Three letters on a quotation FOB, CIF or CFR quietly decide who pays for freight, who arranges insurance, and exactly when responsibility for the goods passes from exporter to importer. Misreading them is one of the most common and most expensive mistakes a first-time importer makes, usually surfacing only when something goes wrong mid-shipment and both sides assumed the other was covering it.
Incoterms (International Commercial Terms) are a standardised set of trade definitions maintained by the International Chamber of Commerce. They don't cover price or payment terms directly they define logistics responsibility and risk transfer. Here are the three you'll encounter most often when importing spices, pulses or packaged food products from India.
FOB Free On Board
Under FOB, the exporter's responsibility ends once the goods are loaded onto the vessel at the named port of loading. From that point, the importer arranges and pays for ocean freight and insurance, and bears the risk for the goods in transit. FOB gives the importer more control over choice of shipping line and freight rates, which larger or more experienced buyers often prefer since it lets them negotiate freight directly rather than accepting whatever rate is bundled into the exporter's quote.
CFR Cost and Freight
CFR shifts freight cost to the exporter's quotation the exporter pays for and arranges ocean freight to the destination port, but risk still transfers to the importer once goods are loaded onto the vessel, exactly as under FOB. The practical difference from FOB is simply who books and pays for the shipping; the risk transfer point doesn't change. Insurance under CFR remains the importer's responsibility unless separately arranged.
CIF Cost, Insurance and Freight
CIF is CFR plus insurance: the exporter arranges and pays for both freight and a minimum level of marine insurance covering the goods to the destination port. Risk still technically transfers at the port of loading, same as FOB and CFR, but because insurance is bundled in, the practical exposure for the importer during transit is lower. CIF is often the most straightforward option for first-time importers, since it requires arranging the fewest moving parts on the buyer's side.
A simple way to decide which term to request
- New to importing and want the fewest logistics arrangements CIF
- Have an existing freight forwarder relationship and want control over shipping FOB
- Want the exporter to handle freight booking but prefer arranging your own insurance CFR
- Shipping high-value or sensitive cargo confirm insurance coverage limits regardless of term chosen
What to confirm in writing regardless of the term used
Whichever Incoterm you agree on, get the named port explicit in the contract for example, "FOB Mundra" or "CIF Rotterdam" rather than just "FOB" or "CIF" on their own. Also confirm who is responsible for documentation costs (Certificate of Origin, phytosanitary certificate) separately, since these aren't always automatically bundled into the Incoterm itself and are sometimes handled as a separate line item.
Incoterms don't replace a clear contract
These terms standardise logistics responsibility, but they don't cover payment terms, quality disputes, or what happens if a shipment is delayed at customs. A clear purchase order or contract should still spell out payment schedule, quality acceptance criteria, and what recourse exists if a shipment doesn't match the agreed specification treating the Incoterm as one clause among several, not the entire agreement.