In commodity trading, the price is only half of the deal. The other half is answering a deceptively simple question: at what exact point does responsibility for the goods pass from seller to buyer, and who pays for freight and insurance along the way? That is what Incoterms define. For buyers of agricultural products, gold, scrap, and metals, understanding FOB, CFR, and CIF is essential to comparing quotes fairly and avoiding costly misunderstandings. This guide explains the three Incoterms most commonly used in seaborne commodity trade.
What Are Incoterms?
Incoterms — short for International Commercial Terms — are a set of standardised trade definitions published by the International Chamber of Commerce (ICC). They are used in contracts worldwide to spell out, in a single shorthand, who is responsible for transport, insurance, export and import clearance, and the precise moment risk transfers from seller to buyer. Because they are internationally recognised, they let a seller in Nairobi and a buyer in Rotterdam or Dubai agree terms without ambiguity.
An Incoterm is always quoted with a named place, for example “FOB Mombasa” or “CIF Jebel Ali”. That named port matters as much as the three letters, because it fixes where the seller’s obligation ends or where the cost coverage extends to.
FOB — Free On Board
Under FOB, the seller is responsible for delivering the goods, cleared for export, on board the vessel at the named port of shipment. Once the goods are loaded, risk and cost pass to the buyer.
What the seller pays for
- Getting the goods to the port of origin
- Export clearance and origin-side charges
- Loading the goods onto the vessel
What the buyer pays for
- Ocean freight to the destination port
- Marine insurance
- Import clearance, duties, and onward delivery
FOB suits buyers who have their own freight arrangements or forwarders and want maximum control over shipping. Because the buyer books the vessel, they can often negotiate better freight rates or consolidate cargo. The trade-off is that the buyer carries the risk for the entire ocean voyage.
CFR — Cost and Freight
Under CFR (sometimes written C&F), the seller pays to bring the goods to the destination port, including ocean freight. However — and this is the crucial point — risk still passes to the buyer once the goods are loaded on board at origin, exactly as under FOB. The seller pays for freight, but is not responsible for loss or damage during the voyage.
What the seller pays for
- Everything included under FOB
- Ocean freight to the named destination port
What the buyer pays for
- Marine insurance
- Import clearance, duties, and onward delivery
CFR is convenient for buyers who prefer the seller to handle freight booking but who arrange their own insurance. The single most common mistake with CFR is assuming that because the seller pays freight, the seller also carries the risk at sea. They do not, which is why insurance is the buyer’s responsibility.
CIF — Cost, Insurance and Freight
CIF builds on CFR by adding insurance. The seller pays for freight and also arranges and pays for marine insurance to the destination port. As with CFR, risk still transfers to the buyer at the moment of loading, but the seller has provided an insurance policy the buyer can claim against if the cargo is lost or damaged in transit.
What the seller pays for
- Everything included under CFR
- Marine insurance (typically minimum cover unless a higher level is agreed)
What the buyer pays for
- Import clearance, duties, and onward delivery from the destination port
CIF is often the most convenient term for buyers who want a landed-to-port price with minimal arranging on their side. One caution: the default insurance level under CIF is usually the minimum, so high-value cargoes such as metals or gold may warrant a higher agreed cover.
FOB, CFR and CIF Compared
The simplest way to remember the progression is that each Incoterm adds a layer of seller responsibility for cost, while the risk transfer point stays the same:
- FOB — seller loads the vessel; buyer pays freight and insurance and carries sea risk.
- CFR — seller pays freight; buyer pays insurance and carries sea risk.
- CIF — seller pays freight and insurance; buyer carries sea risk but has a policy to claim on.
Under all three Incoterms, the buyer handles import clearance and duties at destination, and under all three, risk passes when the goods are loaded at origin.
How to Compare Quotes on Different Terms
Suppliers may quote on different Incoterms, which makes headline prices hard to compare. To evaluate them fairly, convert every quote to the same basis. If one supplier quotes FOB and another CIF, add your estimated freight and insurance to the FOB price before comparing. Always confirm the named port, because “CIF Jebel Ali” and “CIF Mombasa” are very different commitments. And for valuable cargo, check the insurance level rather than assuming full cover.
Other Incoterms You May Encounter
While FOB, CFR, and CIF dominate seaborne commodity trade, you will occasionally see other Incoterms, and it helps to recognise them. Knowing where these Incoterms sit on the spectrum from minimum to maximum seller responsibility lets you read any quote correctly.
EXW — Ex Works
EXW places the least obligation on the seller. The goods are made available at the seller’s premises, and the buyer arranges everything from that point, including export clearance. It offers the buyer total control but also total responsibility, which is why it is uncommon in cross-border commodity deals where the seller is usually better placed to handle export formalities.
FCA — Free Carrier
Under FCA, the seller delivers the goods, cleared for export, to a carrier or place nominated by the buyer. It is flexible and works well for containerised cargo, and it is increasingly recommended over FOB for goods handed over before they are physically loaded on a vessel.
DAP and DDP — Delivered Terms
At the far end of the spectrum, delivered terms put most of the burden on the seller. Under DAP (Delivered At Place) the seller brings the goods all the way to a named destination, with the buyer handling import clearance. Under DDP (Delivered Duty Paid) the seller even covers import duties and clearance. These terms offer buyers maximum convenience but usually carry a higher price to reflect the seller’s added cost and risk.
Common Pitfalls to Avoid
Even experienced buyers run into avoidable problems with Incoterms. A few recurring pitfalls are worth guarding against:
- Assuming freight equals risk. Under CFR and CIF the seller pays freight, but sea risk still sits with the buyer. Never skip insurance on a CFR deal.
- Forgetting the named place. An Incoterm without a clearly named port or place is incomplete and invites disputes.
- Overlooking insurance cover levels. CIF often defaults to minimum cover, which may be inadequate for high-value metals or gold.
- Mixing up Incoterms versions. The ICC periodically updates the rules; specify which version applies in your contract.
- Ignoring destination costs. None of FOB, CFR, or CIF include import duties or onward delivery, so budget for those separately.
Getting these details right turns Incoterms from a source of confusion into a powerful tool for structuring clean, predictable deals.
Related Guides
- Sourcing Agricultural Commodities from East Africa
- A Buyer’s Guide to Responsibly Sourced Gold
- Copper Trading Explained: Cathode, Ore, and Scrap
- Grading Scrap Metal for Export
Trade With Confidence Alongside Pitsonel Ltd
Pitsonel Ltd delivers agricultural products, responsibly sourced gold, scrap, and refined metals to ports across Asia, Europe, Africa, and the UAE on FOB, CFR, and CIF terms. We are transparent about which term we are quoting and keep a single point of contact responsible for your shipment from first enquiry to final delivery. Request a quote today and let us structure a deal that works for your supply chain.