FOB, CFR and CIF are Incoterms® 2020 rules for sea and inland waterway shipments. Under FOB, the buyer arranges and pays for the main carriage; under CFR, the seller pays the freight; and under CIF, the seller pays both freight and minimum cargo insurance. Under all three rules, risk transfers when the goods are loaded on board at the port of shipment. Paying freight to the destination does not mean that the seller carries the risk to that destination. A contract should therefore name the exact port and refer expressly to Incoterms® 2020.
What Are Incoterms and What Do They Cover?
Incoterms, short for International Commercial Terms, are standardized rules published by the International Chamber of Commerce (ICC). Incoterms® 2020 contains 11 rules. Seven may be used with any mode of transport, while FOB, CFR and CIF are reserved for sea and inland waterway transport.
The rules allocate delivery obligations, transport costs, risk, export and import formalities, and selected documentation duties. They do not determine ownership, payment method or remedies for breach. Those matters belong in the sales agreement.
Can FOB, CFR and CIF Be Used for Container Shipping?
These rules fit shipments in which the seller can deliver the goods on board a named vessel. They are most natural for general cargo, bulk commodities and other port-to-port movements.
Container logistics often works differently. A container may be handed to a terminal several days before loading. The seller then no longer controls the cargo, although delivery under FOB, CFR or CIF has not occurred. FCA, CPT or CIP usually matches this sequence better because risk transfers when the goods are handed to the carrier. The chosen rule should follow the real delivery process, not a familiar pricing convention.
Definitions of FOB, CFR and CIF
FOB (Free On Board)
Under FOB Incoterms® 2020, the seller completes export clearance and places the goods on board the vessel nominated by the buyer at the named port of shipment. Delivery and risk transfer occur at that moment. The buyer contracts and pays for the ocean carriage.
Neither party has an Incoterms obligation to insure the cargo. Because the buyer bears the transit risk after loading, the buyer normally arranges insurance. FOB is useful when the buyer controls carrier contracts, schedules or purchases from several suppliers.
CFR (Cost and Freight)
CFR means Cost and Freight. The seller delivers the goods on board at the shipment port and pays for carriage to the named destination port. Risk nevertheless transfers to the buyer as soon as the goods are on board at origin.
This separation of cost and risk defines CFR shipping terms. The seller has no obligation to provide insurance, so the buyer commonly arranges cover. CFR is frequently used in commodity and bulk trades where exporters can obtain competitive freight or charter rates.
CIF (Cost, Insurance and Freight)
CIF follows the same delivery, risk-transfer and freight principles as CFR, but the seller must also obtain insurance for the buyer’s transit risk. Under Incoterms® 2020, CIF normally requires minimum cover comparable to Institute Cargo Clauses ©, unless the parties agree on broader protection.
Minimum cover may be insufficient for fragile or high-value goods. The buyer should check the insured amount, exclusions, deductible and claims procedure. CIF is often used where the buyer wants freight and basic insurance included in the quoted price.
Difference Between FOB, CFR and CIF
The central questions are who pays for ocean freight, who must arrange insurance and when risk transfers. The table uses operational stages also applied to multimodal Incoterms and adds maritime decision criteria.
Comparison criterion | FOB | CFR | CIF |
|---|---|---|---|
Full name | Free On Board | Cost and Freight | Cost, Insurance and Freight |
Permitted transport | Sea or inland waterway | Sea or inland waterway | Sea or inland waterway |
Delivery point | On board at shipment port | On board at shipment port | On board at shipment port |
Risk transfer | On board at shipment port | On board at shipment port | On board at shipment port |
Main carriage | Buyer contracts and pays | Seller contracts and pays | Seller contracts and pays |
Export clearance | Seller | Seller | Seller |
Pre-carriage to shipment port | Seller | Seller | Seller |
Loading on vessel | Seller | Seller | Seller |
Insurance obligation | None; buyer usually arranges | None; buyer usually arranges | Seller; minimum cover |
Unloading at destination | Buyer, unless included in carriage | Buyer, unless included in seller’s carriage | Buyer, unless included in seller’s carriage |
Import clearance and duties | Buyer | Buyer | Buyer |
Best fit | Buyer-controlled freight; general cargo | Seller-paid freight; bulk or commodities | Seller-paid freight plus basic insurance |
“Seller pays freight” does not mean “seller bears transit risk.” Under CFR and CIF, the seller pays carriage to the destination port, but the buyer carries the risk after on-board delivery at origin. Destination unloading charges depend on the carriage contract: the seller pays when they are included in that contract; otherwise the buyer pays.
Which Rule Fits Which Shipment?
When to Use FOB
FOB may suit non-containerized general cargo when the buyer wants control of the shipping line, rate and schedule. For example, under FOB Shanghai the seller clears and loads the goods, while the buyer manages the voyage.
When to Use CFR
CFR may suit grain, metals, fertilizers and other bulk trades where the seller can charter space efficiently. A grain exporter selling CFR Alexandria includes freight in the price, but the buyer bears the voyage risk after loading and should consider insurance.
When to Use CIF
CIF may suit a buyer that wants one price covering goods, ocean freight and basic insurance. It reduces administrative work but does not move risk transfer to the destination. A buyer requiring wider protection should specify it in the sales contract instead of assuming CIF provides all-risk cover.
What to Use for Containerized or Multimodal Cargo
For a container handed over before vessel loading, consider FCA when the buyer pays the main carriage, CPT when the seller pays carriage, or CIP when the seller pays carriage and insurance. These rules connect risk transfer to carrier handover and can cover road, rail, air and sea legs.
Conclusions
FOB, CFR and CIF share the same delivery and risk-transfer point: the goods must be on board at the named port of shipment. FOB leaves the main carriage to the buyer. CFR requires the seller to pay freight to the destination port. CIF adds minimum insurance arranged by the seller.
The right rule depends on the actual handover point, freight control and insurance needs. For terminal-delivered containers and multimodal routes, FCA, CPT or CIP often describes the transaction more accurately. The contract should state a precise named port or place followed by Incoterms® 2020.
