Definition
Incoterms (International Commercial Terms) are a set of pre-defined, 3-letter rules published by the International Chamber of Commerce (ICC) that define exactly who pays for what and where risk transfers in an international sale of goods. The current version is Incoterms 2020, replacing the 2010 edition.
The 11 terms in Incoterms 2020:
Any mode of transport: — EXW (Ex Works) — buyer collects at seller's premises; maximum seller risk relief. — FCA (Free Carrier) — seller hands off to buyer's carrier. — CPT (Carriage Paid To) — seller pays transport to named place, risk transfers at dispatch. — CIP (Carriage and Insurance Paid To) — like CPT plus insurance. — DAP (Delivered at Place) — seller delivers to named destination, unloaded. — DPU (Delivered at Place Unloaded) — like DAP with unloading. — DDP (Delivered Duty Paid) — seller handles everything through customs clearance in destination.
Sea and inland waterway only: — FAS (Free Alongside Ship) — FOB (Free On Board) — CFR (Cost and Freight) — CIF (Cost, Insurance and Freight)
Each term allocates: who arranges transport, who pays which costs, who insures, where risk transfers, and who handles export/import clearance. A commercial invoice should always state the Incoterms rule being used — e.g. "DAP Barcelona Incoterms 2020" — and both parties should understand its implications before contracting.