On this page
- What Are FOB, CIF and CFR?
- What Does FOB (Free On Board) Mean?
- What Does CIF (Cost, Insurance and Freight) Mean?
- What Does CFR (Cost and Freight) Mean in International Trade?
- How Do FOB, CIF and CFR Compare?
- How Are Risk, Insurance and Cost Responsibility Split?
- How Do You Choose the Right Incoterm?
- How Can You Buy Agro Commodities from India on FOB, CIF or CFR?
- Frequently asked questions
In FOB vs CIF, the difference is who pays for the sea voyage: under FOB (Free on Board) the buyer books and pays the ocean freight and insurance, while under CIF (Cost, Insurance and Freight) the seller pays both to the destination port. CFR (Cost and Freight) sits in between: the seller pays freight, but the buyer arranges insurance. Under all three terms, the risk passes to the buyer once the goods are on board the ship at the port of loading. This guide explains each term, compares them side by side and shows how to choose.
Key takeaways
- FOB, CFR and CIF are Incoterms 2020 rules for sea and inland waterway transport, published by the International Chamber of Commerce.
- The seller’s cost obligation grows from FOB to CFR to CIF, but the risk transfer point stays the same: on board the vessel at origin.
- CIF only requires minimum insurance (Institute Cargo Clauses C), so food buyers often negotiate wider cover.
- First-time importers often start on CFR or CIF; regular importers with their own forwarder often move to FOB.
What Are FOB, CIF and CFR?
FOB, CIF and CFR are three of the eleven Incoterms rules published by the International Chamber of Commerce (ICC). Incoterms define who does what in a sale of goods: who pays each cost, who arranges transport and insurance, who clears customs and where the risk of loss passes from seller to buyer. The current version is Incoterms 2020.
These three terms are written for sea and inland waterway transport. They are the most common terms in the bulk agricultural trade from India. Each one is always followed by a named port. FOB names the port of loading, such as “FOB Mundra”. CFR and CIF name the port of destination, such as “CIF Rotterdam” or “CFR Jebel Ali”.
Incoterms do not cover everything. They do not set the price, the payment terms, the transfer of ownership or the quality of the goods. Those belong in the sales contract. Incoterms only govern delivery, costs and risk.
What Does FOB (Free On Board) Mean?
Under FOB, the seller delivers the goods on board the vessel chosen by the buyer at the named port of loading. The seller pays for the goods, packing, inland transport to the port, export clearance and loading. The buyer pays the ocean freight, marine insurance, unloading, import clearance, duty and delivery.
Who pays for freight under FOB terms? The buyer. The buyer, or the buyer’s freight forwarder, books the vessel and tells the seller the booking details. The seller then delivers the container to that vessel on time. Under FOB, the buyer controls the shipping line, the transit time and the freight rate. This suits importers who ship often and have their own forwarder.
What Does CIF (Cost, Insurance and Freight) Mean?
Under CIF, the seller pays the cost of the goods, the ocean freight to the named destination port and marine insurance for the voyage. The seller books the vessel and buys the insurance policy. The buyer pays unloading charges (unless included in the freight), import clearance, duty, taxes and inland delivery.
Who bears risk during transit under CIF? The buyer. This is the most common misunderstanding about CIF. Although the seller pays for freight and insurance, the risk passes to the buyer once the goods are on board at the port of loading. If the cargo is damaged at sea, the buyer makes the claim under the insurance policy that the seller bought for the buyer’s benefit.
Incoterms 2020 only require the seller to buy minimum cover under Institute Cargo Clauses (C), at 110% of the contract value. ICC (C) covers major events such as fire, sinking or collision, but not most cargo damage such as water ingress. For food cargo, many buyers ask for ICC (A) “all risks” cover in the contract.
What Does CFR (Cost and Freight) Mean in International Trade?
CFR means the seller pays the cost of the goods and the ocean freight to the named destination port, but not the insurance. The seller books the vessel. The buyer must arrange marine insurance, because the risk passes to the buyer once the goods are on board at origin.
CFR is common in the agri trade, especially with buyers who hold an annual open cargo insurance policy. They get the convenience of seller-booked freight and use their own wider insurance. The main risk with CFR is forgetting the insurance. If the buyer does not insure the cargo, nobody does, and any loss at sea falls on the buyer. CFR was called “C&F” in older contracts, and you may still see that term.
How Do FOB, CIF and CFR Compare?
