Export & Import · Incoterms
FOB vs CFR: What's the Difference?
FOB and CFR are two of the most commonly used Incoterms in spice and agri-commodity trade. Understanding exactly where responsibility shifts under each helps buyers compare quotations on a like-for-like basis.
What FOB means
Under FOB (Free On Board), the seller's responsibility for cost and risk ends once the goods are loaded on board the vessel at the named port of shipment. From that point, the buyer arranges and pays for main carriage (ocean freight) and bears transit risk.
What CFR means
Under CFR (Cost and Freight), the seller arranges and pays for freight to the named port of destination, but risk still transfers to the buyer once goods are loaded on board at the port of shipment — the same risk transfer point as FOB. The seller is not responsible for marine insurance under CFR.
Why the difference matters when comparing quotes
An FOB price and a CFR price for the same shipment are not directly comparable without adding estimated freight to the FOB figure — otherwise a buyer may mistakenly think an FOB quote is cheaper than a CFR quote for the same goods.
Because risk transfers at the same point (loading) under both terms, the main practical difference is who arranges and pays for freight, not who bears transit risk.
Key Takeaways
- Both FOB and CFR transfer risk to the buyer at the port of loading — the difference is who arranges and pays for ocean freight.
- CFR does not include marine insurance; buyers should arrange their own cover for the ocean transit under either term.
- Always compare quotations on the same Incoterm basis, or explicitly add estimated freight to an FOB price before comparing it to a CFR price.
FAQ
Which is better for a buyer — FOB or CFR?
Neither is inherently better. FOB gives the buyer more control over freight booking and carrier choice; CFR is more convenient if the buyer prefers the seller to arrange shipping. The choice depends on the buyer's own logistics capability and preference.
Does CFR include insurance?
No. CFR covers cost and freight only. If insurance cover is wanted, the buyer should arrange it separately, or the parties should agree CIF instead, which does include a minimum level of seller-arranged insurance.
Sources / References
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