Incoterms Explained: Plain-English Guide (2026)
Incoterms are a set of three-letter rules that say exactly where the seller's responsibility ends and the buyer's begins on a shipment: who pays for transport, who pays for customs, who carries the risk if the goods are damaged, and the precise spot where that risk hands over. They are published by the International Chamber of Commerce and the current version is Incoterms 2020, used on quotes, orders and invoices worldwide.
If you book trucks out of Vilnius, Kaunas or Klaipėda, the Incoterm you agree decides what your freight quote actually includes - and one wrong choice can leave you paying for transport and customs you never budgeted for. This guide walks through all 11 terms, the 7 that actually matter for Baltic road freight, and a plain table of who pays for what.
What Incoterms are and why they exist
Before Incoterms, a contract that said "delivered to Hamburg" was an argument waiting to happen. Delivered to the port? The warehouse? With duty paid or not? Who insures the load on the way?
Incoterms remove that ambiguity. Each three-letter code is a pre-agreed split of three things:
- Costs - who pays for the main carriage, terminal handling, customs clearance and any duty.
- Risk - the exact point where, if the cargo is lost or damaged, the loss stops being the seller's problem and becomes the buyer's.
- Tasks - who arranges the carrier, who handles export and import formalities, who loads and unloads.
A key thing coordinators miss: cost transfer and risk transfer are not always the same point. Under CPT and CIP, the seller pays the freight all the way to the destination, but the risk passes to the buyer much earlier - when the goods are handed to the first carrier. So a load can be damaged mid-route and be the buyer's loss even though the seller is the one paying the truck.
Incoterms also do not cover everything. They say nothing about when you get paid, what law governs the contract, or who owns the goods. They are a logistics and risk tool, not a full sales contract.
General information only - not customs, tax or legal advice.
The 11 terms grouped by who carries the risk
There are 11 incoterms rules in the 2020 edition, sorted into two families by transport mode. The first group works for any mode, including road - which is what matters for Baltic trucking. The second group is sea-and-inland-waterway only.
Any transport mode (including road, rail, air)
These seven are the ones a road-freight coordinator uses:
- EXW - Ex Works. Seller just makes the goods available at their own premises. Buyer does everything else, including loading.
- FCA - Free Carrier. Seller hands the goods, cleared for export, to the carrier the buyer named.
- CPT - Carriage Paid To. Seller pays carriage to a named place; risk passes at the first carrier.
- CIP - Carriage and Insurance Paid To. Like CPT, but the seller also buys insurance.
- DAP - Delivered at Place. Seller delivers, ready for unloading, at the named place. Import duty is the buyer's.
- DPU - Delivered at Place Unloaded. Like DAP, but the seller also unloads.
- DDP - Delivered Duty Paid. Seller delivers everything, including paying import duty and clearance.
Sea and inland waterway only
These four are tied to ports and vessels and should not be used for a truck or a containerised door-to-door move:
- FAS - Free Alongside Ship.
- FOB - Free On Board.
- CFR - Cost and Freight.
- CIF - Cost, Insurance and Freight.
A common error in Baltic trade is writing FOB on a road or container shipment. FOB only makes sense when goods cross a ship's rail in a port. For a truck from Klaipėda to Germany, the correct equivalent is FCA.
The 7 terms that matter most for Baltic road freight (EXW, FCA, CPT, DAP, DPU, DDP, CIP)
Here is how each of the seven road-relevant incoterms for road freight plays out in practice on a typical EU lane.
EXW - Ex Works
The buyer takes on everything from the seller's loading dock: arranging the truck, loading, export paperwork, the run across the border, and import clearance. It looks cheap on the seller's invoice because the price is just the goods. For the buyer it is the most work and the most exposure - you are responsible for export formalities in a country that is not yours.
FCA - Free Carrier
The workhorse of EU road freight. The seller clears the goods for export and hands them to your carrier - either at the seller's premises (loaded onto your truck) or at a named terminal. Risk passes at that handover. FCA fixes most of the problems EXW creates, because export clearance sits with the party that is actually in the export country.
