Incoterms for UK Traders: Understanding International Shipping Terms

When you ship goods from the UK to Europe, the US, or anywhere else, who pays for the truck to the port? Who covers insurance if the container gets damaged? Who deals with customs paperwork? These aren’t just logistics questions-they’re legal and financial ones. That’s where Incoterms come in. They’re not suggestions. They’re internationally recognized rules that define exactly who does what, when, and at what cost in global trade.

What Incoterms Actually Do

Incoterms-short for International Commercial Terms-are published by the International Chamber of Commerce (ICC). They’ve been around since 1936, but the latest version, Incoterms 2020, is what matters now. There are 11 rules, each with a three-letter code like FOB, CIF, or DDP. Each one answers four key questions:

• Where does the seller hand over the goods?
• Who pays for transport to that point?
• Who buys insurance?
• Who handles export and import customs?

Get this wrong, and you could end up paying for shipping you didn’t order, stuck with customs fees you thought the buyer handled, or worse-losing your goods with no insurance claim.

The Most Common Incoterms for UK Businesses

Not all 11 rules are used equally. For UK traders, three dominate:

EXW - Ex Works

This is the seller’s least responsibility. You (the buyer) pick up the goods at the seller’s warehouse. You arrange and pay for everything after that: loading, transport, export customs, insurance, import duties. It’s cheap for the seller but risky and complex for you. Only use this if you have a local agent in the supplier’s country or full control over logistics.

FOB - Free On Board

FOB is common for sea freight. The seller handles everything until the goods are loaded onto the ship at the port of export. After that, you take over. You pay for ocean freight, insurance, import customs, and delivery to your door. This gives you control over shipping choices and insurance coverage. But it also means you’re responsible if the container sinks or gets delayed.

DDP - Delivered Duty Paid

This is the buyer’s easiest option. The seller handles everything: export customs, transport, import customs, duties, taxes, and delivery to your door. You just open the door and unload. It’s popular with small UK businesses importing from China or Southeast Asia because you don’t need to know foreign customs rules. But it’s more expensive-the seller builds those costs into the price.

What’s Not Covered by Incoterms

Incoterms don’t tell you everything. They don’t cover:

• Payment terms (that’s your contract)
• Ownership transfer (that’s in your sales agreement)
• Product quality or warranties
• Force majeure events like strikes or war

That means you still need a solid sales contract. Incoterms are just one piece. Many UK traders make the mistake of thinking choosing DDP means they don’t need a contract. They do. Always write down who pays what, when, and under what conditions.

Why UK Traders Need Incoterms 2020

Since Brexit, UK-EU trade has changed. Goods moving between the UK and EU now face customs checks, VAT rules, and rules of origin requirements. Incoterms 2020 updated the rules to reflect this. For example:

• Under FCA (Free Carrier), the seller can now deliver goods to a named location in the UK and handle export customs-something not clearly allowed in older versions.
• Insurance requirements under CIF and CIP were clarified to ensure minimum coverage levels.
• Security requirements for transport were added, reflecting post-9/11 and post-Brexit safety rules.

If you’re still using Incoterms 2010 or older, you’re working with outdated rules. Many suppliers still quote FOB without realizing it doesn’t cover export customs in the UK anymore. Always specify “Incoterms 2020” in your contracts.

Real-World Mistakes UK Traders Make

Here are three common errors:

Mistake 1: Assuming FOB Means the Seller Handles Export Customs

Many UK buyers think FOB means the supplier ships the goods to the port and clears them out. It doesn’t. FOB only means the seller loads the goods onto the ship. Export customs is YOUR job unless you agree otherwise in writing. A UK importer once lost £12,000 in goods because the supplier didn’t file export paperwork. The goods sat in the port for weeks. No insurance covered it.

Mistake 2: Using DDP Without Checking VAT Rules

DDP sounds perfect-until you realize the seller is charging you UK VAT on top of import duties. If the seller isn’t registered for UK VAT, you’ll still have to pay it yourself. You might think you’re getting a hassle-free deal, but you’re just paying more. Always ask: “Are you registered for UK VAT under the distance selling rules?”

Mistake 3: Not Specifying the Exact Location

Writing “FOB London” is useless. Is it London Port? London Heathrow Airport? A warehouse in Slough? Incoterms require a precise location. “FOB Port of Felixstowe” is correct. “FOB London” is a legal gray zone-and could cost you.

How to Choose the Right Incoterm

Ask yourself these questions:

1. Do I trust my supplier to handle export paperwork and customs?
2. Do I have experience with import customs in the UK?
3. Can I arrange reliable shipping and insurance?
4. Am I willing to pay more for simplicity?

If you’re new to importing, start with DDP. It’s safer. If you’re experienced and want to save money, FOB gives you control. If you’re exporting, EXW lets you avoid logistics headaches-but you’ll need buyers who know what they’re doing.

What to Put in Your Contract

Never just write “FOB” in a contract. Always include:

• The exact Incoterm (e.g., FOB Port of Southampton)
• The version (Incoterms 2020)
• Who pays for which documents (commercial invoice, certificate of origin, etc.)
• Who is responsible for customs clearance in the destination country

Example: “Delivery terms: FOB Port of Felixstowe, Incoterms 2020. Buyer responsible for all transport, insurance, import duties, and UK VAT.”

This prevents misunderstandings. A UK furniture company lost £28,000 when a supplier shipped FOB but didn’t specify the port. The buyer assumed it was Liverpool. The goods went to Dover. The buyer had to pay extra for re-routing.

Where to Learn More

The ICC publishes the official Incoterms 2020 guide. It’s not free, but it’s worth it for any business shipping internationally. Your local chamber of commerce often offers free workshops. UK Trade & Investment (now part of DIT) also has resources for exporters.

Don’t rely on your supplier’s word. Don’t copy a contract from last year. And never assume “everyone knows what FOB means.” In international trade, assumptions cost money.