Incoterms or international commercial terms are a series of international sales terms, published by International Chamber of Commerce (ICC) and widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller and reflect state-of-the-art transportation practices.

Main carriage unpaid

FCA – Free Carrier (named place)
The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail, road, and containerised / multi-modal transport.

FAS – Free Alongside Ship (named loading port)
The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export; this changed in the 2000 version of the Incoterms. Suitable for maritime transport only.

FOB – Free on board (named loading port)
The classic maritime trade term. The seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at ship’s rail. The seller must clear the goods for export. Maritime transport only. It also includes Air transport when the seller is not able to export the goods on the schedule time mentioned in the letter of credit. In this case the seller allows a deduction of sum equivalent to the carriage by ship from the air carriage.

Main carriage paid

CFR – Cost and Freight (named destination port)
Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship’s rail. Maritime transport only.

CIF – Cost, Insurance and Freight (named destination port)
Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer. Maritime transport only.

CPT – Carriage Paid To (named place of destination)
The general/containerised/multimodal equivalent of CFR. The seller pays for carriage to the named point of destination, but risk passes when the goods are handed over to the first carrier.

CIP – Carriage and Insurance Paid (To) (named place of destination)
The containerised transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.

Arrival

DAF – Delivered At Frontier (named place)
This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.

DES – Delivered Ex Ship (named port)
Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of destination and the goods made available for unloading to the buyer. The seller pays the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc… are for the Buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals – - – and where the seller either owns or has chartered, their own vessel.

DEQ – Delivered Ex Quay (named port)
This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination.

DDU – Delivered Duty Unpaid (named destination place)
This term means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the place of destination, then this all needs to be explicitly agreed upon in the contract of sale.

DDP – Delivered Duty Paid (named destination place)
This term means that the seller pays for all transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used interchangeably with the term “Free Domicile”. The most comprehensive term for the buyer. In most of the importing countries, taxes such as (but not limited to) VAT and excises should not be considered prepaid being handled as a “refundable” tax. Therefore VAT and excises usually are not representing a direct cost for the importer since they will be recovered against the sales on the local (domestic) market.

Ensure that you arrange with the manufacturer or agent based in China that they organise the items to be sent to the nearest port to you, and find out how much it will cost to transport it. If you are not looking to pick up the goods yourself speak to your local freight forwarder to obtain quotes.

At UK Customs VAT and any Duty will need to be paid. (see Duty and VAT)

On top of this they may be other charges such as. Handling, Dox, Presentaion, Handover, Temp CAF, Clearance, Sercurity and the possibility of Temporary storage costs.

A good UK based Freight forwarder will be able to advise you of the total cost of these charges but this cost will add a few hundred pounds onto your order so it is best to speak to a forwarder.

Depending of the type of cover you are looking for there can be varying degrees of insurance see Incoterms.

When you are looking to bring in your first order either if using a agent based in China or dealing direct with a manufacture, making sure that they include the right type of insurance you require is very important. What you may have discussed with them and what they actually do maybe 2 different things. Once they provided you with the insurance certificate make sure you read the terms carefully and everything is correct and relative to your order.

Most agents and Manufactures in China are more familiar with FOB sometimes it maybe easier to just get them to do this and you get insurance through a UK based insurance company that way you don’t have to worry about what exactly you are covered for as you have arranged it all yourself.

Shipping costs can vary month to month you can consult an import management company and a freight forwarder for detail break-down on the costs and risks. You can also use an import management company to negotiate the trade terms.

Understand trade terms and use them. Before placing any order, you need to understand and confirm with your suppliers about shipment terms. Most popular are “fob” and “cif”, as well as payment terms. These are closely related to your landing cost calculation and risk assessment.

FOB

FOB stands may stand for “Free On Board” or Freight On Board and is always used in conjunction with a port of loading. Indicating “FOB port” means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination. The passing of risks occurs when the goods pass the ship’s rail at the port of shipment.

CIF

CIF stands for Cost Insurance and Freight. Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods have crossed the ship’s rail. The seller must in addition procure and pay for insurance for the buyer. Maritime transport only.
For Further information see Tips on Shipping and Incoterms

If you are using an agent in China their fees can range between 3% – 10% of the value of the goods. This fee normal covers arranging with the suppliers the goods having them delivered to them and inspected for quality control and then loading onto a container.

