Incoterms 2020 in Practice: Choosing the Right Terms for UK-EU Trade

Incoterms — the International Commercial Terms published by the International Chamber of Commerce — define the responsibilities of buyers and sellers in international trade transactions. The 2020 edition, which came into effect on 1 January 2020, contains eleven terms that allocate costs, risks, and obligations between trading partners. Since Brexit, choosing the right Incoterm has become even more consequential for UK-EU trade, as every shipment now crosses a customs border.

Why Incoterms Matter More After Brexit

Before Brexit, goods moving between the UK and EU member states were in free circulation — no customs declarations, no tariffs, and no border checks. Today, every UK-EU shipment requires export and import clearance, safety and security declarations, and potentially duty and VAT payments. The Incoterm you select determines who bears these costs and who is responsible for arranging clearance at each border.

A poorly chosen Incoterm can result in unexpected costs, delays at the border, or disputes between buyer and seller. As GOV.UK advises, businesses should understand their obligations under each term before agreeing to contracts.

The 11 Incoterms 2020 — A Quick Overview

Any Mode of Transport

• EXW (Ex Works): Seller makes goods available at their premises. Buyer bears all costs and risks.
• FCA (Free Carrier): Seller delivers goods to a carrier nominated by the buyer. Most practical term for UK-EU trade.
• CPT (Carriage Paid To): Seller pays freight to the destination but risk transfers when goods are handed to the first carrier.
• CIP (Carriage and Insurance Paid To): Like CPT, plus seller must procure insurance coverage.
• DAP (Delivered at Place): Seller delivers goods to the named destination. Buyer handles import clearance.
• DPU (Delivered at Place Unloaded): Seller delivers and unloads goods. Buyer handles import clearance.
• DDP (Delivered Duty Paid): Seller bears all costs including import duties and clearance.

Sea and Inland Waterway Only

• FAS (Free Alongside Ship), FOB (Free On Board), CFR (Cost and Freight), CIF (Cost, Insurance and Freight)

Most Common Terms for UK-EU Trade

FCA is widely regarded as the most balanced and practical choice. The seller handles export clearance in their country, while the buyer manages import formalities. This clear division aligns well with post-Brexit reality where each side needs local expertise for customs procedures.

DAP is popular when sellers want to offer door-to-door delivery but leave import formalities to the buyer. This works well when the buyer has an established relationship with a customs broker in the UK or EU.

DDP offers the most complete service to the buyer but places maximum burden on the seller, who must handle import clearance in a foreign country. This requires having customs representation in the destination country.

Common Pitfalls to Avoid

Using EXW for international shipments: While EXW seems simple, it places export clearance responsibility on the buyer — who may not be established in the seller’s country and cannot legally act as exporter of record. Most trade professionals recommend FCA instead.

Confusing cost responsibility with risk transfer: Under CPT and CIP, the seller pays for transport to the destination, but risk transfers much earlier — when goods are handed to the first carrier.

Ignoring VAT implications: The Incoterm affects who is liable for import VAT. Under DDP, the seller must register for VAT in the destination country. According to HMRC guidance, import VAT must be accounted for by the importer of record.

Practical Tips for Choosing the Right Incoterm

Consider your company’s capabilities and resources. If you have strong logistics and customs expertise, terms like DDP or DAP may give you competitive advantage. If you prefer to limit your obligations, FCA keeps your responsibilities contained. Always ensure your customs clearance partner understands the chosen Incoterm and can handle the corresponding obligations.