Most inquiries arrive with a term attached, and most of the time it is the term the buyer has always used rather than the one that fits the shipment. The three used in this trade are straightforward once separated into the two questions they answer: who pays, and who bears the risk.
The three terms
| Term | Seller pays carriage to | Seller provides insurance | Risk transfers |
|---|---|---|---|
| FOB | Nothing beyond loading on board at origin | No | When goods are on board at the port of shipment |
| CFR | The named destination port | No | When goods are on board at the port of shipment |
| CIF | The named destination port | Yes — minimum cover under Incoterms 2020 | When goods are on board at the port of shipment |
Based on Incoterms 2020. A contract should name the edition it is written against, because the rules have changed between editions and will change again.
The part that is counter-intuitive
Read the last two columns of CFR and CIF together. The seller pays the freight all the way to the destination port, but the risk passed to the buyer back at the origin port.
Cost and risk divide at different places. If the vessel is lost mid-ocean on a CIF sale, the seller has paid freight for a voyage that did not complete, and the loss is the buyer's — recoverable under the insurance the seller was obliged to arrange, which is why the obligation exists.
"CIF means it is the seller's problem until it arrives" is wrong.
It is the most common misreading of the three terms, and it surfaces at exactly the wrong moment. Under all three, risk transfers at origin once the goods are on board. What changes between them is who arranges and pays for carriage and insurance.
The insurance distinction in CIF
Under Incoterms 2020 the seller's insurance obligation in CIF is minimum cover. That is a defined, limited level of protection, and it is frequently less than a cargo owner would choose for themselves.
A buyer who wants broader cover on a CIF purchase has two options: agree a higher level of cover expressly in the contract, or buy supplementary insurance separately. What does not work is assuming that "insured" means fully insured.
Why FOB fits containers badly
This is well established and widely ignored. FOB, CFR and CIF are maritime terms, written for cargo handed over at the ship's side and loaded on board. They assume the seller retains control of the goods until that moment.
Containerised cargo does not work that way. The seller delivers a sealed container to a terminal or a consolidation point, often days before loading, and has no access to it afterwards. Under FOB the seller nonetheless carries the risk until the container is on board — a period during which they can neither inspect, protect nor insure it meaningfully.
The International Chamber of Commerce addresses this directly: for containerised shipments the appropriate terms are FCA (and CPT or CIP in place of CFR and CIF), under which risk transfers at the point the seller actually hands over control.
The trade continues to use FOB for containers out of habit, and in practice disputes over the terminal-to-vessel gap are uncommon. But a seller using FOB for container shipments should know they are carrying a risk they cannot manage, and price accordingly.
Choosing between them
- FOB suits a buyer with their own freight contracts and the volume to use them. The buyer controls the carrier, the routing and the cost.
- CFR suits a buyer who wants a landed price without administering the freight, and who carries their own cargo insurance under an open policy.
- CIF suits a buyer who wants one number covering everything, and is willing to accept minimum cover or to top it up themselves.
None is inherently cheaper. The cost is in the shipment, not the term; the term decides who procures it and therefore who captures any advantage in procuring it well.
What an offer should state
- The term, the named port, and the Incoterms edition — all three. "CIF Ho Chi Minh, Incoterms 2020" is complete. "CIF" is not.
- Who is responsible for destination charges, which are not settled by the term alone and are a common source of friction.
- The payment basis, which is a separate question from the delivery term and should never be inferred from it.
We quote FOB, CIF and CFR per inquiry — the terms and loading ports are on the for buyers page. The documents that follow the shipment are covered in what arrives with a shipment.