The table compares the three terms on the points that matter most to an importer.
| Point | FOB | CFR | CIF |
|---|---|---|---|
| Named port | Port of loading | Port of destination | Port of destination |
| Who books the vessel | Buyer | Seller | Seller |
| Who pays ocean freight | Buyer | Seller | Seller |
| Who buys marine insurance | Buyer (optional but advised) | Buyer (optional but advised) | Seller (minimum ICC C cover) |
| Export clearance | Seller | Seller | Seller |
| Import clearance and duty | Buyer | Buyer | Buyer |
| Risk passes to buyer | On board at port of loading | On board at port of loading | On board at port of loading |
| Buyer’s control of shipping | High | Low | Low |
| Best for | Regular importers with a forwarder | Buyers with their own insurance | New or occasional importers |
FOB vs CIF vs CFR under Incoterms 2020.
Strictly, the ICC recommends FCA, CPT and CIP for container cargo, because containers are usually handed over at a terminal before loading. In practice, FOB, CFR and CIF remain the standard terms in the agri trade, and most Indian exporters quote them.
How Are Risk, Insurance and Cost Responsibility Split?
The key point is that cost and risk split at different places under CFR and CIF. The seller pays costs up to the destination port, but the risk moves to the buyer at the port of loading. Under FOB, cost and risk both pass at the port of loading.
- Destination charges: under CFR and CIF, the buyer still pays most charges at the destination port, such as terminal handling, documentation fees, container detention after free days, and customs clearance. Check what is included in the freight before comparing offers.
- Customs value: most countries, including the EU, UK, Gulf states and most of Asia, charge duty on the CIF value. The USA, Canada, Australia and New Zealand use the FOB value. If you buy FOB for the EU, your broker adds freight and insurance to reach the CIF value.
- Letters of credit: banks check the transport document against the Incoterm. Under CFR and CIF, the bill of lading should show “freight prepaid”. Under FOB, it usually shows “freight collect”. Under CIF, the insurance document is also required.
To see how each term changes your total cost per tonne, use our landed cost calculator, and read our worked example in FOB vs CIF for agri imports from India.
How Do You Choose the Right Incoterm?
Choose by your experience, your volume and the strength of your freight network.
- Choose FOB if you have a reliable freight forwarder or shipping line contract, ship regularly, want to control the vessel and transit time, or consolidate cargo from several suppliers.
- Choose CFR if you want the seller to handle freight but you already have an annual cargo insurance policy with wider cover.
- Choose CIF if you are new to importing from India, ship only a few containers a year, or want one simple price per tonne delivered to your port.
Which Incoterm is best for a first-time importer? Usually CIF or CFR. The exporter books the freight on routes it uses often, and you receive one delivered price that is easy to compare. Ask for ICC (A) insurance under CIF, or insure the cargo yourself under CFR. Once you have a forwarder and steady volumes, compare those quotes with FOB.
Related reading: Importing from India: A Step-by-Step Guide for Agri Buyers.
How Can You Buy Agro Commodities from India on FOB, CIF or CFR?
Whichever you choose in the FOB vs CIF decision, write the full Incoterm with the named port and “Incoterms 2020” into the contract, together with the insurance cover, the shipment period and the payment terms. Make sure your export documents match the term you agreed.
Elysium Agri Corporation quotes FOB, CFR and CIF prices for peanuts, sesame, spices, pulses, grains, dehydrated vegetables, herbs and animal feed, shipping from Mundra, Kandla (Deendayal) and Pipavav. We book freight on CFR and CIF orders and send scanned documents before the vessel arrives. Check the right tariff line with our HS code finder and plan your load with the container load calculator.
Tell us the product, quantity, Incoterm and destination port. Request an FOB, CFR or CIF quote →
Frequently asked questions
What is the difference between FOB and CIF?
Under FOB, the seller delivers the goods on board the buyer's vessel at the port of loading, and the buyer pays ocean freight and insurance. Under CIF, the seller also pays the freight and minimum marine insurance to the named destination port. In both cases, the risk passes to the buyer once the goods are on board at origin.
What does CFR mean in international trade?
CFR stands for Cost and Freight, an Incoterms 2020 rule for sea transport. The seller pays the goods and the ocean freight to the named destination port, but not insurance. The risk passes to the buyer once the goods are loaded on board at origin, so the buyer should arrange its own marine insurance.
Who pays for freight under FOB terms?
The buyer pays for ocean freight under FOB terms. The buyer or its freight forwarder books the vessel and gives the details to the seller, who delivers the goods on board at the named port of loading. The seller pays costs up to that point, including export clearance and loading charges at origin.
Who bears risk during transit under CIF?
The buyer bears the risk during transit under CIF. Although the seller pays for freight and insurance to the destination port, risk passes to the buyer once the goods are on board at the port of loading. If cargo is lost or damaged at sea, the buyer claims under the insurance policy the seller arranged.
Which Incoterm is best for a first-time importer?
CIF or CFR is usually best for a first-time importer. The exporter books freight on routes it knows and quotes one delivered price per tonne, which is easy to compare. Under CIF, ask for ICC (A) insurance; under CFR, buy your own cover. Once you have a forwarder and steady volume, compare FOB quotes.
Related reads
