Incoterms 2020 Explained. DDP, FOB, EXW and More.

This free guide from our Portishead team explains every Incoterm 2020 in plain English. Whether you are buying from China on FOB terms, importing from the USA on DDP shipping terms, or exporting to Europe, understanding your Incoterms 2020 is essential before your cargo moves. No jargon. No sign-up required.

What Are Incoterms 2020?

Incoterms 2020 (International Commercial Terms) are a set of 11 standardised trade terms published by the International Chamber of Commerce. They define exactly where the seller’s responsibility ends and the buyer’s responsibility begins in an international sale, covering freight costs, customs clearance and insurance at each stage of the journey.

Incoterms 2020 are not shipping terms imposed by a carrier. They are commercial terms agreed between buyer and seller in a sales contract. The Incoterm you agree with your supplier directly affects your freight costs, your customs liability and your risk exposure during transit.

Published by: International Chamber of Commerce (ICC). 

Current edition: Incoterms 2020 (in force since 1 January 2020). 

Number of terms: 11. 

Split: 7 terms for any mode of transport. 4 terms for sea and inland waterway only.

The 11 Incoterms 2020. Shipping Terms Explained.

Each Incoterm defines a different split of responsibility between buyer and seller. Here is every term defined.

7 Incoterms for Any Mode of Transport.

EXW. Ex Works.

The seller makes goods available at their premises. The buyer is responsible for all freight costs, export customs and risk from the factory gate. EXW gives the buyer maximum control but requires the buyer to manage export customs in the origin country, which many UK importers are not equipped to do directly.

Best for: Buyers with established freight forwarding relationships in the origin country.

FCA. Free Carrier.

The seller delivers goods to a named place, cleared for export. Risk transfers to the buyer at that point. FCA is similar to EXW but the seller handles export clearance, making it more practical for UK buyers importing from China or Europe.

Best for: Buyers wanting the seller to handle export customs while retaining control of the main freight.

CPT. Carriage Paid To.

The seller pays freight to a named destination. Risk transfers to the buyer when goods are handed to the first carrier. The buyer bears the risk during transit even though the seller has paid the freight. Cargo insurance is strongly recommended under CPT.

Best for: Buyers comfortable with bearing transit risk once goods have been collected.

CIP. Carriage and Insurance Paid To.

The same as CPT but the seller is also required to arrange cargo insurance. Under Incoterms 2020, CIP requires the seller to arrange Institute Cargo Clauses (A) cover, the highest level of all-risks marine insurance.

Best for: Buyers importing high-value goods where the seller is required to arrange insurance.

DAP. Delivered at Place.

The seller delivers goods to a named place at destination, ready for unloading. The buyer is responsible for import customs clearance and import duty. Under DAP, the seller bears all transit risk up to the named delivery point.

Best for: Buyers who want door delivery from the seller but prefer to control their own UK customs clearance.

DPU. Delivered at Place Unloaded.

The seller delivers goods to a named place and is responsible for unloading. Risk transfers to the buyer after unloading is complete. DPU is the only Incoterm that requires the seller to unload goods at the destination.

Best for: Buyers where the delivery location has unloading facilities that the seller can access.

DDP. Delivered Duty Paid.

The seller is responsible for all freight costs, export customs, import customs, import duty and delivery to the buyer’s named address. DDP places the maximum obligation on the seller and the minimum obligation on the buyer.

Best for: Buyers who want a single all-in price. However, there are significant risks for UK importers using DDP from China. See the DDP section below.

4 Incoterms for Sea and Inland Waterway Only.

The following 4 terms apply only to sea freight and inland waterway shipments. They should not be used for air freight, road freight or multimodal movements.

FAS. Free Alongside Ship.

The seller delivers goods alongside the vessel at the named port of loading. The buyer is responsible for loading, freight, insurance and all costs from that point.

Best for: Bulk cargo and specialist sea freight movements where goods are delivered to the quayside.

FOB. Free on Board.

The seller delivers goods on board the vessel at the named port of loading and clears them for export. Risk transfers to the buyer once the goods are on board. The buyer is responsible for ocean freight, cargo insurance and UK import customs. FOB is the most commonly used Incoterm for China-to-UK sea freight imports.

Best for: UK importers buying from China or Asia who want to control their own ocean freight and UK customs clearance.

CFR. Cost and Freight.

The seller pays ocean freight to the named port of destination. Risk transfers to the buyer when goods are loaded on board the vessel. The buyer bears the risk during transit even though the seller has paid the freight. Cargo insurance is the buyer’s responsibility under CFR.

Best for: Buyers who want the seller to arrange freight but are comfortable managing transit risk and insurance themselves.

CIF. Cost, Insurance and Freight.

The seller pays ocean freight and arranges cargo insurance to the named port of destination. Risk transfers to the buyer when goods are loaded on board the vessel. Under Incoterms 2020, CIF requires only Institute Cargo Clauses (C) cover, the minimum level of marine insurance.