In addition to this fee you may incur further charges which maybe not included in this fee such as

• Their Bank Charges for when you send over the money to pay for your goods so they can pay the manufactures.
• Couriering the Bill of Lading, Certificate of Origin to you or other documents that you may require to you.

It is important to clarify from the beginning what exactly is included in this fee and have them detail everying in an invoice and confirm again with them.

Generally speaking, VAT is payable on all imports at the same rate that would apply to the product or service if supplied in the UK.

Imports from outside the EU

Goods are treated as imports if they have arrived directly from outside the EU or via another EU country without being released for free circulation. Find out which countries are inside and outside the EU for VAT purposes on the HM Revenue & Customs (HMRC) website – Opens in a new window.
You’ll normally have to declare any goods that you import to HMRC and also pay any VAT and duty that’s due. To begin this process, contact the HMRC VAT Helpline on Tel 0845 010 9000. Import VAT and duty must be paid before goods are released by HMRC. Find a downloadable declaration of imports form (C88) on the HMRC website – Opens in a new window.

How to calculate the value for VAT purposes

To calculate the value for import VAT you must add all of the following items to the goods’ value for duty, unless they have already been included:

• all incidental expenses incurred up to the goods’ first destination in the UK, eg commission, packing, transport and insurance
• all such incidental expenses that result from transporting the goods to a further destination within the EU (if that destination is known when you import the goods)
• any customs duties or levies payable on import to the UK
• any excise duties or other charges payable on import to the UK

For further information see Valuations, Declarations and Statements

If you import goods from outside the European Union (EU), or are an overseas exporter supplying customers in the EU, you need to understand how anti-dumping and countervailing duties work. Special customs duties exist to protect domestic producers against unfair competition from goods imported from outside the EU.

Anti-dumping duty may be imposed for imports that are ‘dumped’ in the EU – ie sold at a price substantially below their normal commercial value. This might be the case when goods are sold in the EU for less than the price charged in the country they originate from. Countervailing duties can apply to imports that have been subsidised by the country from which they originate.

Imports of some types of goods from particular countries may also be subject to the following additional customs duties:

• Countervailing duties can apply to imports that have been subsidised by the authorities of the exporting country from which they originate. Note that this isn’t the same as countervailing charges, which can apply to agricultural products subject to the Common Agricultural Policy.

• If the European Commission suspect dumping is taking place, traders may have to pay provisional duty while an investigation is being carried out. See the pages in this guide on when to pay anti-dumping or countervailing duties and undertakings and circumvention.

Depending on the type of goods and their country of origin. Details are given in the Tariff, where traders can find the specific classification for imports. See the guides on the classification of goods and an introduction to the Tariff. The classification also explains whether duty is payable, but traders should also check for updates. You can find information updated daily about the duties which apply to all classifications of imports and exports on our UK Trade Tariff.

Further Information

The Department for Business, Innovation & Skills (BIS) is responsible for trade policy and legislation, including trade defence measures such as anti-dumping and countervailing duties. You can read about trade defence measures on the BIS website – Opens in a new window.

HM Revenue & Customs (HMRC) is responsible for collecting anti-dumping and countervailing duties. Read a reference guide to anti-dumping and countervailing duties at the HMRC website.

Businesslink Anti Dumping and Countervailing Duties

Import duty is calculated on the type of goods, their value and their country of origin.

For the quickest way to find out details about the rates of duty applying to particular goods is to call the HMRC Tariff Classification Service Enquiry Line on Tel 01702 366 077.

If the goods originate from countries inside the European Union (EU), no duty is payable.
If the goods originate from countries outside the EU, but duty has already been paid on them in another EU country before they reach you, no duty is payable.

If the goods originate from outside the EU and no duty has been paid, you need to calculate the value of the goods. There are six calculation methods prescribed. If method one is not possible, you should move on to method two, and if that fails use method three, until you arrive at a value. Find out how to calculate import duty on the HMRC website – Opens in a new window.

One publication you might find helpful is the Tariff. Published annually, it contains information about import and export requirements. You can find out more about the UK Integrated Tariff in our guide: introduction to the Tariff.

You can find commodity codes and other measures applying to imports and exports by accessing the free online UK Trade Tariff.

Note that, unlike VAT, duty can’t be reclaimed, even if your business is VAT-registered.

For more information see this guide on excise and VAT in international trade.