Guide

Incoterms for people who don't import very much

Three letters at the end of a quote that decide who pays for freight, duty and the paperwork.

Incoterms are a standard set of shipping terms. There are eleven. You will meet four, and the only thing you need from them is who pays for what, and where the risk passes from them to you.

EXW — ex works

The price is the goods, sitting at their factory. Everything after that is yours: collection, freight, insurance, customs, duty, delivery. It is the lowest number on any quote and almost never the lowest cost.

If you are comparing an EXW quote from abroad against a delivered UK quote, you are not comparing prices. You are comparing a price against a price plus several hundred to several thousand pounds of freight and duty.

FOB — free on board

They get the goods onto the ship and handle export clearance. You pay the sea freight, insurance from that point, UK import clearance, duty and delivery inland. Common on container-load orders from Asia.

DAP — delivered at place

They deliver to your address, but you are the importer of record and you pay the duty and import VAT. This is the one that surprises people: the goods arrive, and then a bill arrives from the courier for duty, import VAT and a clearance fee.

DDP — delivered duty paid

They deliver, and they have paid the duty. The number on the quote is the number you pay. For a small business buying a couple of pallets, this is usually what you want, even at a higher headline price, because it removes both the admin and the uncertainty.

What this means when you compare quotes

Two quotes on different Incoterms are not comparable until you have added the missing costs to the cheaper-looking one. As a rough guide for a pallet or two into the UK:

Sea freight and inland delivery from Europe: a few hundred pounds per pallet.
Customs clearance: £40 to £80 per consignment.
Duty: depends entirely on the commodity code, and can be zero. Look it up rather than guessing — the UK Trade Tariff is public.
Import VAT: reclaimable if you are VAT registered, but it is still cash out until you reclaim it.

The practical rule

Ask every supplier to quote on the same basis, and say which. If you do not import routinely, ask for DDP and compare like with like. If a supplier will only quote EXW, that is fine — it means their quote needs freight and duty added before it goes next to anyone else's.