What an Incoterm on your quote means

A quote from a supplier abroad often carries a short code next to the price, a few letters followed by a place name, such as FOB Shanghai or DAP London. That code is not a typing shorthand or a courier's own term. It points to one of a fixed set of rules that sets out who arranges and pays for carriage, who insures the goods in transit, and at what point responsibility for the goods passes from the seller to the buyer.

Who writes the rules

These are the Incoterms® 2020 rules, published by the International Chamber of Commerce, a private international body representing businesses. The ICC writes and updates the rules, and 2020 is the version currently in use on most quotes you will see.

Why HMRC does not set them

HMRC has no part in writing these rules and does not require a business to use any particular one. They are not UK customs law and they are not published by GOV.UK. A buyer and a seller simply agree between themselves which rule applies to a given shipment, as part of their own contract, and that choice then shapes how the goods move and who carries each cost along the way.

Within the full set of Incoterms® 2020 rules, seven are written to work whatever way the goods travel, whether by sea, air, road or rail, or by more than one of these in the same journey. Each one sets out, in a different place along the route, when the seller's responsibility ends and the buyer's begins.

• EXW (Ex Works): the seller makes the goods available at its own premises, and the buyer takes on the carriage, the export paperwork and the risk from that point onward.
• FCA (Free Carrier): the seller delivers the goods, cleared for export, to a carrier or a place the buyer has named, and the risk passes to the buyer there.
• CPT (Carriage Paid To): the seller arranges and pays for carriage to an agreed destination, but the risk passes to the buyer as soon as the goods are handed to the first carrier.
• CIP (Carriage and Insurance Paid To): the seller arranges and pays for both carriage and insurance to the agreed destination, with risk passing at the same point as under CPT.
• DAP (Delivered at Place): the seller delivers the goods, ready for unloading, at the agreed destination, and carries the risk until they arrive there.
• DPU (Delivered at Place Unloaded): the seller delivers the goods to the agreed destination and unloads them, the only one of the eleven rules that places unloading on the seller.
• DDP (Delivered Duty Paid): the seller delivers the goods cleared for import, with duty and import VAT already paid, carrying the most responsibility of any rule in the set.

A quote that names one of these seven rules is telling you where, along that chain, the goods stop being the seller's concern and start being yours.

Four of the Incoterms® 2020 rules are written for goods that travel by sea or by inland waterway, because each one marks the point where risk passes at a ship.

• FAS (Free Alongside Ship): the seller delivers the goods alongside the ship at the port of shipment, and from that point the buyer carries the risk and the cost of getting them loaded.
• FOB (Free On Board): the seller delivers the goods once they are loaded on board the ship, and the buyer takes over the risk and the cost of carriage from there.
• CFR (Cost and Freight): the seller pays for carriage to the named port of destination, but the risk passes to the buyer as soon as the goods are on board the ship at the port of shipment.
• CIF (Cost, Insurance and Freight): the seller pays for carriage and insurance to the named port of destination, while the risk still passes to the buyer once the goods are on board the ship.

Under CIF, the seller has to take out insurance cover for the goods for the sea journey, at a minimum level set by the Incoterms® 2020 rules. A buyer who wants cover above that minimum needs to say so in the contract, or arrange extra cover separately.

These four rules work best where the goods are loaded straight onto a ship. Where goods move by more than one mode of transport, a different Incoterms® 2020 rule usually fits the journey better.

These five terms are the ones a small business is most likely to see written on a supplier's quote, so it helps to know what each one actually hands to you and what it leaves with the seller. Every one of them splits the same journey into two halves: who pays for getting the goods from one point to another, and who carries the risk if something goes wrong along the way. The split is not always at the same point for cost and for risk, which is why it is worth reading each term.

EXW (Ex Works)

Under Ex Works, the seller's part ends at their own premises. They make the goods available for collection and do nothing further: no loading, no transport, no export paperwork. From that point, you arrange and pay for everything, including collection, transport, export formalities in the seller's country and the import side once the goods reach Great Britain. If you are buying under this term, you will usually need an EORI number yourself, since you are the one making the declarations.

FCA (Free Carrier)

Under Free Carrier, the seller delivers the goods to a carrier or a place you have named, cleared for export, and their responsibility ends there. You take over the cost and the risk from that handover point, including the main transport and everything that happens once the goods arrive in Great Britain. It sits a step further along than Ex Works, because the seller at least gets the goods to a carrier and sorts the export clearance.

DAP (Delivered at Place)

Under Delivered at Place, the seller arranges and pays for transport all the way to an agreed place in Great Britain, and carries the risk until the goods get there. What they do not do is clear the goods through UK customs or pay any Customs Duty or import VAT due on arrival. That part, including the customs declaration, is yours to sort out once the goods reach the agreed place.

DDP (Delivered Duty Paid)

Delivered Duty Paid puts the most on the seller of any of these five. They arrange transport, carry the risk the whole way, and also handle the import side: the customs declaration and the Customs Duty and import VAT due when the goods arrive. Your part only starts once the goods have cleared and reached the agreed place. It is worth checking exactly what the quote covers, since sellers do not always use the term in the same way.

FOB (Free on Board)

Free on Board is written for goods travelling by sea or inland waterway. The seller's responsibility ends once the goods are loaded on board the vessel at the port named in the quote. From that point, the cost of the sea journey and the risk during it are yours, along with everything on the Great Britain side once the goods arrive.

Agreeing an Incoterm settles who arranges and pays for carriage, insurance and loading, and the point at which risk passes from the seller to the buyer. None of that decides how the customs value of the goods is worked out when they reach Great Britain. That value is worked out under its own rules, whichever Incoterm is written on the invoice.

How the customs value is reached is covered on the Customs Duty and Import VAT page, separately from whatever Incoterm the supplier has quoted.

The eleven rules set out on this page were written by the International Chamber of Commerce. What follows describes what each rule means in everyday words.

Incoterms is a registered trade mark of the International Chamber of Commerce (ICC). This site isn't connected with the ICC and makes no claim to speak for it.

The eleven Incoterms® 2020 rules are set out in full by the ICC itself, in a printed and digital edition it publishes and sells. A supplier's quote might name a rule such as FOB or DDP in a single line, but the ICC's own text goes further, covering matters such as packaging, inspection and the passing of risk in more detail than any summary can give. Where a quote or contract hinges on the exact wording of a rule, that published edition is the place to check it.