The crux about Incoterms – Know your Incoterms®
“Incoterms” or “International Commerce Terms” have formed an essential part of international trade since 1923. They are published under International law by the International Chamber of Commerce (ICC) in France and are updated regularly in conjunction with chamber members.
Incoterms are a series of three-letter terms that are designed to clearly identify and allocate the risks, costs and tasks that are associated with international transport and delivery of goods between seller and buyer. The current version of the terms (2020 edition), contains eleven different trade terms used for different modes of transport. Today, companies who only complete intra-EU trade use a small number of the Incoterms, as they do not need to include Customs clearance or payment of import taxes into their pu
When the UK leaves the EU (under any scenario) this will change. The Incoterms will become not only important and necessary for the transportation of the goods, but more importantly, for the Customs clearance of the goods via the Customs Declaration System (HMRC). The Incoterms will determine the accuracy of Import and Export Customs clearance transactions and therefore the correct valuations of the products which are the basis on which Duty and Taxes are calculated for it. The Incoterms will ultimately decide who is responsible for paying the taxes and duties that are applicable for the consignment. If the wrong Incoterm has been used, it will cause errors with HMRC – leading to payment of additional taxes as well as possible civil penalties.
Today, most trade with the EU is completed under either EXW (Ex Works) or DAP (Delivered At Place) for all Import or Export movements alike, however a number of other terms could also be used.
Further information about Incoterms can be obtained by contacting your local Chamber of Commerce or can be found by opening the link.
When the transitional period expires at 23:00 hours GMT/24:00 CET on 31 December 2020 and you are either an Exporter or Importer who is responsible for organising and paying the costs of the transport, Nagel Langdons Ltd recommends that you make it best practice to use only a limited number of Incoterms as specified below. We have split our information into Import and Export movements and have limited our advice to the ones which we recommend and the ones to avoid.
Importing from the EU into the UK - Vice Versa
Nagel-Group Recommendation = FCA – Free Carrier Arrival (Named place of delivery)
“Free Carrier (named place)” means that the seller delivers the goods to the buyer in one of two ways:
1: when the named place is the seller’s premises, the goods are delivered when they are loaded on the means of transport arranged by the buyer
2: when the named place is another place, the goods are delivered
- when having been loaded on the seller’s means of transport
- they reach the named other place and
- are ready for unloading from that seller’s means of transport and
- at the disposal of the carrier or of another person nominated by the buyer
Export/Import Clearance under “Free Carrier (named place)” – FCA requires the seller to Customs clear the goods for export, by means of issuing an Export Accompanying Document (EAD). This EAD must accompany the goods to the point of exit from the EU (Port e.g. Calais/Rotterdam or Eurotunnel terminal)
Nagel Langdons Limited strongly recommends using this Incoterm for all movements of goods between the EU and the UK post Transition Period and as of 01.01.2021. For all our customers who are currently buying on an ex-works basis when importing goods to the UK please negotiate with all your supplier the migration of the Incoterm to FCA.
Not Recommended – please avoid at all costs!
EXW – Ex Works (Named place of delivery)
“Ex Works” means that the seller delivers the goods to the buyer
- The seller places the goods at the disposal of the buyer at a named place (such as a factory or a warehouse)
- that the named place may or may not be the seller’s premises
Delivery under “Ex Works” happens when the goods are placed, not loaded, at the buyer’s disposal.
Export Customs Clearance under “Ex Works” happens when the goods are at the buyer’s disposal either at the seller’s premises or another named point, typically within the seller’s Countries Customs jurisdiction, but not exclusively or within the same Customs Union, there is not an obligation for the seller to organise the export customs clearance. Without the seller’s involvement in providing the necessary information required to proceed with the issuing of an Export Accompanying Document (EAD) also referred to as an Export Declaration no transport can take place.
Nagel Langdons Limited strongly advises all their UK customers not to use this Incoterm for trade between the EU and the UK post Transition Period. Please always use the Incoterms FCA as per description above.
Exporting from the UK into the EU - Vice Versa
Nagel-Group Recommendation = DAP – Delivered At Place (Named place of destination)
“Delivered at Place” means the seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place.
When the goods are placed at the disposal of the buyer
- on the arriving means of transport ready for unloading
- at the named placed of destination or
- the agreed point within that place, if any such point is agreed
Export/Import Clearance under “Delivered at Place” – DAP requires the seller to Customs clear the goods for export. The seller has no obligation to carry out any import Customs formalities, to pay any import Duty, or for post-delivery through third countries.
Nagel Langdons Limited strongly recommends using this Incoterm for trade between the UK and the EU post Transition Period.
Please bear in mind that if you are exporting goods and the buyer is responsible for Customs clearance, we would ask that you request the buyer to contact us prior of the shipment being collected. Nagel-Group shall not ship consignments which are subject to transit documentation (TAD’s) without prior knowledge of the closing Customs clearance process at the point of delivery of the goods. Failure to do so will result in delays with the shipment, which in turn will incur additional charges.
Not recommended – please avoid at all costs!
DDP – Delivered Duty Paid
“Delivered Duty Paid” means the seller bears all risks involved in bringing the goods to the named place of destination or to the agreed point within that place.
When the goods are placed at the disposal of the buyer they are:
- Customs cleared for import including payment of Duty and VAT
- On the arriving means of transport
- Ready for unloading, at the named placed of destination or
- The agreed point within that place, if any such point is agreed
Export/Import Customs Clearance under “Delivered Duty Paid” –DDP requires the seller to Customs clear the goods for export and for import and either to pay any import Duty and VAT in the Country of destination or to carry out any other Customs clearance formalities.
Nagel Langdons Limited does not recommend using this Incoterm for trade between the UK and the EU post Transition Period. If you are a retail supplier and are required to use this Incoterm please contact us at customs for further advice.
