A price per tonne means nothing until the delivery term is attached to it. USD 480 FOB and USD 480 CFR are two different prices, separated by the whole freight bill. This guide covers the Incoterms 2020 rules that commodity cargoes actually trade on, and the shipping terms that sit beside them in a bulk contract.
The four sea terms
Incoterms 2020 has eleven rules. Four are written for sea and inland waterway transport only, and these carry almost all bulk trade:
| Term | Seller delivers when | Who pays ocean freight | Who insures | Risk passes |
|---|---|---|---|---|
| FAS | Goods are alongside the ship at the named load port | Buyer | Buyer | Alongside the ship |
| FOB | Goods are on board at the named load port | Buyer | Buyer | On board at load port |
| CFR | Goods are on board at the load port | Seller, to the named discharge port | Buyer | On board at load port |
| CIF | Goods are on board at the load port | Seller, to the named discharge port | Seller, for the buyer's benefit | On board at load port |
The point most first-time buyers miss is in the last column. Under CFR and CIF the seller pays the freight to your port, but the risk of loss passes to you when the cargo is loaded, not when it arrives. If the ship is lost at sea on a CFR sale, the buyer still pays and claims on the buyer's own insurance.
What CIF insurance actually covers
Under Incoterms 2020 a CIF seller must insure for at least 110% of the contract value, on Institute Cargo Clauses (C) or equivalent. Clauses (C) is the minimum cover: fire, stranding, sinking, collision, general average. It does not cover shortage, wetting by sea water in heavy weather, or theft. A buyer who wants Clauses (A), war or strikes cover has to write that into the contract, and pay for it. Many buyers prefer CFR and place their own open cover for that reason.
FOB means the buyer fixes the ship
On FOB the buyer charters the vessel, nominates it to the seller within the agreed window and carries the freight risk. That suits a buyer with a chartering desk and regular volume. It also means the buyer is responsible for the ship arriving inside the laycan: a late ship costs storage or carrying charges at the load port, and a cancelled laycan can cost the cargo.
On CFR and CIF the seller fixes the ship, so the buyer sees one number. The buyer still needs to check what that number assumes at the discharge port.
The terms Incoterms does not cover
Incoterms decides delivery, risk and who pays the main carriage. It does not decide who pays for loading and discharging, how fast the ship must be worked, or who pays when she waits. A bulk contract adds those:
- FOB stowed and trimmed (FOBST). The seller pays to load, stow and trim the cargo in the holds. Plain FOB can leave trimming to the ship.
- CFR free out (CFR FO). The freight does not include discharging. The buyer pays stevedores at the discharge port. "Liner out" means discharge cost is inside the freight.
- Load and discharge rates. Written in tonnes per weather working day, with Sundays and holidays included (SHINC) or excluded (SHEX). A slow discharge port turns a cheap CFR price into an expensive one.
- Laytime, demurrage and despatch. Time allowed for loading and discharging, the daily rate paid to the owner when it is exceeded, and the rebate (usually half the demurrage rate) when the ship is worked faster.
- Notice of readiness. When the laytime clock starts: on arrival, on berthing, or after a set number of hours.
- Quantity tolerance. Bulk cargoes are sold plus or minus 5% or 10%, at the seller's or the ship's option, with the final quantity taken from a draft survey or shore scale.
Two offers at the same CFR price can differ by several dollars per tonne once discharge rate and demurrage are compared.
Containers and bagged cargo
For goods handed to a carrier at a terminal or depot rather than loaded over a ship's rail, the rules written for any mode of transport fit better:
- FCA in place of FOB: the seller delivers to the carrier at the named place.
- CPT in place of CFR: carriage paid to the named destination.
- CIP in place of CIF: carriage and insurance paid. CIP requires Institute Cargo Clauses (A), the widest cover, under Incoterms 2020.
The trade still writes FOB and CIF on containerised rice, sugar, pulses and spices, and banks accept it. The practical gap is that a container can sit in the terminal for days before it is loaded, at the seller's risk under FOB although the seller no longer controls it. If the letter of credit asks for an on-board bill of lading, FCA sellers should agree with the buyer that the carrier will issue one.
Delivered terms
DAP (delivered at place), DPU (delivered at place unloaded) and DDP (delivered duty paid) put the transport risk on the seller all the way to destination. They are used for trucked and inland deliveries, such as bitumen delivered to a landlocked site, rather than for vessel cargoes. In fertiliser trade, DAP also means diammonium phosphate; write the Incoterm with its named place to avoid a misreading.
Incoterms 2020 removed DAT and replaced it with DPU. It does not contain "CNF" or "C&F"; both are older names for CFR and should be written as CFR in a contract.
What Incoterms never decides
- Title. When ownership passes is set by the contract and the documents, not by the Incoterm.
- Payment. The Incoterm does not say when or how the buyer pays. See our guide to payment terms.
- Quality and quantity. Where the cargo is weighed and tested, and which certificate is final, are separate clauses. See the guide to inspection and sampling.
Choosing a term
- A buyer with no freight desk and one port: CFR or CIF, with the discharge rate and demurrage stated.
- A buyer with regular volume and a chartering relationship: FOB, and compare it with the CFR offer for the same laycan.
- Containers on a liner service: CFR or CIF, or CPT and CIP where the bank will accept them.
- Landlocked delivery by truck: DAP to a named place, with the border stated.
Always write the rule with its place and its edition: "CFR Mombasa, Incoterms 2020".
How CBIL quotes
We quote on FOB, CFR and CIF for a named buyer and a named port, with the load port, laycan, discharge rate and inspection stated in the offer. Because our chartering desk, LaycanDesk, prices the ship, an FOB and a CFR figure can be shown side by side.
Request a quote with your commodity, quantity, discharge port and preferred term.