Incoterms 2020 Guide for UK Businesses

What Are Incoterms?

Incoterms (International Commercial Terms) are a set of 11 standardised trade rules published by the International Chamber of Commerce (ICC). They define the responsibilities of buyers and sellers in international transactions, covering everything from transportation costs to insurance obligations and risk transfer points.

For UK businesses engaged in importing and exporting, understanding Incoterms is essential. They form part of your commercial contract and determine who arranges transport, who pays for customs clearance, and at what point the risk of loss or damage passes from seller to buyer.

The 11 Incoterms 2020 at a Glance

Incoterms 2020 replaced the previous 2010 edition and introduced several important changes. The rules are divided into two categories: those applicable to any mode of transport and those exclusively for sea and inland waterway transport.

Incoterms for Any Mode of Transport

EXW — Ex Works

The seller makes the goods available at their premises. The buyer bears all costs and risks from that point, including export clearance, loading, and transport. This term places maximum obligation on the buyer and is often used for domestic transactions or when the buyer has strong logistics capabilities.

Best for: Buyers with established freight forwarding relationships who want full control over the supply chain.

FCA — Free Carrier

The seller delivers goods to a named place, cleared for export. If delivery occurs at the seller's premises, the seller loads the goods. If delivery is elsewhere, the seller is not responsible for unloading. FCA is one of the most versatile and commonly used Incoterms.

Best for: Most UK import/export transactions, particularly when using air freight or multimodal transport.

CPT — Carriage Paid To

The seller pays for carriage to the named destination but risk transfers when goods are handed to the first carrier. The buyer is responsible for insurance from the point of handover to the carrier.

CIP — Carriage and Insurance Paid To

Similar to CPT, but the seller must also obtain insurance coverage. Under Incoterms 2020, CIP requires "all risks" insurance (ICC Clause A), which is a significant change from the 2010 rules.

DAP — Delivered at Place

The seller delivers goods to a named destination, ready for unloading. The seller bears all risks and costs up to that point, except for import clearance and duties. This is popular for UK imports where the seller manages the full transport chain.

DPU — Delivered at Place Unloaded

Formerly known as DAT (Delivered at Terminal), DPU is the only Incoterm where the seller is responsible for unloading at the destination. The seller bears all costs and risks until goods are unloaded at the named place.

DDP — Delivered Duty Paid

Maximum obligation on the seller. The seller delivers goods to the buyer's premises, cleared for import with all duties and taxes paid. For UK importers, DDP means your overseas supplier handles everything including UK customs clearance and duty payment.

Best for: Buyers who want a hassle-free, all-inclusive price with no surprises at the border.

Sea and Inland Waterway Incoterms

FOB — Free on Board

One of the most widely used Incoterms for sea freight. The seller delivers goods on board the vessel at the named port of shipment. Risk passes when goods are on the ship. The buyer arranges and pays for ocean freight and insurance.

Best for: UK importers using sea freight who want to control shipping costs and insurance.

CIF — Cost, Insurance and Freight

The seller pays for carriage and insurance to the named destination port. However, risk still transfers when goods are loaded onto the vessel at the origin port. Under Incoterms 2020, CIF only requires minimum insurance coverage (ICC Clause C).

Best for: Buyers who want the seller to arrange shipping but should note the limited insurance coverage.

CFR and FAS

CFR (Cost and Freight): Similar to CIF but without insurance. The seller pays freight to the destination port, but the buyer must arrange their own cargo insurance.

FAS (Free Alongside Ship): The seller delivers goods alongside the vessel at the port of shipment. Less commonly used, but relevant for bulk cargo and oversized shipments.

How to Choose the Right Incoterm

Selecting the correct Incoterm depends on several factors:

• Your experience level: If you are new to importing, DDP or DAP reduces your logistical burden.
• Control preference: EXW or FOB gives the buyer maximum control over shipping costs.
• Transport mode: Use FOB, CIF, CFR, or FAS only for sea freight. For air freight or road freight, use FCA, CPT, CIP, DAP, DPU, or DDP.
• Insurance needs: CIP provides comprehensive insurance; CIF provides minimum cover only.
• Customs expertise: If you lack a customs broker, choose DDP so the seller handles import formalities.

Gxpresss UK can advise on the most suitable Incoterm for your specific trade lane. Book a free consultation to discuss your requirements.

UK-Specific Considerations Post-Brexit

Since Brexit, UK businesses must navigate additional customs requirements when trading with the EU. Key points to consider:

• All goods entering or leaving the UK now require customs declarations, including EU trade.
• VAT is now payable at the UK border on imports (postponed VAT accounting available).
• Rules of origin documentation may be needed to claim preferential tariff rates under the UK-EU Trade and Cooperation Agreement.
• The Border Target Operating Model (BTOM) introduced phased controls on imports from the EU throughout 2024-2025.

For a detailed breakdown of post-Brexit changes, see our Post-Brexit Shipping Guide.