FOB, CFR and CIF: what the price includes and who carries the risk
FOB, CFR and CIF: what the price includes and who carries the risk
Meta description: A plain guide to the three Incoterms most used in bulk petroleum and fertilizer trade, with what each one covers.
The same product can have three different prices depending on the Incoterm. Comparing them without adjusting for freight and insurance is the most common mistake in price comparison.
| Term | Seller pays | Buyer pays | Risk passes |
|---|---|---|---|
| FOB (Free On Board) | Product, export clearance, loading onto the vessel | Freight, insurance, import clearance | When the cargo is on board at the loading port |
| CFR (Cost and Freight) | Everything under FOB, plus sea freight to the destination port | Insurance, import clearance, unloading | When the cargo is on board at the loading port |
| CIF (Cost, Insurance and Freight) | Everything under CFR, plus minimum cargo insurance | Import clearance, unloading | When the cargo is on board at the loading port |
Two points surprise new buyers. First, under CFR and CIF the risk still passes at the loading port, even though the seller pays the freight. Second, CIF insurance is only the minimum cover, so many buyers arrange their own.
Reading a price table. A CFR price for the same product is higher than FOB by roughly the freight. That is why Basrin always shows the basis next to every price, for example CFR Dalian or FOB Fujairah. Never compare prices with different bases without adding or subtracting freight.
Which one to choose? FOB suits buyers who control their own freight. CFR suits buyers who want one delivered-to-port price. CIF adds insurance on top.
These descriptions follow Incoterms 2020; confirm the term in your contract.