Every international sale has to answer the same questions: who books the freight, who pays for it, who clears customs, and at what point the goods become the buyer's risk. Incoterms answer all of them in three letters. Get them right and you know exactly what you're paying for. Get them wrong and you can end up paying twice, or carrying risk you didn't know you had.
This guide explains all 11 rules in Incoterms 2020, the current version published by the International Chamber of Commerce, and which ones make sense for UK businesses.
How to write an Incoterm
An Incoterm always has three parts:
- The rule, for example FOB
- The named place or port, for example Chittagong
- The version, Incoterms 2020
So: FOB Chittagong Incoterms 2020. Without the place, the term is incomplete; without the version, it's open to argument.
The two groups
Incoterms 2020 has 11 rules, split by how the goods travel.
For any mode of transport, including containers by sea, air, road and rail: EXW, FCA, CPT, CIP, DAP, DPU and DDP.
For sea and inland waterway only, mainly bulk and non-containerised cargo: FAS, FOB, CFR and CIF.
All 11 rules at a glance
| Rule | Seller delivers when… | Risk passes to buyer | Main freight paid by | Insurance | Import clearance |
|---|---|---|---|---|---|
| EXW Ex Works | Goods are ready at the seller's premises | At the seller's premises | Buyer | Buyer's choice | Buyer |
| FCA Free Carrier | Goods are handed to the buyer's carrier at the named place | At that handover | Buyer | Buyer's choice | Buyer |
| CPT Carriage Paid To | Goods are handed to the first carrier | At that handover | Seller | Buyer's choice | Buyer |
| CIP Carriage and Insurance Paid To | Goods are handed to the first carrier | At that handover | Seller | Seller, all-risks cover | Buyer |
| DAP Delivered at Place | Goods arrive at the named place, ready to unload | On arrival, before unloading | Seller | Seller's choice | Buyer |
| DPU Delivered at Place Unloaded | Goods are unloaded at the named place | After unloading | Seller | Seller's choice | Buyer |
| DDP Delivered Duty Paid | Goods arrive, cleared and duty paid | On arrival, before unloading | Seller | Seller's choice | Seller |
| FAS Free Alongside Ship | Goods are alongside the ship at the port | Alongside the ship | Buyer | Buyer's choice | Buyer |
| FOB Free on Board | Goods are loaded on board the ship | On board, at the origin port | Buyer | Buyer's choice | Buyer |
| CFR Cost and Freight | Goods are loaded on board the ship | On board, at the origin port | Seller | Buyer's choice | Buyer |
| CIF Cost, Insurance and Freight | Goods are loaded on board the ship | On board, at the origin port | Seller | Seller, minimum cover | Buyer |
In every rule except EXW, the seller handles export clearance. In every rule except DDP, the buyer handles import clearance and pays the import duty and VAT.
The "C" rules catch people out
With CPT, CIP, CFR and CIF, the seller pays for the main freight, but the risk passes to the buyer at origin, as soon as the goods are handed over or loaded. If a container is lost or damaged at sea under CIF, it's the buyer's loss, even though the seller booked the ship. That's why the insurance matters.
What changed in Incoterms 2020
- DPU replaced DAT. Delivered at Terminal became Delivered at Place Unloaded, so the unloading place can be anywhere, not just a terminal.
- CIP now needs all-risks insurance. The seller must buy cover at Institute Cargo Clauses (A). CIF still only needs minimum cover, Clauses (C).
- FCA and bills of lading. Buyer and seller can agree that the buyer's carrier issues an on-board bill of lading to the seller, which helps when paying by letter of credit.
- Own transport allowed. Under FCA, DAP, DPU and DDP, either party can use its own vehicles rather than a third-party carrier.
- Security costs are now clearly allocated in each rule.
Which Incoterms should UK importers use?
FOB (sea) or FCA (any mode) at the origin port suits most importers buying from Asia and the Gulf:
- The supplier handles export clearance and delivers to the port, which they know best
- You or your forwarder choose the shipping line, sailing and route
- You see the real freight cost, rather than paying for it inside the product price
- Your forwarder handles UK customs clearance and delivery
Be careful with:
- EXW. You're responsible from the factory door, including export clearance in a country where you have no presence. A forwarder with an office at origin can manage it, but FCA is usually cleaner.
- CIF and CFR. They look convenient, but you lose control of the freight, and UK destination charges can be high and unexpected. The seller's insurance is minimal.
- DDP. You can't see what was declared to UK customs on your behalf, and you can't use postponed VAT accounting or reclaim the import VAT yourself.
Which Incoterms should UK exporters use?
- FCA at your premises or your forwarder's depot is usually the best "simple" term. Avoid EXW, as your overseas buyer often can't do the UK export clearance.
- CPT or CIP when your buyer wants a delivered price to their country but will clear import themselves.
- DAP for door-to-door deals, with the buyer still handling import clearance.
- DDP only when you understand the destination's import taxes and can register or appoint a representative there.
See our guide on how to export from the UK.
Incoterms and customs value
The Incoterm also affects your customs value. UK import duty is charged on the value of the goods plus freight and insurance to the UK border. If you buy FOB, your forwarder adds the freight and insurance to the invoice value; if you buy CIF, they're already included. Our guide to import duty and VAT explains the calculation.
Common mistakes
- No named place, or a vague one like "FOB China"
- Using FOB for containers delivered to a depot, rather than loaded on board. FCA fits better.
- Assuming CIF insurance covers you fully
- Agreeing DDP or DAP and forgetting the unloading costs at the delivery address
- Mixing up Incoterms and payment terms. "FOB" says nothing about when you pay.
Not sure which term to agree with your supplier? Ask us before you sign and we'll tell you how each option changes your costs.
General information, correct as of October 2026. Incoterms are published by the International Chamber of Commerce; always refer to the official rules for contract wording.