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When you ask an Indian exporter for a price, the first question back is usually "FOB or CIF?". The Incoterm decides who books the ship, who pays for insurance, where the risk passes and which costs are still yours before the goods reach your warehouse. Choosing the right one makes it easier to compare suppliers on a like-for-like basis.
Key takeaways
- An FOB price covers the goods loaded on the ship in India; you book and pay the ocean freight and insurance.
- CFR adds ocean freight to your port; CIF adds freight and minimum marine insurance.
- Under FOB, CFR and CIF the risk passes to you once the goods are on board in India, whoever pays the freight.
- Most countries charge import duty on the CIF value; the USA, Canada, Australia and New Zealand charge it on the FOB value.
FOB, CFR and CIF in one table
These three terms, from the ICC's Incoterms 2020 rules, cover most agri shipments from India by sea.
| Incoterm | Seller pays | Buyer pays | Risk passes to buyer |
|---|---|---|---|
| FOB (Free on Board) | Goods, export clearance, loading at the Indian port | Ocean freight, insurance, import costs | When goods are on board the ship in India |
| CFR (Cost and Freight) | FOB + ocean freight | Insurance, import costs | When goods are on board in India |
| CIF (Cost, Insurance and Freight) | CFR + minimum insurance (ICC C) | Import costs | When goods are on board in India |
| DAP (Delivered at Place) | Delivery to your named place | Import clearance, duty and VAT | At the named place |
| DDP (Delivered Duty Paid) | Everything, including duty and VAT | Unloading | At the named place |
Strictly, the ICC recommends FCA, CPT and CIP for container cargo, but FOB, CFR and CIF remain the standard terms in the agri trade, and most Indian exporters quote them.
Where the risk really passes
The most common misunderstanding is that CIF means the seller carries the risk until the goods arrive. It does not. Under FOB, CFR and CIF alike, the risk passes to the buyer once the goods are on board the ship in India. The seller under CIF pays for the insurance, but the insured party who claims for damage at sea is you.
Two points follow from this:
- Under CFR, arrange your own insurance. The freight is paid, but the cargo is at your risk from the Indian port and nobody has insured it.
- Under CIF, check the cover. Incoterms 2020 only require minimum cover (Institute Cargo Clauses C). For food cargo you may want wider cover, such as ICC (A), agreed in the contract.
How the choice changes your landed cost
Landed cost is the total cost of getting the goods to your warehouse:
The Incoterm only decides who pays each part. Here is an illustration for one 20 ft container of Bold peanut kernels shipped from Mundra to a Dutch importer (prices are illustrative, not a quote):
| Line | Calculation | US$ |
|---|---|---|
| Goods (FOB Mundra) | 19 MT × US$ 1,300 | 24,700 |
| Ocean freight | 1 × 20 ft | 1,500 |
| CFR | Goods + freight | 26,200 |
| Insurance | 26,200 × 110% × 0.2% | 58 |
| CIF (customs value in the EU) | CFR + insurance | 26,258 |
| Import VAT (Netherlands) | 9% × (CIF + duty) | 2,363 |
| Port, clearance and delivery | Illustrative | 850 |
| Bank charges | 0.3% of goods | 74 |
Check the import duty for your product in your official tariff. Whatever the term, the landed cost per tonne is the number to compare. Run your own figures in the Landed Cost Calculator.
Duty is charged on CIF or FOB value
Where your customs authority values the goods also changes the result:
- CIF value: most countries, including the EU, UK, Gulf states, China and most of Asia.
- FOB value: the USA, Canada, Australia and New Zealand, which exclude international freight and insurance.
If you buy FOB and ship to the EU, your customs broker still adds freight and insurance to reach the CIF value for duty and VAT.
When FOB suits you
- You have a freight forwarder with good rates, or a contract with a shipping line.
- You ship regularly and want to control the vessel, the transit time and the destination costs.
- You consolidate cargo from several suppliers.
When CFR or CIF suits you
- You are new to importing from India, or ship only a few containers a year.
- You want one price per tonne delivered to your port, to compare with suppliers closer to home.
- You would rather the exporter books the container and handles the export side end to end.
Costs to check, whatever the term
- Destination terminal handling and delivery-order fees, charged per container.
- Inspection and lab testing at import, such as EU border checks on Indian groundnuts.
- Demurrage and detention if the container is not cleared or returned on time.
- Fumigation or phytosanitary re-inspection where the destination requires it.
- Currency movement between contract and payment.
- Duties or surcharges that change during the year: check your tariff on the day you contract.
Frequently asked questions
What is the difference between FOB, CFR and CIF?
FOB is the price with the goods loaded on the ship in India. CFR adds ocean freight to your port. CIF adds freight and marine insurance. Under all three, risk passes to the buyer once the goods are on board in India.
Is CIF more expensive than FOB?
The CIF price is higher because it includes freight and insurance, but the landed cost can be the same or lower, depending on the freight rate the exporter gets compared with yours. Compare landed cost per tonne, not the headline price.
Who pays for insurance under CFR?
The buyer. Under CFR the seller pays the ocean freight, but the cargo is at the buyer's risk from the moment it is loaded in India, so you need your own marine insurance.
Is import duty charged on the FOB or CIF value?
Most countries, including the EU, UK, Gulf states, China and most of Asia, charge duty on the CIF value. The USA, Canada, Australia and New Zealand charge it on the FOB value.
Which Incoterms does Elysium Agri quote?
FOB, CFR and CIF; other terms on request. Tell us your port and we will quote the term that suits you.
The bottom line
Choose FOB if you control your own freight and want to manage the shipment; choose CFR or CIF if you want one delivered price to compare. Either way, remember that the risk passes in India, check the insurance cover and compare suppliers on landed cost per tonne.
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