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FOB vs CFR vs CIF: Which Delivery Term for Bulk Commodities

In a sale of bulk commodities by sea, the delivery term decides who books the ship, who pays freight and insurance and where the risk moves from seller to buyer. Here is how the three most used terms differ.

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What the terms are

FOB, CFR and CIF are Incoterms, standard trade terms published by the International Chamber of Commerce. They are used for goods that go by sea. Each one says who does what at each step of the journey: loading, sea transport, insurance, unloading and import clearance.

FOB: Free On Board

The seller delivers the goods on board the ship at the loading port, and the sea freight is paid by the buyer. The buyer finds and books the ship (see how to find suppliers and the Shipfixing chartering guide), pays the freight and carries the risk from the moment the goods are on board. FOB suits buyers who have their own shipping contacts or who want to control the freight cost. The loading port is named in the contract, for example "FOB Santos".

CFR: Cost and Freight

The seller books the ship and pays the sea freight to the named discharge port. The risk still passes to the buyer when the goods are on board at the loading port, so the buyer should insure the cargo for the voyage. CFR suits buyers who want the seller to arrange the freight but prefer to buy their own insurance.

CIF: Cost, Insurance and Freight

CIF is CFR plus insurance. The seller books the ship, pays the freight and buys cargo insurance to the discharge port in favour of the buyer. Under the current rules (Incoterms 2020) the minimum cover is the lowest level of the Institute Cargo Clauses (C), so many buyers ask for a higher level in the contract. The risk passes at loading, as in CFR.

How to choose

If you buy and know the freight market, FOB gives you control. If you want one price to the destination port, ask for CFR or CIF. Sellers who ship regularly often prefer CFR and CIF because they can pass on a freight contract, while buyers in large importing countries often buy FOB to use their own fleet contracts. Whatever you choose, the contract must name the port and the shipment period. Also compare the total cost at the destination, not only the price per tonne: with FOB add the freight, the insurance and the port costs to the price, and with CFR add the insurance. This is the only fair way to compare an FOB offer with a CFR or CIF offer for the same cargo.

How Comdity uses the three terms

A sell offer on Comdity is always on FOB terms. The seller can add that it is open to CFR and CIF offers as well. A buy request is on CFR and CIF terms, and the buyer can add that it is open to FOB offers too. FOB uses the loading port, and CFR and CIF use the discharge port, always chosen from the port list. Origin country is required and shown. Read offer and counteroffer for how terms are negotiated.

Before you sign

The Incoterm only covers delivery. Quality, quantity, payment, documents and what happens in a dispute must be written in the sales contract. A lawyer should review a large contract. This guide is general information, not legal advice.

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