FOB vs CFR vs CIF
Three terms, one risk point. They differ only in how far the seller's money has to travel — and that difference is not where most people think it is.
The Comparison
| FOB | CFR | CIF | |
|---|---|---|---|
| Seller pays main carriage | No | Yes — to destination port | Yes — to destination port |
| Seller arranges insurance | No | No | Yes — minimum cover |
| Risk transfers to buyer | On board at origin | On board at origin | On board at origin |
| Seller clears for export | Yes | Yes | Yes |
| Buyer pays destination charges and duty | Yes | Yes | Yes |
| Transport modes | Sea and inland waterway only | Sea and inland waterway only | Sea and inland waterway only |
The Part That Surprises People
Look at the risk row: it is identical in all three rules. Under CFR and CIF the seller pays to move the goods across the ocean, but the seller does not carry the risk of that voyage. Risk passed to the buyer the moment the goods went on board at the origin port.
So if the vessel is lost mid-voyage, the buyer still owes the contract price and has to claim on insurance — while the seller, having arranged and paid for the very carriage that failed, has no cargo to worry about. The seller's cost obligation and the seller's risk obligation point at two different places on the map, and CFR and CIF are the clearest examples of it in the whole set of rules.
This is not a technicality. It is the reason a CFR or CIF buyer must think about insurance even though the seller arranged the shipping.
What CFR Buyers Get Wrong
CFR has no insurance obligation at all. The seller pays the freight; nothing in the rule requires anyone to insure the cargo. Since the buyer carries the risk from the moment of loading, the buyer is the one who needs cover — and many buyers assume that a seller who has arranged the shipping has also arranged protection for it. Under CFR, they have not.
If your supplier quotes CFR and you want cover arranged for you, ask for CIF instead, or buy your own policy. Buying your own is often the better option: it lets you insure the whole of your import programme under one open policy rather than accepting a policy taken out per shipment.
And What CIF's Insurance Actually Is
CIF obliges the seller to obtain cover of at least 110% of the contract value — but only at minimum cover, the equivalent of Institute Cargo Clauses (C). That is a named-perils policy: it pays out for the perils it lists, not for every loss. It is not the all-risks cover that CIP requires, and Incoterms 2020 deliberately kept the two different.
If your goods are worth more than the minimum, or you need cover against theft, water damage or handling losses that a (C) policy may exclude, the CIF policy is not enough on its own. Top it up.
What the Difference Is Worth: A Worked Comparison
Same shipment, same margin, three terms. 1,000 units, FOB cost $5.400 per unit, ocean freight $1,850 for the shipment, insurance at 0.35%, target margin 15%.
| Line | FOB | CFR | CIF |
|---|---|---|---|
| Cost per unit | $5.400 | $7.250 | $7.250 |
| of which freight per unit | — | $1.850 | $1.850 |
| of which insurance per unit | — | — | $0.033 |
| Price per unit at 15% margin | $6.353 | $8.529 | $8.568 |
| Shipment total | $6,352.94 | $8,529.41 | $8,568.22 |
Read the gaps, not the totals. FOB to CFR is $2.176 per unit — the ocean freight, plus the margin applied to it. CFR to CIF is $0.039 per unit. The insurance premium is $0.033; the extra six thousandths is your margin on top of it.
That ratio is the practical point of this comparison. Moving from FOB to CFR is a decision about who arranges the main carriage, and it moves the price materially. Moving from CFR to CIF is nearly a rounding decision — it adds the minimum insurance the rule requires and almost nothing else. If a buyer is arguing about CFR versus CIF, the money is not in that gap; it is in who has the better freight rate.
Choosing
Quote FOB when
The buyer has their own freight contract or forwarder and can move the goods more cheaply than you can. This is common with large importers who ship continuously and buy freight in volume.
Quote CFR or CIF when
You have the better freight rate, or the buyer simply wants a delivered-to-port number. A seller shipping regularly to one destination usually beats a buyer shipping to it occasionally.
CIF is often a credit term
Letters of credit frequently call for CIF documents because the price then covers the goods to the destination port and the insurance certificate is part of the document set. Check what the credit requires before quoting CFR.
Remember the valuation link
Many customs authorities assess duty on the CIF value, which is why CIF is the number your import cost calculation starts from. The United States is a notable exception, generally using the transaction value of the goods instead, which normally excludes international freight and insurance.
Put Your Own Numbers On It
- CIF calculator — go from FOB cost to a CIF price with freight, insurance and margin.
- FOB & CIF calculator — see the FOB and CIF lines side by side from your own costs.
- FOB vs CIF — the narrower version of this comparison.
- Incoterms 2020 explained — where these three sit in the full set of eleven rules.
The insurance convention and the formulas behind these figures are documented on the methodology page. If you are holding two quotes given on different terms, put them on an apples-to-apples basis first: the supplier quote comparison normalizes each one to an equivalent landed cost per unit.
Frequently Asked Questions
Does CFR include insurance?
No. CFR covers cost and freight only. The buyer carries the risk from the moment the goods are on board and must arrange their own insurance.
Who pays insurance under CIF?
The seller arranges and pays for it, at minimum cover and at least 110% of the contract value. Because risk has already passed to the buyer, the buyer is the party who ultimately benefits from the claim.
Is CIF the same as CFR plus insurance?
In cost terms, close to it. CIF requires the seller to obtain minimum cargo cover on top of the CFR obligations, so the CIF price is a little higher than the CFR price for the same shipment.
Under CIF, when does risk transfer?
When the goods are placed on board the vessel at the port of shipment — the same moment as under FOB and CFR, despite the seller paying the freight.
Can I use CIF for air freight?
No. FOB, CFR and CIF are all sea and inland-waterway rules. For air freight use CIP, or CPT if you do not want to insure.