A must-read for Chinese automakers going global! These trade terms determine whether you can gain a foothold in overseas markets!

In China’s automotive export trade, commonly used trade terms are generally based on the International Commercial Terms (INCOTERMS).

From the local production line to the overseas port, every automotive export order hides the so-called “secrets of terminology”—FOB, CIF, FCA, and so on.

These seemingly simple abbreviations not only involve the allocation of millions or even more in transportation costs but also directly impact the allocation of risks and profit margins during the transaction.

Accurately understanding and flexibly applying these terms is like holding a golden key that unlocks the door to exporting automobiles overseas.

Several common trade terms used in export transactions:

1. FOB (Free on Board)

• Scenario: The seller completes delivery by loading the vehicle onto the buyer’s designated vessel at a domestic port.
• Risk Allocation: Once the goods have passed the ship’s rail, the risk accrues to the buyer.
• Cost Assuming: The seller is responsible for domestic transportation and customs clearance prior to loading; the buyer bears the ocean freight, insurance, and port of destination charges.
• Shipping Restrictions: Applicable only to ocean or inland waterway transport.

2. CIF (Cost, Insurance and Freight)

• Applicable Scenario: The seller is responsible for shipping the vehicle to the destination port, including freight and insurance.
• Risk Allocation: The risk of loss of the cargo is transferred to the buyer at the ship’s rail.
• Cost Assurance: Compared to FOB, the seller bears additional costs for ocean freight and insurance (insurance is handled by the seller only).
• Shipping Restrictions: Applicable only to ocean or inland waterway transport.

3. FCA (Free Carrier)

Application scenario: The seller delivers the vehicle to the buyer’s designated logistics company (e.g., a domestic warehouse or port yard).

-Risk Allocation: This arrangement offers greater flexibility, eliminating the need for “ship’s rail” (ship’s rail) as risk is transferred the moment the goods are handed over to the carrier.

-Transportation: This arrangement is applicable to all modes of transport, including sea, land, air, container, and multimodal transport.

-Cost Allocation: The seller is responsible for costs prior to the delivery of the goods to the carrier, while the buyer is responsible for subsequent transportation and insurance.

4. EXW (Ex Works)

• Suitable scenario: The seller delivers the vehicle to the buyer at the factory or warehouse, and the buyer handles all shipping, customs clearance, and export procedures.
• Risk Allocation: The seller bears minimal responsibility, bearing virtually no shipping or risk. This option is suitable for buyers with established logistics channels (e.g., overseas buyers with agents in China).

5. CFR (Cost and Freight)

• Applicable scenario: The seller pays the ocean freight and ships the vehicle to the destination port. Risk transfers at the ship’s rail at the port of loading.
• Between FOB and CIF: The seller pays more freight than FOB, but insurance is not covered, and the buyer must purchase it.

6. CIP (Carriage and Insurance Paid To)

• Applicable scenario: The seller pays freight and insurance and ships the vehicle to a designated destination (e.g., a city in Myanmar). This is applicable to various modes of transport.

⚠️: Similar to an upgraded version of CIF, but applicable to all modes of transport (e.g., land transport from China to Myanmar). Risk transfers upon delivery of the goods to the carrier.

Risk Transfer Point:

FOB/CFR/CIF: Ship’s Rail at the Port of Loading

FCA/CIP: Free Carrier (FPC) – More flexible and adaptable to modern logistics

EXW: Ex Works at the Seller’s Factory, with the highest risk for the buyer

Cost Bearing: From EXW to CIP, the seller’s share of transportation and insurance costs gradually increases.

Mode of Transport: FOB/CFR/CIF are limited to ocean and inland waterway transport; other terms may be used for land, air, and other transportation options.