CPT - Carriage Paid To
The seller arranges and pays the truck to a named destination, but risk passes to you when the goods reach the first carrier. Good when the seller has better freight rates than you, but check insurance - there is none built in.
CIP - Carriage and Insurance Paid To
Same cost split as CPT, plus the seller must insure the cargo. Under Incoterms 2020 the seller must buy all-risks (Institute Cargo Clauses A) cover on CIP - a higher level than CIF. Useful for high-value loads where you want guaranteed insurance without arranging it yourself.
DAP - Delivered at Place
The seller carries cost and risk all the way to the named delivery address, ready for you to unload. You handle import clearance and pay any duty and VAT. This is the most common "delivered" term for intra-EU and inbound EU road moves. See the full DAP breakdown for the exact cost and risk split.
DPU - Delivered at Place Unloaded
Identical to DAP, except the seller also unloads the goods at destination. The only Incoterm where the seller is obliged to unload. Handy where the seller controls the unloading equipment; avoid it if the destination has no safe way to unload.
DDP - Delivered Duty Paid
Maximum seller obligation: the seller delivers, clears import, and pays duty and import VAT. The buyer just receives the goods. Convenient for the buyer, but it forces the seller to act as importer in a foreign country - which is exactly where DDP goes wrong (more below). The DDP guide covers the VAT-registration trap in detail.
Once your Incoterm is set, get a real quote from your carriers in 60 seconds so the number on the page matches the responsibilities you just agreed.
Who pays for transport, insurance, customs - a comparison table
This is the answer to who pays for what incoterms in one view. "Seller" means the seller's cost or obligation; "Buyer" means yours. Insurance is only mandatory under CIP (and CIF for sea).
| Term | Export clearance | Main transport | Insurance | Import clearance | Duty & import VAT | Unloading at destination |
|---|---|---|---|---|---|---|
| EXW | Buyer | Buyer | Buyer (optional) | Buyer | Buyer | Buyer |
| FCA | Seller | Buyer | Buyer (optional) | Buyer | Buyer | Buyer |
| CPT | Seller | Seller | Buyer (optional) | Buyer | Buyer | Buyer |
| CIP | Seller | Seller | Seller (all-risks) | Buyer | Buyer | Buyer |
| DAP | Seller | Seller | Seller (optional) | Buyer | Buyer | Buyer |
| DPU | Seller | Seller | Seller (optional) | Buyer | Buyer | Seller |
| DDP | Seller | Seller | Seller (optional) | Seller | Seller | Buyer |
For the full reference on all 11 rules side by side, use the Incoterms hub.
A EUR worked example: Vilnius → Hamburg
Take a real-world part-load: 6 EUR pallets, ~1,800 kg, 4.8 LDM, roughly 1,050 km, 1-2 day transit. Say the line-haul costs around EUR 850 (about EUR 0.81/km) and import-side handling is small because it is intra-EU, so there is no duty.
| Cost line | Under FCA (buyer arranges) | Under DAP (seller arranges) |
|---|---|---|
| Goods price on invoice | EUR 12,000 | EUR 12,850 |
| Truck Vilnius → Hamburg | EUR 850 (you pay carrier) | included in goods price |
| Export clearance | seller | seller |
| Risk during transit | you (from pickup) | seller (until delivery) |
| Who you chase if it arrives damaged | your carrier | the seller |
Same physical move, same EUR 850 of transport. The difference is where the EUR 850 appears and who carries the risk on the road. Intra-EU there is no duty, but the moment you cross into a non-EU country (say a load to Norway or the UK) the duty and import-VAT columns above stop being cosmetic and start costing real money - which is where the term you picked really bites.
General information only - not customs, tax or legal advice.
The classic mistakes (EXW exports, DDP imports)
Two errors show up again and again in Baltic trade, and both come from picking a term that pushes work into a country where you have no presence.
