Foreign Trade · Incoterms Basics
FOB, CFR, CIF — Sorted Out Once and for All
Every trader uses FOB, CFR and CIF daily — in quotes, in contracts, with the freight forwarder. But asked to explain the difference, most can't. Here it is, clearly.
FOB
Free On Board
Goods delivered onto the ship at the port of loading
Seller covers
- Getting goods to the named port of loading
- All cost & risk up to that point
- Invoice, packing list, contract, origin cert, B/L
Buyer covers
- Ocean freight after loading
- Insurance
- All risk once goods are loaded
- Import clearance
Once the goods clear the ship's rail, it's no longer the seller's problem. The buyer books the ship, buys insurance, carries the sea risk.
CFR
Cost and Freight
FOB plus one more leg — the ocean freight
Seller covers
- Ocean freight to the destination port
- Signs the carriage contract, pays freight
- Promptly notifies buyer after loading
Buyer covers
- Insurance
- Import procedures & duties
- All risk once goods are loaded
The seller pays to get goods to the destination port — but the risk still transferred to the buyer at loading.
CIF
Cost, Insurance and Freight
CFR plus one more leg — the marine insurance
Seller covers
- Everything in CFR (freight + risk to port)
- Buys minimum marine insurance for the goods
- Provides the insurance policy
Buyer covers
- Import procedures & duties
- All risk once goods are loaded
The seller covers freight and insurance — but the risk still transfers at loading, same as the others.
How the Price Is Built
Each term just adds a cost layer on top of FOB. The math is simple.
CFRCFR price=FOB price+ocean freight
CIFCIF price=FOB price+ocean freight+insurance
Worked example:
FOB Shanghai: $10,000 · Ocean freight to Hamburg: $2,000 → CFR Hamburg = $12,000
Insurance = (FOB + freight) ÷ (1 − 1.1 × rate). At a 0.3% rate: 12,000 ÷ (1 − 0.0033) ≈ CIF $12,040 — about $40 more than CFR.
Convention: insure at 110% of CIF value.
For all three terms, risk transfers at the same point — on board the ship at the port of loading.
The only real differences are who pays the ocean freight and who buys the insurance. The risk-transfer point never moves.
Which One Should You Pick?
As the seller
CIF lets you earn the margin on freight and insurance — but demands tighter logistics control. FOB is the easiest, but you lose control of the transport leg.
As the buyer
FOB lets you choose your own carrier — usually a better rate. CIF is the most hands-off, but the seller may mark up freight and insurance.
Three Questions That Come Up in Practice
Under FOB, the buyer named the forwarder — what's the seller's risk?
A buyer-nominated forwarder can be unreliable — poor service, messy fees, even releasing cargo without the B/L in collusion with the buyer. Use a forwarder you know, or at least co-confirm the choice with the buyer.
Under CFR, the seller paid freight but the cargo was damaged at sea — who pays?
Risk passed to the buyer at loading, so the loss is the buyer's. Still, the seller should remind the buyer to insure — otherwise the buyer may circle back and argue.
Under CIF, is the seller's insurance enough?
The seller only has to buy the minimum cover (FPA / "with particular average"). For high-value goods, the buyer should add all-risks or war-risk cover themselves.
The core difference is just three things
1
Who pays the ocean freight
3
When risk transfers — and that answer is the same for all three
Where Cube-Age fits
Whatever term you quote, the goods still have to land and clear in the U.S. For FOB and CFR shipments arriving stateside, Cube-Age's Houston hub handles the U.S. side — import clearance, warehousing and fulfillment — so the transport leg the seller "lost control of" gets a reliable endpoint instead of an open question.
Source: Adapted from a foreign-trade logistics explainer. Incoterms usage follows standard international trade practice; confirm the applicable Incoterms edition in your contract.