What Incoterms actually are
Incoterms are international commercial terms maintained by the International Chamber of Commerce (ICC). The current version is Incoterms 2020. They define exactly who is responsible for transport, insurance, customs and risk at every stage of an international shipment.
There are eleven of them, split into two groups: seven for any mode of transport, and four exclusively for sea/inland waterway. In practice, most B2B shipments use one of five: EXW, FCA, FOB, DAP or DDP.
Always write the Incoterm followed by the specific named place. "DAP" alone is meaningless. "DAP Antwerp 2030, Belgium" is a complete instruction.
The five Incoterms you'll actually use
EXW — Ex Works
Seller's responsibility: make the goods available at their premises. That's it.
Buyer's responsibility: everything else — pickup, export customs, freight, import customs, delivery.
When to use: when the buyer wants maximum control and has a forwarder who can handle export customs from the seller's country. Common for buyers picking up at Chinese factories.
Watch out for: in theory the buyer handles export customs, but in practice the seller often has to be involved because only they can sign the export declaration. Many forwarders prefer FCA for this reason.
FCA — Free Carrier
Seller: delivers goods, cleared for export, to the carrier nominated by the buyer at an agreed place.
Buyer: pays for the main carriage, import customs, delivery.
When to use: the modern replacement for EXW. Cleaner because export customs is clearly the seller's job.
FOB — Free On Board (sea only)
Seller: delivers goods on board the vessel at the named port of shipment.
Buyer: pays for ocean freight, marine insurance, import.
When to use: traditional choice for sea shipments where the buyer has a relationship with a freight forwarder. Common for imports from China.
Watch out for: only valid for sea/inland waterway. For containers shipped from inland China by rail or road, FCA is technically correct, not FOB.
DAP — Delivered At Place
Seller: delivers goods to the named destination, unloaded.
Buyer: handles import customs and pays import duties + VAT.
When to use: when the seller has a forwarder relationship and can offer door delivery, but the buyer prefers to handle customs themselves (e.g. to use their VAT deferment).
DDP — Delivered Duty Paid
Seller: delivers goods to the named destination AND pays import duties + VAT.
Buyer: just receives the goods.
When to use: for B2C e-commerce where the customer should never see a customs invoice. Also common when the seller wants total ownership of the customer experience.
Watch out for: the seller needs to handle foreign VAT, which usually means having a VAT registration or fiscal representative in the destination country. Selling DDP to the UK from the EU? You need a UK VAT number.
Quick decision tree
| Your situation | Best Incoterm |
|---|---|
| You're a buyer with a great forwarder | FCA or FOB |
| You're a seller who wants control of shipping | DAP or DDP |
| B2C e-commerce, EU → UK | DDP (customer never sees a customs bill) |
| B2B, importing into NL/BE/DE | DAP (use your own Article 23 / ET 14.000) |
| One-off small shipment | DDP (let the carrier handle everything) |
| You want lowest possible landed cost | FCA + your forwarder + DAP from there |
Common mistakes we see
- Using FOB for air freight. FOB is only valid for sea. For air, use FCA.
- Writing "DDP" without a destination. "DDP" alone tells the carrier nothing. "DDP buyer's warehouse, full address" is required.
- Mixing up insurance. Only CIF and CIP include insurance. Under DAP and DDP, the seller doesn't have to insure (though they often do anyway).
- Selling DDP to the UK without a GB VAT number. Customs will reject it. You either need a UK VAT registration or you need to use DAP instead.
- Assuming "delivered" means inside the warehouse. DAP delivery is "to the named place, unloaded." If you want help unloading, that's a separate cost.
How we use Incoterms at Novex
When you ask us for a quote, we always ask: where does your responsibility start and where does it end? That tells us the Incoterm without you having to know the three-letter code.
If you tell us "the supplier in Frankfurt loads the truck, we want it delivered to our warehouse in London, customs included," that's DDP Frankfurt → London. We'll quote that route, file customs in both countries, and pay the import VAT against your UK VAT number.
If you tell us "we'll pay the ocean freight ourselves but need pickup at Rotterdam and delivery to our DC," that's the haulier/customs leg only — and we'll quote just that.