The Incoterms, such as EXW, CFR, DAP, for example, provide clarity as to which party should arrange the transport, and which party pays for which part of the transport cost.
Furthermore, and something which is often overlooked, Incoterms also identify at what point in the transport chain the risk transfers from seller to buyer. There are cases where there is an overlap of risk that does not necessarily follow suit with who pays the freight bill.
“Incoterms” is an ICC trademark, registered in the European Union and elsewhere and the text of Incoterms in whole or in part is subject to ICC’s copyright. We can advise you on usage of these terms, but under copyright law are not allowed to reproduce them on our website.
In 2020, new Incoterms will come into force, although some companies may still wish to trade under existing Incoterms for an agreed period of time. It is worth commenting that DAT has been replaced with DPU in the new version.
A very brief synopsis of Incoterms can be found below:
If you would like to look to the official source, you can visit the ICC website.
One final note, following our departure from the EU, a variant of DAP is becoming popular, that of ‘DAP cleared’. By using this variant, the exporter pays for the import clearance process, whilst the importer benefits from preferential duty under the Free Trade deal, and settles any import VAT for recovery in their VAT returns. Also, a further variant of ‘DAP duties and Fees Paid’ has also become popular, as it retains DAP liabilities.
The below table may help to demystify who pays what in each scenario. But do also bear in mind that with each Incoterm, the ‘risk’ (in terms of at what point risk passes to the next party) does not always match who pays what.
| Incoterms | Origin Export Clearance | Destination Customs Clearance | Import Duty | Import VAT | Customs Checks or Examination |
| EXW | Destination | Destination | Destination | Destination | Destination |
| FCA | Origin | Destination | Destination | Destination | Destination |
| CPT | Origin | Destination | Destination | Destination | Destination |
| CIP | Origin | Destination | Destination | Destination | Destination |
| DAP | Origin | Destination | Destination | Destination | Destination |
| DAP Cleared* | Origin | Origin | Destination | Destination | Destination |
| DAP Duties and Fees Paid* | Origin | Origin | Origin | Destination | Destination |
| DDP ** | Origin | Origin | Origin | Origin | Origin |
Further explanation, with reference to this table, can be found at Incoterm DDP – be wary