Best for: Buyers importing by sea who want the seller to arrange freight and basic insurance but who should consider whether the minimum CIF insurance level is sufficient for their cargo value.

FOB vs EXW. Which Is Right for UK Importers?

FOB and EXW are the 2 most commonly used Incoterms for UK businesses importing from China. The key difference is where responsibility transfers and whether the Chinese supplier handles export customs.

EXW. Ex Works.

Under EXW, the buyer is responsible for everything from the factory gate, including Chinese export customs. This gives the buyer full control over the freight arrangement but requires a freight forwarder or agent in China who can handle export customs on your behalf. Most UK importers do not have this capability directly.

Choose EXW when: You have an established freight forwarder in China who can manage the export customs process on your behalf.

FOB. Free on Board.

Under FOB, the seller handles export customs in China and delivers goods on board the vessel at the named departure port. The buyer takes over from that point, controlling ocean freight, cargo insurance and UK customs clearance through their own freight forwarder. FOB is the recommended Incoterm for most UK importers from China.

Choose FOB when: You want control over your UK customs clearance and ocean freight without managing Chinese export customs yourself.

DDP Shipping from China. What UK Buyers Need to Know.

DDP (Delivered Duty Paid) shipping from China appears straightforward because the Chinese seller quotes a single all-in price covering freight and UK customs duties. However, there are significant compliance risks for UK buyers purchasing on DDP terms.

Under DDP, the Chinese seller or their appointed freight forwarder controls the UK customs clearance process. This means the commodity code classification, the customs value declared and the duty rate applied are all outside the UK buyer’s control. Incorrect commodity codes or undervalued customs declarations can result in HMRC post-clearance audits, additional duty demands and penalties against the UK importer of record, regardless of the DDP terms agreed with the Chinese seller.

Our Portishead team recommends that UK businesses importing from China use FOB or EXW terms wherever possible, so that UK customs clearance is controlled by a BIFA-accredited UK freight forwarder accountable to the UK importer.

Incoterms 2020 Quick Reference. Who Pays What.

Use this table to compare responsibility across the most commonly used Incoterms 2020 for UK importers.

How Your Incoterm Affects UK Customs Clearance.

The Incoterm you agree with your supplier determines who is responsible for UK import customs clearance. Under EXW, FCA, FOB, CFR and CIF, the buyer is responsible for UK customs. Under DAP, the buyer is also responsible for UK customs even though the seller delivers to the named UK address. Under DDP only, the seller is responsible for UK customs clearance.

For UK importers buying on EXW, FOB or CFR terms, UK customs clearance must be coordinated through a UK freight forwarder or customs agent. Our Portishead team coordinates UK customs documentation via our dedicated 3rd party agents at Felixstowe as part of every door-to-door movement we arrange.

Frequently Asked Questions

Common questions about Incoterms 2020 from UK importers and exporters.

What is the most common Incoterm for importing from China?

FOB (Free on Board) is the most commonly used Incoterm for UK businesses importing from China by sea. Under FOB, the Chinese seller handles export customs and delivers goods on board the vessel. The UK buyer controls ocean freight and UK customs clearance through their own freight forwarder.

What is the difference between FOB and DDP shipping?

Under FOB, the buyer controls ocean freight and UK customs clearance. Under DDP shipping, the seller controls everything including UK customs, which removes the buyer’s visibility over commodity code classification and declared customs values. Most UK freight forwarders recommend FOB over DDP for compliance reasons.

What does EXW mean in shipping terms?

EXW (Ex Works) means the seller makes goods available at their premises and the buyer is responsible for all freight costs and export customs from that point. EXW gives the buyer the most control but requires the buyer to manage export customs in the origin country, which many UK importers cannot do directly.

What is CIF in shipping terms?

CIF (Cost, Insurance and Freight) means the seller pays ocean freight and arranges cargo insurance to the named port of destination. Risk transfers to the buyer when goods are loaded on board the vessel. Under Incoterms 2020, CIF requires only minimum Institute Cargo Clauses (C) cover, which may be insufficient for high-value cargo.

Are Incoterms 2020 legally binding?

Incoterms 2020 are not automatically legally binding. They become binding when expressly incorporated into a sales contract. To use Incoterms 2020, the contract must reference them explicitly, for example: “FOB Shanghai, Incoterms 2020.” Without this reference, the terms may not be enforceable in a dispute.

Do Incoterms determine who pays import duty?

No. Incoterms define who is responsible for arranging customs clearance but they do not determine who ultimately pays import duty. Under DDP, the seller pays import duty. Under all other terms, the buyer is responsible for import duty and VAT. The applicable duty rate is determined by the commodity code of your goods under the UK Global Tariff, regardless of the Incoterm used.