Incoterms are the shortest clause in a contract and one of the most consequential. They are also widely misread, usually in the same direction: buyers assume that whoever pays for the freight also carries the risk. Under two of the three terms quoted most often out of India, that is not true.
What an Incoterm allocates, and what it does not
An Incoterm divides three things between seller and buyer: who bears which costs, where risk of loss or damage transfers, and who handles export and import formalities. It does not set payment terms, it does not transfer ownership, and it does not decide who wins a quality dispute. Those belong in the contract and the proforma invoice.
FOB: free on board
The seller handles export clearance, inland haulage to the port, terminal handling and loading. Risk transfers when the goods are on board the vessel. From that point the buyer’s nominated carrier, freight contract and insurance take over. FOB Mumbai is the standard quotation from Indian suppliers and the term to ask for once you have a forwarder relationship and contract rates of your own, because you keep control of routing and usually pay less for the ocean leg.
CFR: cost and freight
The seller books and pays the ocean freight to the named destination port. Risk still transfers on board at the port of loading. This is the asymmetry people miss: the freight is in your purchase price, but from the moment the container is loaded in Mumbai the cargo is at your risk, with no insurance unless you have bought it. CFR without a marine policy is an exposed position for a 30-day voyage.
CIF: cost, insurance and freight
CFR plus insurance arranged by the seller. The detail worth knowing is that the insurance obligation under CIF is a minimum cover, the restricted named-perils clauses, not all-risks. If you want all-risks cover on a high-value consignment such as saffron, say so in the contract and specify the clause set rather than assuming the certificate you receive will provide it.
The container caveat nobody mentions
FOB, CFR and CIF were drafted for cargo loaded over a ship’s side, and strictly they suit break-bulk rather than containers. When you hand a sealed container to a terminal or container freight station days before it is loaded, the seller technically keeps the risk of goods already out of their control. The container-appropriate equivalents are FCA, CPT and CIP. In practice the agri trade quotes FOB and everyone proceeds; just understand that your real exposure begins at the terminal gate, not at the crane.
| Responsibility | FOB | CFR | CIF |
|---|---|---|---|
| Export clearance | Seller | Seller | Seller |
| Inland haulage to port | Seller | Seller | Seller |
| Ocean freight | Buyer | Seller | Seller |
| Marine insurance | Buyer | Buyer | Seller (minimum cover) |
| Risk transfers | On board | On board | On board |
| Import clearance and duty | Buyer | Buyer | Buyer |
Which to ask for
On a first order, with no forwarder relationship at origin and no volume to negotiate rates against, CIF to your port is the simpler instrument. One number, one counterparty, cover in place, and a landed cost you can model before you commit. Ask for the insurance clause set in writing.
Once you are shipping regularly, FOB usually wins. Contract rates through your own forwarder, consolidation with other cargo, control over routing and transhipment, and visibility of what the freight actually costs rather than what it was priced at. Most established buyers move to FOB by their third or fourth container.
We quote FOB Mumbai as standard and CIF to most destination ports on request. Tell us your port when you ask for a quotation and both figures can come back together.