Choose which incoterms are right for you
What you’ll learn
- what incoterms are
- the importance of incoterms for goods exporters
- the most commonly used terms
What are incoterms?
Shipping your exported goods to buyers can be a fairly complex process. When you're negotiating a contract with a buyer, you’ll need to discuss and agree:
- where the goods will be delivered to
- who arranges transport
- what insurance is needed, and who pays
- who handles customs procedures
- who pays any duties and taxes
Incoterms (international commercial terms) are a kind of international shorthand system to make sure all your responsibilities, costs and associated risks of exporting products are clearly allocated, agreed and recorded. They're used worldwide, usually with a contract or other form of sales agreement for any goods you export - and they should be recorded on your export invoices.
They are produced by the International Chamber of Commerce (ICC). The current version is Incoterms 2020. The previous version is Incoterms 2010, and you may still see some references to terms from this version in trading documentation.
Incoterms 2020 has 11 terms. Seven of these cover all forms of transport and 4 are for ocean freight.
Commonly used incoterms
The full list of the 11 terms in Incoterms 2020 can be found on the website of the International Chamber of Commerce. Here's a list of the most commonly used ones:
EXW: Ex Works
Applies to all forms of transport. You make the goods available at your location, at your premises or another named place such as a warehouse. The buyer takes on all the transportation costs and also bears the risks of bringing the goods to their final destination.
FOB: Free on Board
Applies to ocean freight. You'll be responsible for all costs involved in the process up until the goods are loaded on to a vessel at the named UK port. Once goods have been loaded, the buyer is responsible for any costs and risks involved in the onward shipment.
CFR: Cost and Freight
Applies to ocean freight. You have to pay the costs and freight to bring the goods to the overseas port of destination. The buyer pays costs and takes risk from then on.
CIF: Cost, Insurance and Freight
Applies to ocean freight. You have to pay the costs and freight and insurance to bring the goods to the overseas port of destination. The buyer pays costs and takes risk from then on.
The default level of insurance cover under CIF is Institute Cargo Clauses (C). This applies to both 2010 and 2020 Incoterms.
DPU: Delivered at Place Unloaded
Applies to all forms of transport. You'll arrange the carriage and delivery of the goods, ready for unloading at the named place. You will be in charge of unloading the goods at this destination.
After the goods’ arrival, the customs clearance in the importing country needs to be completed by the buyer at their own cost and risk, including payment of all customs duties and taxes.
DDP: Delivered Duty Paid
Applies to all forms of transport. You'll be responsible for delivering the goods to the named place in the country of the buyer and pay all costs in bringing the goods to the destination.