Logistics 101
Incoterms
Incoterms (International Commercial Terms) are a set of internationally recognised trade rules created by the International Chamber of Commerce (ICC).
They define the responsibilities of buyers and sellers when goods are traded across borders — specifically, who is responsible for transport, insurance, customs clearance, and the payment of duties and taxes at each stage of the delivery process.
Each Incoterm is represented by a three-letter abbreviation, such as EXW (Ex Works), DAP (Delivered at Place), or DDP (Delivered Duty Paid).
These abbreviations appear on commercial invoices and shipping documents to clearly outline the terms of sale and the division of costs and risks.
By using Incoterms correctly, both exporter and importer know exactly who covers costs and assumes risks from the moment the goods leave the seller's premises until they reach the buyer.
This clarity helps prevent confusion, delays, and disputes in international trade.
The latest version — Incoterms 2020 — applies worldwide across all transport modes, including road, air, and sea.
At Pallet2Ship, most international services operate under:
- DAP (Delivered at Place) for exports — the seller arranges delivery to the destination country, while the receiver handles import customs, duties, and taxes.
- EXW (Ex Works) for imports — the sender makes the goods available for collection, and the receiver is responsible for all customs, duties, and taxes.
DDP (Delivered Duty Paid), where the seller pays all import costs and taxes, is not available for all services, so customers should check with us before booking.
If your shipment involves Northern Ireland customs procedures, you may also need an XI EORI number. See our XI EORI guide.
Learn more about Incoterms 2020: Incoterms
All 11 Incoterms 2020 at a glance:
Any transport mode:
- EXW (Ex Works) — buyer collects from seller's premises, handles everything
- FCA (Free Carrier) — seller delivers to carrier, cleared for export
- CPT (Carriage Paid To) — seller pays freight to destination, risk transfers at handover to carrier
- CIP (Carriage and Insurance Paid To) — as CPT, plus seller arranges insurance
- DAP (Delivered at Place) — seller delivers to destination, buyer handles import clearance
- DPU (Delivered at Place Unloaded) — seller delivers and unloads at destination
- DDP (Delivered Duty Paid) — seller handles everything including import duties and taxes
Sea and inland waterway only:
- FAS (Free Alongside Ship) — seller delivers goods alongside the vessel
- FOB (Free on Board) — seller delivers goods on board the vessel
- CFR (Cost and Freight) — seller pays freight to destination port, risk transfers at loading
- CIF (Cost, Insurance and Freight) — as CFR, plus seller arranges minimum insurance
Pallet2Ship can explain which Incoterms are supported on our services and what each term means in practice. However, the choice of Incoterm is a commercial decision between buyer and seller, and we do not provide legal or tax advice.
Frequently Asked Questions
about Incoterms
Understanding incoterms
Incoterms (International Commercial Terms) are a set of globally recognised trade rules published by the International Chamber of Commerce (ICC). They define how responsibilities, costs, and risks are divided between the buyer and seller when goods are traded internationally.
Using the correct Incoterm ensures both parties understand exactly who is responsible for what. This prevents disputes, avoids customs delays, and makes it clear who pays for transport, insurance, duties, and taxes. For international pallet shipments, the Incoterm appears on the Commercial Invoice and determines the entire cost and risk structure of the transaction.
Incoterms are created and maintained by the International Chamber of Commerce (ICC), first published in 1936 and updated periodically. The latest version, Incoterms 2020, is the edition currently in force worldwide.
Incoterms 2020, which took effect on 1 January 2020. It applies to all transport modes — road, air, sea, and rail — and replaced the previous 2010 version. The 2020 edition introduced clearer guidance on insurance levels, security obligations, and cost allocation.
There are 11 Incoterms in total. Seven apply to any transport mode (EXW, FCA, CPT, CIP, DAP, DPU, DDP) and four apply only to sea or inland waterway transport (FAS, FOB, CFR, CIF).
The most common incoterms explained
EXW means the seller makes the goods available at their own premises. The buyer is responsible for everything from that point — collection, export clearance, transport, insurance, import clearance, duties, and taxes. EXW places maximum responsibility on the buyer and minimum on the seller. It is commonly used for imports into the UK where the buyer arranges collection from the overseas supplier.
FCA means the seller delivers the goods, cleared for export, to a carrier or location nominated by the buyer. Once handed over, the buyer assumes all costs and risks. FCA is versatile, works for all transport modes, and is often recommended over EXW for exports because the seller handles export clearance.
FOB means the seller delivers the goods on board the vessel at the named port of shipment. The buyer assumes costs and risks from that point. FOB applies only to sea freight and is widely used in ocean shipping, particularly for bulk and non-containerised cargo. For containerised goods, FCA is generally more appropriate.
CFR means the seller pays freight costs to the named destination port, but the risk transfers to the buyer once the goods are loaded onto the vessel at the origin port. The buyer is responsible for insurance. CFR applies only to sea freight.
CIF is similar to CFR but the seller must also arrange minimum insurance cover for the goods during transit. The risk still transfers to the buyer at the origin port. CIF applies only to sea freight and is commonly used in international commodity trading.
