International Commercial Terms are standardized trade terms published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international transactions, including risk transfer, cost allocation, and delivery obligations.
What are Incoterms?
Incoterms (International Commercial Terms) are pre-defined commercial terms published by the ICC that provide a common language for international trade. They clarify who pays for what, when risk transfers from seller to buyer, and who handles logistics at each stage. The current edition, Incoterms 2020, includes 11 terms divided into 7 for any transport mode and 4 for sea/inland waterway only.
Incoterms in Vehicle Trade
In RoRo shipping and finished vehicle logistics, two terms dominate:
FOB (Free on Board) is the standard for OEM vehicle exports. The manufacturer delivers vehicles to the port, handles export clearance, and loads them onto the RoRo vessel. The buyer (importer or distributor) pays ocean freight, insurance, and import clearance. Risk transfers when vehicles cross the ship's rail. This is how most automotive OEMs sell to overseas distributors.
DDP (Delivered Duty Paid) is used for dealer-direct models where the manufacturer or distributor handles everything: ocean freight, customs, duties, and delivery to the dealer's door. Premium service with higher margins, but requires the seller to have import capability in the buyer's country.
In practice
When negotiating vehicle supply contracts, the choice between FOB and DDP determines who controls the logistics chain. FOB gives the buyer flexibility to choose carriers and routes. DDP gives the seller end-to-end control (and margin) but adds operational complexity in every destination market.
Terms for Any Transport Mode
EXW (Ex Works)
Seller makes goods available at their premises, the minimum obligation. Buyer handles everything from loading onward. Rarely used in vehicle trade because it puts export clearance burden on the foreign buyer.
FCA (Free Carrier)
Seller delivers to a carrier nominated by the buyer and handles export clearance. Popular for multimodal transport where vehicles move by truck to a rail terminal or inland port before ocean transit.
CPT and CIP
CPT (Carriage Paid To): seller pays freight to destination but risk transfers at the first carrier, not at arrival. CIP (Carriage and Insurance Paid To): same as CPT plus seller arranges insurance at minimum 110% cargo value. Useful when the buyer wants the seller to organize transport but needs insurance certainty.
Delivered Terms
DAP: Delivered at Place
Seller bears all costs and risks to the named destination. Buyer handles unloading and import clearance. Common for used vehicle exports where the seller arranges door-to-door minus customs.
DPU: Delivered at Place Unloaded
Seller delivers and unloads at the named place. Buyer handles import clearance only. Replaced the old DAT term in Incoterms 2020.
DDP: Delivered Duty Paid
Seller handles everything including import duties and taxes. Maximum seller obligation. Standard for dealer-direct vehicle distribution models.
Sea-Only Terms
These four apply exclusively to ocean and inland waterway transport:
- FAS (Free Alongside Ship): seller places goods alongside the vessel at port. Primarily for bulk cargo, rarely used in vehicle trade.
- FOB (Free on Board): the most popular ocean freight term and the standard for OEM vehicle exports. Seller loads onto vessel and handles export clearance.
- CFR (Cost and Freight): seller pays ocean freight to destination, but risk transfers at loading. Buyer must arrange their own insurance.
- CIF (Cost, Insurance, Freight): seller pays freight and basic insurance (110% cargo value). Risk still transfers at origin. Used when buyers want bundled freight + insurance pricing.
Transport mode matters
FOB and CIF are for ocean freight only. For air, road, or multimodal transport, use FCA or CIP instead. Using sea-only terms for non-ocean transport creates legal ambiguity that complicates insurance claims.
Common Mistakes
The most frequent errors: using obsolete terms (DAT was replaced by DPU in 2020), confusing cost with risk transfer points (under CFR the seller pays freight but risk transfers at loading, and these are different moments), incomplete specifications (always write "FOB Hamburg Port Incoterms 2020" not just "FOB"), and applying sea-only terms to multimodal shipments.
What Incoterms don't cover
Incoterms only define delivery logistics. They do not cover payment terms, title transfer (ownership), breach of contract, or product liability. These require separate contractual clauses.
FAQ
Which Incoterm is most common for vehicle shipping?
FOB (Free on Board) is the standard for OEM vehicle exports via RoRo. The manufacturer handles production, inland transport to port, and export clearance. The overseas distributor or importer arranges ocean freight, insurance, and customs at destination. For dealer-direct models, DDP (Delivered Duty Paid) is increasingly common.
What's the difference between FOB and CIF for car exports?
Under FOB, the buyer arranges and pays for ocean freight and insurance, giving them control over carrier selection and routing. Under CIF, the seller pays freight and basic insurance, bundling it into the vehicle price. The key distinction: under both terms, risk transfers to the buyer when vehicles are loaded onto the vessel, even though CIF's seller pays for the voyage.
Do Incoterms cover insurance?
Only two terms require the seller to arrange insurance: CIP (for any transport mode) and CIF (sea only). Both mandate minimum coverage of 110% of cargo value. Under all other terms, insurance is the buyer's responsibility, and in practice, experienced vehicle importers always arrange their own comprehensive marine cargo insurance regardless of the Incoterm used.