Incoterms Explained — A Complete Guide for Road Freight

Few things cause more disputes in international trade than Incoterms used incorrectly. The seller assumes the buyer arranges customs clearance. The buyer assumes the seller pays the freight. Nobody wrote it down clearly. The truck arrives and nobody knows who's responsible for the €3,000 import duty bill.

Incoterms — International Commercial Terms — exist to prevent exactly this. They are a set of 11 standardised three-letter codes that define where the seller's responsibility ends and the buyer's begins.

What Are Incoterms?

Incoterms are published by the International Chamber of Commerce (ICC). The current version is Incoterms 2020, effective since January 2020.

They are not laws — they are contractual terms that parties voluntarily incorporate into sales contracts and transport documents. When you write “DAP Warsaw, Incoterms 2020” on a commercial invoice, both sides have agreed to a specific allocation of costs, risks, and responsibilities.

Incoterms define:

• Who arranges transport (seller or buyer)
• Who pays freight costs
• Who handles export customs clearance
• Who handles import customs clearance
• The critical point where risk transfers from seller to buyer

Incoterms do not define payment terms, transfer of ownership, or liability for consequential losses.

The 11 Incoterms 2020 Rules

Rules for any mode of transport (road, rail, air, multimodal):

EXW · FCA · CPT · CIP · DAP · DPU · DDP

Rules for sea and inland waterway only:

FAS · FOB · CFR · CIF

In European road freight, you will almost exclusively use the first group.

Rules for Any Mode of Transport

EXW — Ex Works

The seller makes goods available at their own premises. The buyer arranges everything — loading, domestic transport, export customs, international freight, import customs, delivery.

Risk transfers: At the seller's premises, before loading.

Road freight reality: EXW is frequently misused. Foreign buyers often cannot legally act as the exporter in the seller's country. FCA is almost always a better choice than EXW for international shipments.

FCA — Free Carrier

The seller delivers goods to a carrier at a named place. If at the seller's premises, the seller loads. If elsewhere, the seller delivers unloaded.

Risk transfers: When goods are handed to the first carrier.

Export clearance: Seller — the key advantage over EXW.

Very common in European road freight for factory pickups.

CPT — Carriage Paid To

The seller contracts and pays for carriage to the destination. Risk transfers earlier — when goods are handed to the first carrier.

Watch out: The split between when risk transfers (at first carrier) and when cost responsibility ends (at destination) confuses many shippers.

CIP — Carriage and Insurance Paid To

Identical to CPT, but the seller must also arrange cargo insurance.

2020 update: CIP now requires Institute Cargo Clauses (A) — the most comprehensive coverage. Upgraded from minimum coverage (Clauses C) in 2010.

DAP — Delivered at Place

The seller arranges transport and delivers goods to the named destination, ready for unloading. The buyer unloads and handles import customs.

Risk transfers: When goods arrive at the named place, ready for unloading.

DPU — Delivered at Place Unloaded

Identical to DAP, but the seller is also responsible for unloading. The only Incoterm where the seller bears risk during unloading.

2020 update: DPU replaced DAT (Delivered at Terminal) from 2010. Now applies to any place, not just terminals.

DDP — Delivered Duty Paid

Maximum seller responsibility. The seller arranges transport, pays freight, handles both export and import customs, pays all import duties and taxes.

Watch out: DDP requires the seller to be registered for VAT (or use a fiscal representative) in the destination country. Many sellers use DDP without understanding this obligation.

Never use DDP if you are not set up to handle import formalities in the buyer's country. Use DAP instead.

Who Does What — At a Glance

Sea-Only Terms (Brief Reference)

If you see FOB or CIF on a CMR waybill for a pure road freight shipment, that is incorrect. Use FCA, DAP, or DDP instead.

Which Incoterm to Use in European Road Freight

The Most Common Mistakes

1. Using EXW when FCA is meant — EXW puts export customs on the buyer, who often can't fulfil it as a foreign company. FCA achieves the same outcome correctly.
2. Using FOB or CIF for road freight — These are sea freight terms. Using them on road freight invoices creates ambiguity about risk transfer.
3. Not specifying the named place precisely — “DAP Germany” is not valid. “DAP Frankfurt am Main, Musterstraße 12, Incoterms 2020” is.
4. Not stating “Incoterms 2020” — Always specify the version year. 2010 and 2020 differ significantly.
5. Confusing risk transfer with cost transfer — Under CPT/CIP, the seller pays freight but risk transfers at the first carrier.
6. DDP without VAT registration — Offering DDP to non-EU buyers without VAT setup creates legal and financial exposure.
7. Wrong Incoterm on the commercial invoice — Customs uses the Incoterm to determine customs value. Wrong term = wrong duty calculation.

Incoterms and the CMR Waybill

The Incoterm affects several CMR boxes:

• Box 4 (place of taking over) — For FCA, this is the named FCA point. For EXW, this is the seller's premises.
• Box 13 (sender's instructions) — May include customs notes related to the Incoterm.
• Box 20 (freight charges) — Prepaid (seller pays: CPT, CIP, DAP, DPU, DDP) or collect (buyer pays: EXW, FCA).