FOB, CFR, CIF —
who carries what.

Incoterms are published by the International Chamber of Commerce and referenced by version — a contract should say which one it means. They allocate three things between seller and buyer: who performs each task, who bears each cost, and at what precise moment risk in the goods passes from one side to the other.

For seaborne bulk petroleum, three of the rules cover most of what gets traded.

FOB — free on board

The seller delivers the cargo on board a vessel that the buyer has nominated at the named port of shipment. From the moment the product is on board, it is the buyer’s risk. The buyer arranges and pays for the ocean freight and for any insurance they want.

FOB puts the buyer in control of the shipping leg, which is why it suits buyers with their own chartering capability or an established freight relationship. It also means the buyer carries the consequences of their own vessel nomination — including delays that push the cargo outside its laycan.

CFR — cost and freight

The seller contracts and pays for carriage to the named destination port. But risk still passes at the load port, once the goods are on board. The seller is paying for a voyage whose risk the buyer is carrying.

That split is deliberate, and it is the single most misread feature of these terms. Under CFR there is no obligation on the seller to insure the cargo at all. If it is lost mid-voyage, the buyer has an uninsured loss and, in most contract structures, still owes the price.

CIF — cost, insurance and freight

As CFR, plus the seller must contract cargo insurance for the buyer’s benefit. The risk transfer point does not move: it is still on board at the load port.

The insurance the seller must provide under CIF is a minimum level of cover, not a comprehensive one. A buyer who wants broader cover can require it in the sales contract and should say so explicitly — or arrange their own top-up. Assuming that “CIF” means “fully covered until it reaches me” is how buyers discover the gap at the worst possible moment.

Three things Incoterms do not do

They do not transfer ownership. Title passes according to the sale contract and the governing law, not according to the Incoterm. A cargo can be at the buyer’s risk while still belonging to the seller.

They do not govern laytime or demurrage. How long the vessel may take to load or discharge, and what is payable when that time is exceeded, comes from the charterparty and the sale contract. Demurrage disputes are common and none of them are resolved by pointing at the Incoterm.

They do not set the payment terms. Which documents are presented, against what instrument, and when the money moves are all separate contractual questions. See how independent inspection settles quality and quantity for the certificates that usually sit in that document set.

Choosing between them

• You have your own freight arrangements and want control of the shipping leg — FOB
• You want a delivered price to the destination port and will handle cargo insurance yourself — CFR
• You want a delivered price with insurance included, and will check the level of cover — CIF

These three rules apply to sea and inland waterway transport only. Product moving in containers or by multimodal transport belongs under a different set of rules — using FOB for a container shipment is a widespread habit and a bad one.