Incoterms Explained: A Plain-English Guide for Exporters

Incoterms (International Commercial Terms) are a set of 11 standardised trade terms published by the International Chamber of Commerce. They define:

• Where the risk of loss or damage transfers from seller to buyer
• Who pays for each stage of transportation and insurance
• Who handles customs clearance and pays import duties

Incoterms do not define payment terms, transfer of title, or remedies for breach of contract — those are governed by the sale contract. The current version is Incoterms 2020.

There are 11 Incoterms. For most UK SME exporters, three cover the majority of situations:

EXW (Ex Works): buyer collects from your premises and takes all responsibility from that point. Maximum risk for buyer, minimum obligation for you. Used for buyers who have their own freight and logistics infrastructure. Not recommended for consumer/DTC sales.

DAP (Delivered at Place): you deliver to a named place in the destination country, but the buyer clears customs and pays import duties. You handle and pay for all transport. Good for experienced B2B buyers.

DDP (Delivered Duty Paid): you deliver cleared and duty-paid to the buyer's door. Maximum obligation for you, best experience for buyer. Standard for DTC/consumer cross-border commerce. You take on all FX and duty risk.

For any business selling direct to international consumers, DDP is the recommended standard. Here's why:

Under DAP or EXW, a consumer in Germany who orders from your UK website will receive their parcel held at customs and a letter demanding payment of import duty and VAT before the parcel is released. This is a terrible customer experience. Reviews will reflect it. Chargebacks will follow.

Under DDP, you collect the full duty-and-tax-inclusive price upfront (factor it into your retail price), handle customs clearance, and the consumer receives their parcel at the door with no surprise charges. This is what Amazon, ASOS, and all major DTC brands do.

DDP costs more to administer but pays back in customer satisfaction, repeat purchase rates, and fewer returns.

Always specify the Incoterm on your commercial invoice and in your sale contract. The correct format is:

• Term abbreviation
• Named place of delivery
• 'Incoterms 2020'

Example: *DAP Berlin, Germany, Incoterms 2020*

Without a clearly specified Incoterm, disputes about who owes what for freight damage, customs delays, or uncollected goods are much harder to resolve.

For DDP sales, your freight forwarder or customs broker handles the practical import clearance on your behalf — you just need to include the cost in your pricing.