A lower FOB price is not always the cheaper deal. Compare the three terms importers see most often and learn how to compare offers like for like.
International buyers regularly receive quotations using terms such as FOB, CFR and CIF. Understanding the difference is essential before comparing prices.
FOB — Free on Board
Under FOB, the seller generally handles the goods until they are loaded aboard the nominated vessel at the agreed port of shipment.
The buyer normally arranges the main ocean freight and insurance.
USD 500/MT FOB Melbourne
FOB can be useful for experienced importers who have their own freight arrangements.
CFR — Cost and Freight
Under CFR, the seller arranges and pays the ocean freight to the destination port. Insurance is generally the buyer's responsibility.
USD 570/MT CFR Chittagong
CFR is common in bulk commodity transactions.
CIF — Cost, Insurance and Freight
CIF is similar to CFR, except the seller also arranges the required cargo insurance.
USD 585/MT CIF Chittagong
Quick Comparison
| Term | Seller Arranges Freight | Seller Arranges Insurance |
|---|---|---|
| FOB | No | No |
| CFR | Yes | No |
| CIF | Yes | Yes |
These descriptions are simplified, so parties should always refer to the applicable Incoterms rules and their sales contract.
Which Is Better?
There is no single shipping term that is always better.
- FOB may suit buyers with established freight relationships.
- CFR may suit buyers who want the seller to arrange freight but prefer to handle insurance separately.
- CIF may suit buyers seeking a quotation that includes both international freight and insurance to the destination port.
Always Compare Like for Like
A common mistake is comparing an FOB price from one supplier with a CIF price from another.
A lower FOB price does not necessarily mean the total landed cost will be lower. Importers should calculate:
- Product cost
- Freight
- Insurance
- Port charges
- Duties
- Taxes
- Customs clearance
- Inland transport
before selecting an offer.