Key takeaways
- Under FOB, CFR and CIF, risk passes to the buyer when the goods are on board the vessel at the load port, even when the seller pays the freight.
- CFR adds sea freight to the seller's obligations; CIF adds freight plus minimum cargo insurance.
- FOB, CFR and CIF are designed for sea and inland waterway transport. For containers handed over at a terminal, FCA, CPT and CIP are usually a better fit.
Incoterms are standard trade terms published by the International Chamber of Commerce (ICC). The current edition, Incoterms 2020, defines who arranges transport, who pays which costs, and exactly when risk transfers from seller to buyer. In bulk chemical and fertilizer trade, three terms dominate: FOB, CFR and CIF.
FOB: Free On Board
The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment, for example "FOB Bandar Abbas". From that point the buyer carries the risk and pays freight, insurance and all later costs.
- Good for buyers who have their own chartering team or freight contracts and want control over the vessel.
- Watch out for vessel nomination deadlines, laycan (the loading window) and who pays for delays at the load port.
CFR: Cost and Freight
The seller arranges and pays sea freight to the named destination port, for example "CFR Mundra". However, risk still passes to the buyer when the goods are loaded on board at the origin port. If cargo is damaged at sea, the buyer bears the loss, which is why CFR buyers usually arrange their own marine insurance.
- Good for buyers who want a delivered price without managing shipping.
- Watch out for discharge port costs, demurrage terms at destination and insurance, which the buyer must arrange.
CIF: Cost, Insurance and Freight
CIF is CFR plus insurance. The seller must buy cargo insurance for the buyer's benefit. Under Incoterms 2020, the minimum cover for CIF is Institute Cargo Clauses (C), for at least 110% of the contract value. Cover (C) is limited, so buyers who need broader protection should negotiate higher cover or insure separately.
Side-by-side comparison
| FOB | CFR | CIF | |
|---|---|---|---|
| Export clearance | Seller | Seller | Seller |
| Loading on board | Seller | Seller | Seller |
| Sea freight | Buyer | Seller | Seller |
| Marine insurance | Buyer (optional) | Buyer (optional) | Seller (minimum cover) |
| Risk transfer | On board, load port | On board, load port | On board, load port |
| Import clearance and duties | Buyer | Buyer | Buyer |
What Incoterms do not cover
Incoterms are often misunderstood. They do not decide:
- When ownership (title) of the goods transfers.
- Payment terms or the price.
- Laytime and demurrage rules in charter parties.
- Quality, quantity tolerances or which inspection result is final.
All of these must be written into the sales contract separately.
Documents you should expect
For a typical seaborne chemical or fertilizer cargo under letter of credit or documentary collection, the document set usually includes:
- Commercial invoice
- Bill of Lading (often a full set of original "clean on board" B/Ls)
- Certificate of Quality and Certificate of Quantity from an independent inspector
- Certificate of Origin
- Packing list (for bagged or containerised cargo)
- Insurance certificate or policy (CIF only)
- Safety Data Sheet for the product
Containers: consider FCA, CPT and CIP
When cargo is packed in containers, it is handed to the carrier at a container terminal, often days before it is loaded on the ship. Using FOB, CFR or CIF in that case leaves the seller carrying risk for cargo they no longer control. The ICC recommends FCA, CPT and CIP for containerised goods.
Choosing the right term
If you have strong freight contracts, FOB gives you control and transparency. If you prefer a single delivered price, CFR or CIF is simpler, as long as you understand that risk passes at loading. For first trades with a new supplier, many buyers start with CFR plus their own insurance and independent load-port inspection.
Aban Chemical trades methanol, urea, sulfur, ammonia, LPG and naphtha under FOB, CFR and CIF terms depending on the product and destination. Request a quote and tell us your preferred delivery term.
