Export Knowledge
FOB, CFR and CIF explained: Incoterms for sea freight
What FOB, CFR, CIF and EXW mean under Incoterms 2020, who pays for what, where risk passes and how to choose between them when buying from India.
Incoterms are standard trade terms published by the International Chamber of Commerce. They say who arranges and pays for transport, who clears customs, and where the risk of loss passes from seller to buyer. The current edition is Incoterms 2020. For sea freight from India, three terms dominate: FOB, CFR and CIF.
The key idea: cost and risk can pass at different points
Under FOB, CFR and CIF the risk passes to the buyer at the same point, when the goods are on board the vessel at the port of shipment. What differs is who pays for the main carriage and insurance.
The terms
| Term | Seller arranges | Buyer arranges | Risk passes |
|---|---|---|---|
| EXW (Ex Works) | Makes goods available at its premises | Everything else: loading, export clearance, freight, insurance | At the seller's premises |
| FCA (Free Carrier) | Delivers to the buyer's nominated carrier, clears export | Main carriage, insurance | When delivered to the carrier |
| FOB (Free On Board) | Delivers on board the vessel, clears export | Ocean freight, insurance, import clearance | On board the vessel at the port of shipment |
| CFR (Cost and Freight) | Pays freight to the destination port | Insurance, import clearance | On board the vessel at the port of shipment |
| CIF (Cost, Insurance and Freight) | Pays freight and arranges insurance to the destination port | Import clearance | On board the vessel at the port of shipment |
FOB, CFR and CIF are for sea and inland waterway transport only. For containers, many practitioners prefer FCA, CPT or CIP, because the goods are handed to a carrier at a terminal before they are on board, but FOB, CFR and CIF remain the most common terms in commodity trade.
Under CIF, how much insurance?
Under Incoterms 2020 the CIF seller must obtain insurance with minimum cover equivalent to the Institute Cargo Clauses (C), a basic level of cover, for the buyer's benefit. Buyers who want broader cover can ask for it or arrange their own.
Choosing between them
- FOB gives you control of freight and insurance, which suits a buyer with a forwarder and good freight rates. You pay and manage the main carriage.
- CFR is convenient when you want a landed-port price but already insure your cargo.
- CIF suits buyers who want the seller to handle freight and basic insurance and who want a single price to the destination port.
- EXW puts the most work on the buyer, including export clearance in India, and is rarely the best choice for a first import.
Always name the place
Write the term with a named port: "FOB Mundra", "CIF Rotterdam". Without the place the term is incomplete.
Compare quotations on the same term using how export pricing works, and see which documents each party prepares in export documents explained.
This article is general information for importers. It is not legal, customs, financial or regulatory advice. Requirements change, so confirm them with your customs broker, freight forwarder or the relevant authority before you ship.
Keep reading
- 01
Buying from India
How export pricing works: from ex-works to CIF
What goes into an Indian export price, how it builds from ex-works to FOB to CIF, and which factors move it. No price lists, just the structure.
- 02
Export Knowledge
Export documents explained
The documents that accompany an export shipment from India, what each one is for, who issues it and which ones depend on the product and destination.
- 03
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FCL vs LCL and container loading for agricultural goods
Full container load or less than container load, how container weight and volume limits work, and why light products and dense products load so differently.
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