Epic Guide · Logistics & Supply Chain
If you've ever looked at a supplier quote and seen "FOB Shenzhen" or "CIF Felixstowe" and wondered exactly what you were agreeing to — this guide is for you.
Incoterms define who pays for what, who arranges what, and — critically — who bears the risk at each stage of your shipment's journey from a Chinese or Vietnamese factory to your UK warehouse. Getting them wrong is costly. Understanding them properly puts you in control.
Incoterms (International Commercial Terms) are standardised trade terms published by the International Chamber of Commerce (ICC). The current version is Incoterms 2020. They define the obligations of the buyer and seller in an international transaction — covering risk transfer (at what point does risk pass from seller to buyer?), cost responsibility (who pays for freight, insurance, loading, port handling, and customs?), and logistics obligations (who arranges the carrier, freight forwarder, and customs agent?).
If your goods are damaged during sea transit and you agreed FOB terms, you're responsible from the moment the goods were loaded onto the vessel — even if you never touched them. If you agreed DDP terms, the supplier bears that risk. The difference can be thousands of pounds on a single shipment.
| Term | Full name | Transport mode | Risk transfers at... |
|---|---|---|---|
| EXW | Ex Works | Any | Seller's premises |
| FCA | Free Carrier | Any | Named place / carrier handover |
| DAP | Delivered at Place | Any | Named destination (unloaded by buyer) |
| DDP | Delivered Duty Paid | Any | Named destination, all costs paid |
| FOB | Free On Board | Sea only | On board vessel at origin port |
| CIF | Cost, Insurance and Freight | Sea only | On board vessel at origin port |
| CFR | Cost and Freight | Sea only | On board vessel at origin port |
FOB is by far the most commonly used Incoterm for UK businesses importing from China and Vietnam.
Risk transfer point: the moment the goods are loaded onto the vessel at the Chinese or Vietnamese port. If the ship sinks after that point, it's your problem — which is why marine insurance is strongly recommended.
Under FOB, you control the freight — which means you can choose your own freight forwarder, negotiate your own rates, and have full visibility on costs. This is typically cheaper and more transparent than letting the supplier arrange freight under CIF terms.
CIF means the supplier pays for ocean freight and insurance to get the goods to the named destination port. From there, the buyer takes over — paying UK customs duty, import VAT, port handling, and final delivery.
| Factor | FOB | CIF |
|---|---|---|
| Who arranges freight? | Buyer | Seller |
| Who pays freight? | Buyer | Seller (included in price) |
| Risk transfer point | Loaded onto vessel | Loaded onto vessel |
| UK customs | Buyer | Buyer |
| Control of shipping | Buyer — full visibility | Seller — limited visibility for buyer |
Under CIF, the supplier uses their preferred freight forwarder — often a related company. You have limited visibility of actual freight costs. The insurance provided under CIF is minimum cover only (Institute Cargo Clauses C), which covers far less than comprehensive all-risks cover. Many UK importers switch to FOB once they understand this.
EXW is the most buyer-heavy Incoterm. The seller's only obligation is to make the goods available at their premises. The buyer arranges and pays for everything: collection from the factory, inland haulage to port, export clearance, ocean freight, UK import clearance, and final delivery.
Under EXW, the buyer is technically responsible for export customs clearance. But as a foreign buyer, you cannot file Chinese export declarations yourself. Suppliers may refuse to assist or charge extra. This makes EXW less straightforward than it appears. Most UK importers are better served by FCA or FOB.
DDP is the opposite of EXW — the seller takes maximum responsibility. The supplier pays for absolutely everything including UK import duty, UK customs clearance, import VAT, and delivery to your named UK address. But there are significant downsides for UK importers buying at scale: VAT reclaim complexity (the supplier may be the importer of record, not you), lack of cost transparency, and loss of control over UK customs.
DDP is most suitable for small, occasional shipments where the convenience outweighs the cost and VAT complications. For regular importing at scale, FOB with your own freight forwarder gives you better control, transparency, and typically lower total cost.
DAP sits between DDP and FOB. The seller pays for everything up to and including delivery to the named UK location — but does not pay for UK import customs clearance or duty. The buyer handles UK customs, import VAT, and any unloading charges. For UK importers, DAP can be attractive because it gives you door delivery simplicity whilst retaining control of UK customs (where you are the importer of record and can straightforwardly reclaim import VAT).
For the vast majority of UK businesses importing from China or Vietnam by sea, FOB is the right Incoterm. You control the freight, you are the UK importer of record (VAT reclaim is straightforward), you have full cost transparency, and risk transfers at a clear defined point.
| Scenario | Recommended | Why |
|---|---|---|
| Regular container imports from China/Vietnam | FOB | Best control and transparency |
| Small/infrequent shipments, simplicity matters | DAP | Door delivery without DDP VAT complications |
| Air freight shipments | FCA or DAP | FOB not appropriate for air freight |
| Supplier insists on CIF | CIF (with caveats) | Negotiate insurance upgrade to ICC A |
Every Incoterm requires a named location — e.g. "FOB Shenzhen" or "DAP Felixstowe, UK". Without it, the Incoterm is ambiguous. Always include the specific port in your contract.
FOB only applies to sea transport. For air freight, use FCA or DAP. Using FOB in an air freight contract creates legal ambiguity.
Under DDP, you may not be the importer of record — which complicates import VAT reclaim. Always confirm the customs declaration will be in your company's EORI number.
CIF insurance is minimum cover only (ICC Clause C). Always arrange comprehensive all-risks cover (ICC Clause A) on FOB shipments. Cost: typically 0.2–0.5% of cargo value.
Post-Brexit, UK customs procedures apply to all imports. For any UK business importing regularly, being the importer of record — which means using FOB, FCA, or DAP — is strongly recommended. Under FOB and FCA, your EORI number is on the customs declaration. You can claim Postponed VAT Accounting and reclaim import VAT on your VAT return. Under DDP, the supplier is typically the importer of record, creating VAT reclaim complications.
Epic Sourcing UK handles Incoterms negotiation and logistics management as part of our service. We review all supplier contracts for Incoterm terms before you sign, arrange FOB-basis freight with our trusted freight forwarder network, arrange comprehensive all-risks marine insurance (ICC A) on all shipments, and ensure all export and import documentation is in order including certificates of origin for UKVFTA claims.
Under FOB, you arrange and pay for the sea freight yourself. Under CIF, the supplier includes sea freight and insurance in their price. FOB gives you more control and transparency; CIF is simpler but may be more expensive and gives the supplier control of your freight.
For most UK businesses importing by sea container, FOB is the recommended Incoterm. It gives you control of the freight, makes you the UK importer of record (simplifying VAT), and provides full cost transparency. Epic Sourcing uses FOB as the default on all client shipments.
FOB and CIF are specifically for sea and inland waterway transport and should not be used for air freight. For air shipments, use FCA (Free Carrier) or DAP (Delivered at Place).
Under FOB, you are responsible for arranging insurance from the point the goods are loaded onto the vessel. We strongly recommend Institute Cargo Clauses A (ICC A) — comprehensive all-risks cover. Cost is typically 0.2–0.5% of cargo value.
Only by mutual agreement with the supplier. Incoterms are a contractual term — once agreed, both parties have obligations under them. Negotiate the right Incoterm before signing rather than trying to change it later.
Epic Sourcing UK manages freight, Incoterms, customs, and insurance as part of our sourcing service. Book a free consultation — we'll explain exactly what's included and give you a full landed cost estimate for your product.
71-75 Shelton Street, London WC2H 9JQ · hello@epicsourcing.co.uk · +44 7551 136406