Selling EXW for export
A Lithuanian seller quotes EXW Kaunas to a customer abroad because it looks simple - "they collect, not my problem." The trap: on EXW the buyer is responsible for export clearance, but the buyer is foreign and cannot easily lodge an export declaration in Lithuania. In practice the seller ends up doing it anyway, off the contract, with no proof of export for VAT zero-rating. The fix is almost always FCA - it keeps export clearance with the party that can actually do it, and gives the seller the export evidence they need.
Buying DDP for import
A buyer loves DDP because the price includes everything to the door. The trap lands on the seller: under DDP the seller is the importer of record and often must register for VAT in the destination country to recover or account for import VAT. Many sellers do not realise this until the goods are stuck at customs. For inbound loads, DAP is usually the cleaner choice - the buyer clears import in their own country, where they are already VAT-registered, and the seller's job ends at the door.
A third, quieter mistake: assuming CPT/CIP risk passes at the destination. It does not - it passes at the first carrier. If you buy CPT and the load is destroyed halfway, it is your loss even though the seller paid the freight. Insure accordingly.
How Incoterms change what your freight quote includes
Once you understand the term, you understand the quote. The same lane can be quoted very differently depending on the Incoterm, because the term decides which cost lines belong in the freight price at all.
- Under FCA, your freight quote is pure transport - line-haul plus any agreed surcharges. Export clearance is the seller's; import is yours and sits outside the freight number.
- Under DAP/DPU, the seller's quote bundles transport and (under DPU) unloading, but import duty and VAT stay off the quote and land on you separately.
- Under DDP, the all-in price hides customs and duty inside it - which makes it look expensive and makes comparing carriers harder, because two DDP quotes may assume different duty rates.
This is why getting comparable quotes matters. When you send the same lane to five carriers you usually see a 15-30% spread, and that spread is only meaningful if every carrier is quoting against the same Incoterm. If one prices FCA and another prices DAP, you are comparing different scopes of work, not different prices.
The practical workflow:
- Agree the Incoterm first with your counterparty, in writing, naming the exact place (e.g. "DAP Hamburg, Schuppen 52, Incoterms 2020").
- Strip your quote request to the matching scope - ask carriers to quote the transport leg the Incoterm assigns to you.
- Compare like with like, then book the carrier whose price and transit fit the term you agreed.
A quote is only as good as the responsibilities behind it. Lock the Incoterm, then the EUR figure means something.
FAQ
What is Incoterms in simple terms?
Incoterms are standard three-letter rules that define who pays for transport, insurance and customs on an international sale, and the exact point where risk passes from seller to buyer. They are published by the International Chamber of Commerce; the current set is Incoterms 2020.
Which Incoterm should I use for road freight in the EU?
For most intra-EU road moves, FCA (buyer arranges transport) or DAP (seller delivers to your door, you clear import) are the cleanest. Avoid sea-only terms like FOB and CIF on truck shipments - they are tied to ports and ships, not roads.
Who pays customs duty under each Incoterm?
The buyer pays import duty and import VAT under every term except DDP, where the seller pays. EXW, FCA, CPT, CIP, DAP and DPU all leave import duty with the buyer. General information only - not customs, tax or legal advice.
Does the seller insure the goods under Incoterms?
Insurance is only mandatory under CIP (all-risks, Institute Cargo Clauses A) and the sea-only term CIF. Under every other Incoterm, insurance is optional - whoever carries the risk on that leg should arrange their own cover.
What is the difference between DAP and DDP?
Under DAP the seller delivers to the destination but the buyer clears import and pays duty and VAT. Under DDP the seller does all of that too, including paying import duty. DDP shifts the customs burden - and the foreign VAT-registration risk - onto the seller.
Are Incoterms 2020 still current in 2026?
Yes. Incoterms 2020 is the edition in force in 2026. The ICC updates the rules roughly once a decade, so 2020 remains the version you should name on contracts and quotes today.
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