver pays the freight carrier.

Again, this primarily tells you who pays the freight bill - not necessarily when risk transfers.

What Does Prepaid & Add Mean?

Freight Prepaid & Add

The seller pays the freight carrier initially, then adds the freight charge to the buyer's invoice.

For example:

Product: $5,000
Freight: $450
Invoice total: $5,450

The supplier handled the freight payment, but the buyer ultimately paid the transportation cost.

This is common because it can be easier for a supplier to arrange transportation while still passing the freight cost through to the buyer.

What Does Collect & Allowed Mean?

Freight Collect & Allowed

The buyer pays the carrier directly but is permitted to deduct the agreed freight amount from the supplier's invoice.

It is less intuitive than prepaid-and-add, so buyers should make sure the arrangement is clearly documented before shipment.

Third-Party Freight Billing

Sometimes neither the supplier nor the receiving location is directly paying the transportation charge.

With Third-Party Freight Billing, the freight invoice goes to another party.

That might be:

a corporate head office
a freight broker
a 3PL
a centralized logistics department
another designated company

This arrangement is particularly common when companies negotiate their own transportation rates or manage logistics centrally.

Understanding the Main Incoterms®

Incoterms® help define the responsibilities of buyers and sellers in commercial shipments.

One of the easiest ways to understand them is to think of them as a progression of seller responsibility.

EXW - Ex Works

The seller makes the goods available at its facility or another named location.

The buyer generally takes responsibility from there, including transportation and many of the related formalities.

EXW places the least transportation responsibility on the seller.

EXW vs FCA

Under FCA, the seller takes the additional step of delivering the goods to the buyer's nominated carrier at the agreed location and generally handles export clearance where required.

CPT - Carriage Paid To

The seller arranges and pays for transportation to the named destination.

However, there is an important catch:

Risk transfers to the buyer when the goods are handed to the first carrier.

So:

Seller pays transportation farther.
Buyer assumes risk earlier.

CPT vs DAP

With DAP, the seller carries the transportation risk all the way to the named destination.

With CPT, risk transfers much earlier.

CIP - Carriage and Insurance Paid To

CIP works similarly to CPT, except the seller also obtains cargo insurance for the buyer's benefit.

Think of it as:

CPT + insurance.

Risk still transfers when the goods are handed to the first carrier.

CIP vs CIF

Both include a seller insurance obligation, but they aren't interchangeable.

CIP can be used across transportation modes.

CIF is specifically intended for sea and inland-waterway shipments.

FAS - Free Alongside Ship

With Free Alongside Ship, the seller delivers the goods alongside the buyer's nominated vessel at the agreed port.

Once the goods are alongside the vessel, risk transfers to the buyer.

FAS vs FOB

The difference is essentially where the handoff occurs:

FAS: alongside the vessel.

FOB: loaded aboard the vessel.

CFR - Cost and Freight

Under Cost and Freight, the seller pays transportation to the named destination port.

However, risk transfers to the buyer once the goods are loaded aboard the vessel at the port of origin.

That means the point where cost responsibility changes can be different from the point where risk responsibility changes.

CFR vs CIF

They are very similar, but:

CFR: seller pays freight.

CIF: seller pays freight and provides required insurance.

CIF - Cost, Insurance and Freight

CIF requires the seller to arrange and pay for freight to the named destination port and provide specified cargo insurance.

However, risk transfers to the buyer once the goods are aboard the vessel at origin.

That distinction matters.

The seller may still be paying transportation costs even though the transportation risk has already transferred to the buyer.

DAP - Delivered at Place

With Delivered at Place, the seller bears the transportation cost and risk of getting the goods to the named destination.

The goods arrive ready for unloading.

The buyer generally handles:

unloading
import clearance
import duties
applicable taxes

DAP vs DPU

With DAP, the buyer unloads.

With DPU, the seller unloads.

DPU - Delivered at Place Unloaded

DPU goes one step further than DAP.

The seller transports the goods to the destination and unloads them.

The buyer generally remains responsible for import clearance and applicable duties and taxes.

DPU is unique because it is the Incoterms® rule where the seller is specifically responsible for unloading at destination.

DDP - Delivered Duty Paid

DDP places the greatest overall responsibility on the seller.

The seller generally handles:

transportation
export procedures
import procedures
import clearance
applicable duties and taxes

The goods are delivered to the named destination ready for unloading.

DDP vs DAP

DAP: buyer handles import clearance and duties.

DDP: seller handles them.

DDP vs DPU

DPU: seller unloads, but buyer generally handles import formalities and duties.

DDP: seller handles import formalities and duties, but generally does not unload.

The Relationship at a Glance

A simplified way to remember the progression is:

EXW
Buyer takes on most responsibility very early.

↓

FCA

↓

CPT / CIP
Seller pays transportation farther, but risk transfers earlier.

↓

DAP
Seller carries risk to destination; buyer unloads.

↓

DPU
Seller carries risk to destination and unloads.

↓

DDP
Seller carries responsibility through delivery and import clearance/duties.

That is not a substitute for the full Incoterms® rules, but it gives buyers a useful framework for understanding how the terms relate.

Why This Matters When Comparing Supplier Quotes

Imagine two ingredient suppliers quote:

Supplier A

$2.10/kg EXW

Supplier B

$2.25/kg DDP your facility

At first glance, Supplier A looks cheaper.

But your actual comparison isn't:

$2.10 vs $2.25

It is:

Supplier A product cost + pickup + freight + brokerage + customs + duties + insurance + other transportation costs

versus

Supplier B delivered cost.

This is why procurement teams should compare landed cost, not simply unit price.

A lower quoted product price does not necessarily mean a lower sourcing cost.

Questions to Ask Before Agreeing to Freight Terms

Before accepting a supplier quote, make sure you can answer:

What exact shipping or Incoterms® rule is being used?
What is the named location or port?
Who arranges transportation?
Who pays the carrier?
When does transportation risk transfer?
Who is responsible for cargo insurance?
Who handles export documentation?
Who handles import clearance?
Who pays duties and taxes?
Who unloads the shipment?
Are freight charges included in the quoted product price or added separately?

The more precisely these details are documented upfront, the less room there is for an expensive misunderstanding later.

Sourcing Shouldn't Require Decoding the Fine Print

Freight terminology can look like a collection of acronyms, but the questions underneath it are straightforward:

Who gets it there?
Who pays?
Who carries the risk?
Where does responsibility change hands?

Understanding those four things makes it much easier to compare suppliers fairly and calculate the true cost of sourcing.

At Surch Foods, we're building a more structured way for food industry buyers to understand not only what a supplier sells, but also how that supplier works - including order requirements, distribution, logistics, freight terms, capabilities and other information that helps determine fit before the first conversation.

Because finding a supplier is only the first step.

Finding one that actually fits your requirements is what makes sourcing work.

FOB, Freight Terms and Incoterms Explained: Who Pays and Who Carries the Risk