What do foreign trade terms, FOB, CIF, C&F, and CFR mean, and what's the difference? (2024)

FAQs

What do foreign trade terms, FOB, CIF, C&F, and CFR mean, and what's the difference? ›

FOB, FREE ON BOARD FOB price, all costs and risks borne by the shipper before the cargo passes through the ship's rail. CIF, COST INSURANCE FREIGHT plus insurance, all costs of goods to the port of destination, the insurance is borne by the shipper. C&F, CFR COST AND FRIEGHT have the same meaning.

With CIF/ CFR agreements, the seller has a wider responsibility as has to arrange and pay for the transportation of the goods to a remote place; under the FOB term, instead, the seller is responsible to deliver the goods cleared for export at a departure port (generally in its own country).

Cost and Freight (CFR), Cost, Insurance and Freight (CIF) and Free on Board (FOB) are three of the terms included in the International Chamber of Commerce's International Commerce Terms (Incoterms).

What are CIF Shipping Terms. CIF (Cost, Insurance and Freight) and CFR (Cost and Freight, sometimes called C&F or CNF) are widely used international shipping terms or Incoterms. They are identical apart from an additional marine insurance policy paid for by the seller.

➢ Cost, Insurance and Freight (CIF) is the same as C&F, but requires the seller to obtain and pay for cargo insurance meeting certain minimum standards. The buyer can claim under the cargo insurance if the grain is lost or damaged during the voyage.

With CFR, the seller must arrange and pay all costs to ship the product to a destination port, at which point the buyer becomes responsible.

C&F means “cost and freight” which means the seller pays for shipping, but not insurance.

Under CFR terms (short for “Cost and Freight”), the seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination.

Under CIF, the seller is responsible for covering the costs, insurance, and freight of the buyer's shipment while in transit. The buyer is responsible for any costs once the freight has reached the buyer's destination port.

Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF. FOB provides greater control and saves buyers money, but CIF helps sellers maintain a higher profit. The caveat being that new buyers would be better advised to use CIF until they get accustomed to the import process.

Is CFR cheaper than CIF? ›

Advantages and disadvantages of shipping with CFR

Still, in case of a good deal with an insurance company, it may be cheaper and safer to ship under the CFR Incoterm than under CIF. For the seller: It is easier for the seller to ship under the CFR Incoterm, as they have fewer responsibilities compared to CIF.

The CFR price is calculated by taking in consideration, the price of goods, labour, packing-labelling, freight insurance, customs, verifications, documentation, duties & taxes, port charges, etc.

Cost and freight (CFR) and cost, insurance, and freight (CIF) are terms used in international trade for the shipping of goods by sea. CFR requires the seller to arrange for the transport of goods by sea to the buyer's (required) destination.

FOB means Free On Board and is when the seller takes care of all shipping documentation and delivers the goods to the ship. Once aboard, the transportation risk passes from the seller to the buyer. You then pay for the freight to get to your destination, but the seller pays for the export customs clearance.

CIF includes duty and charges, where the seller assumes responsibility for export customs proceeding and the buyer for import customs.

In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.

For CFR specifically the ownership transfers to the buyer at the port, airport or terminal at destination when the product is unloaded from the vessel, the aircraft or the train.

FOB shipping point is a pricing term indicating the seller is responsible for the cost of the goods and the cost of delivering the goods to the buyer's designated shipping point. The buyer is responsible for all costs and risks associated with the goods from the point of delivery.

Free on Board (FOB)

Under a FOB agreement, the supplier assumes responsibility until the goods are loaded onto the shipping vessel. This means they pay for the goods to be transported to the port and onto the vessel. As such, the seller has a limited set of responsibilities under the contract.

EXW (Ex Works) means that the seller delivers when it places the goods at the disposal of the buyer at the seller's premises or at another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load goods or clear them for export.

What is DDP shipping? ›

Delivery Duty Paid (DDP) shipping is where the seller takes all responsibility for fees and risks of shipping goods until they are delivered to an agreed place by the buyer and seller.

Disadvantages of CFR

As the seller can include the charges in the invoice, they have little incentive to keep costs low. In addition, the buyer is responsible for loss and damage to the goods as soon as it is loaded on board the vessel in the shipping port in a foreign country.

Duty and customs clearance

CFR includes import customs duty, which is borne by the buyer. Once the goods are dropped by the seller at the designated port, the unloading of goods rests with the buyer. He'll be accountable for all the import duties and taxes at the dock port.

CFR cannot be used analogously for air freight traffic, as it will not be possible for the seller to deliver the goods "on board" a ship. Alternatives for air transport would be CPT or FCA with the addition of "freight to be paid by the seller").

What Is a CIF Contract? Cost Insurance and Freight often holds primary ownership with the seller until delivery. With a CIF contract the seller pays or is otherwise responsible for risk and insurance costs until the goods reach their final destination.

One of CIF's main disadvantages is that the seller can only use it for specific types of international trade. This means sellers must ensure they obtain the right shipping policy for the entire cargo journey. Another disadvantage of CIF is that it might be hard for the buyer to take out a claim if anything goes wrong.

