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Inco-Terms – What are they and why they are important
Calculating the costs is a must before arranging to import any goods into the UK and although it doesn’t sound like anything important, and wouldn’t be anything that UK Customs would be interested in, the ‘Terms of Sale’ or ‘Incoterms’ between the seller and the buyer, you, is not only something that must be clarified at the time of purchase, but it also something that must also be clearly marked on your paperwork. Why? All is explained below. ukimports
We can assist you with the shipping and / or UK Customs clearance of your goods, so whichever Inco-Term applies to you, why not contact our Imports Team for assistance on enquiries@ukimportservices.com or complete our Online Form or call us on 0800 690 6310.
So, what needs to be written on your paperwork? Well, Inco-Terms are shown in a 3-letter format, as follows:
The following ‘Official’ explanations for each Incoterm, has been taken from the ICC’s website Click here for more information, whereas the Simplified version has been written by ourselves to explain what happens in most circumstances.
Click on the terms in the blue boxes to reveal the ‘official’ explanation and the ‘simplified’ explanation. ukimports
DDP - Delivered Duty Paid
Simplified explanation: This usually means that you have paid the seller an all-in price, for the goods and their delivery to your door (without having to pay any charges to anyone else). ukimports
DAT - Delivered At Terminal
Simplified explanation: This usually means that the seller will be arranging and paying for the goods to arrive at the destination airport or Port.
CIF - Cost, Insurance and Freight (for use with Sea Freight only)
‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.”
Simplified explanation: This usually means that you, the buyer/receiver have paid the seller, the cost of the goods, Insurance during transit and the freight charges to the UK. All cost costs incurred once in the UK are payable by yourself. ukimports
CFR - Cost and Freight – also shown as C&F (for use with Sea Freight only)
Simplified explanation: Exactly the same as ‘CIF’ above without your goods being insured.
CIP - Carriage and Insurance Paid to
The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements.
Simplified explanation: This usually means that the seller will be paying for the goods to be shipped, and arranging insurance cover, up till an agreed place (usually an agreed address between you, the buyer/receiver and the seller).
CPT - Carriage Paid To
Simplified explanation: This is usually the same as CIP above, but without the Insurance cover.
FOB - Free on Board (for use with Sea Freight only)
Simplified explanation: This usually means that the seller has only paid for the goods to be delivered in the port or airport of departure in the Country of Origin. All freight costs and any other charges will need to be arranged and paid for by yourself, the buyer / receiver. We can assist you with this, so why not contact our Imports Team for more information. ukimports
FCA - Free Carrier
Simplified explanation: FCA is identical to FOB, except for the fact that it usually means that the seller will arrange for the goods to be delivered to the port/airport/cargo shed instead of you, the buyer, having to pay for it to be collected.
EXW - Ex-Works
Official explanation: “Ex Works” means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e. works, factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable.
Simplified explanation: This usually means that it has been agreed that the shipper is not paying for anything other than the sale of the goods. The responsibility for the collection of the goods from the supplier’s premises, export documentation including any local Customs declaration and handling costs, and the shipping to the UK, will be the arranged by the buyer. Again, we can assist you with this, so why not contact our Imports Team.
Incoterms explained
The ‘Total Value’ of your goods liable for Import Duty and/or VAT depends on the ‘Terms of Sale’ or ‘Inter-company Terms (Incoterms), between yourself, the importer (or buyer) and the exporter (or seller), and clearly outlines as to who is paying for what.
When buying any goods, you would usually pay either an all-in price, one which includes the cost of shipping to the UK. Or alternatively, there could be the situation whereby the price you pay, only covers the cost of the goods and then you may have to pay the seller an extra charge for shipping them to the UK. Or, perhaps you are just paying the seller for the cost of the goods and you’re sorting out the shipping costs out yourself, with the company who has shipped them from the country of origin to the UK port. These 3 options are 3 different examples of ‘Inco-terms’ (or ‘Terms of Sale’) and perhaps, are the most commonly used ‘Inco-Terms’, (although there are many more), and they each affect what Customs deem as the value of your goods on which import duty and / or VAT will be paid (if applicable).
Incoterms are internationally recognised trade terms, published by the International Chamber of Commerce (ICC) based in Paris, France. Its latest version in 2010 changed some of the previously well-used terms which had been in place since its introduction in 1936.
Incoterms are usually shown on shipping documents and quotes in a 3-letter form, which indicates who is paying for what part of the shipping process.
UK Customs (HMRC) see that the total value of your goods as the original purchase price, as well as any of the following:
- Collection/Delivery costs from the shipper to the port of export, as well as the shipping cost to the UK of arrival
- The cost of any specialised packaging
- Any additional Marine Insurance taken out to cover your goods during transit
If the seller absorbed these costs, then they will not be added to your CDS Declaration, however, if you paid for them, then you will have to pay import duty and / or VAT on them (if applicable).
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