DAP means the seller arranges and pays for transport to an agreed destination, bearing all risks until the goods arrive ready for unloading. The buyer is responsible for import customs clearance, duties, and taxes. DAP is one of the most commonly used Incoterms for international pallet delivery and is the standard term used on most Pallet2Ship export services.
DPU means the seller delivers the goods and unloads them at the agreed destination. The seller bears all costs and risks until unloading is complete. The buyer handles import clearance, duties, and taxes. DPU replaced the older DAT (Delivered at Terminal) term in Incoterms 2020.
DDP means the seller arranges transport and pays all costs including import customs clearance, duties, and taxes in the destination country. This places maximum responsibility on the seller. DDP is not available on all Pallet2Ship services because the seller must be able to act as importer of record in the destination country, which is not always possible. Confirm with our team before booking DDP.
Which incoterms does pallet2ship use?
Most Pallet2Ship export services operate under DAP (Delivered at Place). The seller arranges delivery to the destination, but the receiver handles import customs clearance and pays any duties and taxes. This is the standard arrangement for the majority of international pallet shipments.
Most Pallet2Ship import services operate under EXW (Ex Works). The overseas sender makes the goods available for collection, and the UK receiver is responsible for all transport, customs, duties, and taxes from that point.
No. DDP requires the seller to handle import clearance and pay duties and taxes in the destination country. This is only possible on specific services and routes. Always confirm with our team before booking a DDP shipment, as the seller may need to be registered as an importer in the destination country.
The Incoterm is agreed between the buyer and seller as part of the commercial transaction. Pallet2Ship can advise on which Incoterms are supported on each service, but the choice ultimately depends on the agreement between the trading parties.
Incoterms and customs
Yes. Incoterms specify who handles customs procedures at each stage. Under EXW and DAP, the buyer (receiver) handles import clearance and pays duties and VAT. Under DDP, the seller handles import clearance. Selecting the wrong term can cause confusion about who is responsible for clearance, leading to delays.
Yes. Under DAP and EXW, the receiver pays import duties and VAT. Under DDP, the seller pays. This is one of the most important practical consequences of choosing an Incoterm and should be agreed clearly before shipping.
Under most Incoterms, insurance is optional and arranged by whichever party wishes to protect the goods. Under CIF and CIP, the seller is required to arrange minimum insurance cover for the buyer’s benefit during transit. Under all other terms, insurance is at each party’s discretion.
Incoterms on your documents
Incoterms appear on the Commercial Invoice and may also appear on the sales contract, purchase order, and shipping instructions. They should always include the specific term, the named place, and the version — for example, “DAP Berlin, Incoterms 2020.”
Yes. When you book an international shipment through Pallet2Ship, the system generates the Commercial Invoice during the booking process. The Incoterm is included as part of the documentation.
Common mistakes
Using FOB for containerised cargo (FCA is more appropriate), choosing DDP without confirming the seller can act as importer, not specifying the named place alongside the Incoterm, using an outdated version (e. g. Incoterms 2010 terms like DAT instead of the current DPU), and assuming the Incoterm covers payment terms or transfer of ownership (it does not).
The wrong Incoterm can cause disputes about who pays for transport, customs, duties, and insurance. It can also cause clearance delays if the party named as responsible for import formalities is not prepared or registered to handle them.
No. Incoterms only cover the division of costs, risks, and transport responsibilities. Payment terms (when and how the buyer pays) and transfer of legal ownership are separate matters that must be agreed in the sales contract.
Transport mode considerations
EXW, FCA, CPT, CIP, DAP, DPU, and DDP can be used for any transport mode — road, air, sea, rail, or any combination.
FAS, FOB, CFR, and CIF apply only to sea or inland waterway transport. They should not be used for air freight, road freight, or containerised ocean freight where the goods are handed to the carrier at an inland point before the port.
Generally no. FOB is designed for cargo loaded directly onto a vessel at the port. For containerised goods, FCA is more appropriate because the seller typically hands the container to the carrier at an inland location before it reaches the port.
Practical considerations
On their own, Incoterms are not laws. But when included in a sales contract or commercial invoice — for example, “DAP Berlin, Incoterms 2020” — they become binding trade conditions. They are widely recognised by customs authorities, carriers, and courts worldwide.
Incoterms are designed for international trade. They are not typically used for domestic UK pallet deliveries, which do not involve customs clearance or international cost and risk allocation.
Technically, yes — parties can agree to use any version. However, the ICC recommends Incoterms 2020, and using older versions (such as 2010) may cause confusion, particularly around terms that have changed (DAT is now DPU, CIP insurance requirements have increased). Always specify the version on your documents.
We can explain what each Incoterm means and which terms are supported on our services. However, Pallet2Ship does not provide legal or tax advice. The choice of Incoterm should be agreed between the buyer and seller based on their commercial arrangement. For complex situations, professional trade advice is recommended.
You can read the official Pallet2Ship Incoterms reference document, consult guidance on GOV. UK, or obtain the full Incoterms 2020 rulebook from the International Chamber of Commerce (ICC) at iccwbo.org.