Ideally, the seller pays the freight charges to a major port or other shipping destination and the buyer pays the transport costs from the warehouse to his store or vendors. The determination of who will be charged the freight costs is usually indicated in the terms of sale.

One of the main disadvantages for seller under FOB terms is that the exporter does not have any control over main carriage, import clearance and on carriage of goods to final destination. The tracking of shipping details is depended with the buyer as he undertakes main carriage and on carriage contract.

In CIF, the seller is responsible for transporting goods to the nearest port, loading the goods on the ship and paying freight for the goods to be delivered to a port chosen by the buyer. The seller is also responsible for paying insurance for the goods.

In terms of expenses borne by the seller, FOB covers expenses such as ex-factory costs of the goods, packaging charges, documentation, loading, and other transportation expenses. On the other hand, CIF includes FOB charges and freight and marine insurance charges to be borne by the seller.

What is CFR C&F Cost and Freight? ›

CFR/C&F - Cost and Freight (named port of destination)

CFR is intended only for transporting goods by sea or inland waterway. Supplier pays export duty, packaging the goods and transportation of the cargo to the port, loads the goods on board, hires and pays the ship and provides the relevant documentation.

CFR is nearly identical to CIF, the only difference is that insurance is mandatory under CIF and must be provided by the seller. With CFR, however, insurance is optional. Common practice dictates that CFR should be chosen over CIF if the buyer is able to acquire better or more affordable insurance and vice versa.

Example of shipping under CFR Incoterm

The Irish company arranges transport with a freight forwarder and pays for the shipping until the port of destination in the US. Once the goods are loaded on the ship, the risk passes to the US company. The US company pays for the import fees and customs.

When goods are bought or sold Cost and Freight (CFR) it means that the Seller is responsible for the delivery of the goods to a ship and loading the goods onto the ship. The seller is also responsible for any customs export documentation and export licences if needed.

The first edition of the CFR was published in 1938, and it has since gone through many changes. These rules are considered legally binding just as any statute.

Who Pays Freight for FOB Origin? If the terms include the phrase "FOB origin, freight collect," the buyer is responsible for freight charges. If the terms include "FOB origin, freight prepaid," the buyer assumes the responsibility for goods at the point of origin, but the seller pays the cost of shipping.

There are two types of FOB, which are FOB destination and FOB shipping point. The type of FOB to be used is typically designated in a customer's purchase order, and is also stated on the supplier's invoice to the customer.

Freight on board, also known as free on board, refers to a set of Incoterms that govern who owns and pays for a shipment when traveling overseas. Although its original definition was used exclusively for seafaring transport, modern use of the term can be applied to all shipment modes of transit.

The cost, insurance and freight (CIF) price is the price of a good delivered at the frontier of the importing country, or the price of a service delivered to a resident, before the payment of any import duties or other taxes on imports or trade and transport margins within the country.

A CIF contract requires the vendor to ship at the port of shipment the agreed goods in the underlying contract of sale, to procure a contract of carriage (bill of lading) under which the goods will be delivered to the agreed destination, to arrange for insurance which will be available for the benefit of the purchaser, ...

What does CIF mean on bill of lading? ›

A CIF (cost, insurance and freight) contract is a contract of sale of goods by shipment where the seller pays for the cost of transport and insurance of the goods to the destination and the legal delivery is when the goods cross the ship's rail in the port of shipment.

Cost and freight (CFR) is a trade term that requires the seller to transport goods by sea to a required port. Cost, insurance, and freight (CIF) is what a seller pays to cover the cost of shipping, as well as the insurance to protect against the potential damage of loss to a buyer's order.

Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF. FOB provides greater control and saves buyers money, but CIF helps sellers maintain a higher profit. The caveat being that new buyers would be better advised to use CIF until they get accustomed to the import process.

One of CIF's main disadvantages is that the seller can only use it for specific types of international trade. This means sellers must ensure they obtain the right shipping policy for the entire cargo journey. Another disadvantage of CIF is that it might be hard for the buyer to take out a claim if anything goes wrong.

Under the Free Carrier, or FCA Incoterm, the buyer is responsible for all freight costs. Find more information about Incoterms here.

Free Carrier (FCA) means that the seller delivers the goods to a carrier or another person nominated by the buyer, at the seller's premises or another named place.

The risk of goods is transferred to the buyer as soon as the goods are loaded onboard by the seller. As such, any extraneous charges or levies imposed on the goods due to neglect or delays, such as shipping demurrage charges, unforseen taxes etc are to be borne by the importer.

Incoterms commonly used for air shipments are: EXW (Ex-works), in which the buyer assumes responsibility at the seller's warehouse and takes care of everything including transportation and insurance. CIP (Carriage and insurance), which puts responsibility for insurance on the seller.

The Code of Federal Regulations (CFR) is the codification of the general and permanent rules published in the Federal Register by the executive departments and agencies of the Federal Government.