Incoterms are standardised trade terms published by the International Chamber of Commerce that define who pays for which leg of an international shipment and where risk passes from seller to buyer. For containerised agro cargo the three terms you will meet most often are FOB (buyer arranges and pays ocean freight), CFR (seller pays freight, buyer insures) and CIF (seller pays freight and insurance). In all three, risk transfers to the buyer when the goods are loaded on board the vessel at the origin port - the terms differ mainly in who books and pays for the voyage.
What are Incoterms?
Every export contract has to answer the same practical questions: who moves the goods to the port, who clears export customs, who books the vessel, who pays the freight, who insures the cargo, and - most importantly - at what exact point does loss or damage stop being the seller's problem and become the buyer's? Instead of negotiating these answers clause by clause, traders use a three-letter Incoterm, and both sides instantly know the division of tasks, costs and risk.
Incoterms are published by the International Chamber of Commerce and revised periodically; Incoterms 2020 is the edition in general use at the time of writing. A well-written contract names both the term and the edition, plus a precise location - for example, "CIF Jebel Ali, Incoterms 2020" - because the named place changes what the term means.
Two things Incoterms do not do: they do not transfer ownership of the goods (that is governed by the contract and the documents, especially the bill of lading), and they do not decide when payment happens (that is the job of the payment clause, covered in our guide to payment terms in international trade).
FOB explained
FOB - Free On Board - is the classic commodity term. The seller is responsible for the goods until they are loaded on board the vessel nominated by the buyer at the named port of shipment. That means the exporter handles:
- Export packing, marking and loading at the warehouse or mill
- Inland transport to the origin port
- Export customs clearance, including the shipping bill and any export certificates
- Terminal charges at origin and loading on board
From the moment the goods are on board, both risk and cost pass to the buyer, who has booked the vessel (usually through a freight forwarder), pays the ocean freight, decides whether to insure, and handles everything at destination. FOB suits buyers who ship regular volumes and have their own freight contracts - they can often beat the rates a seller would quote, and they control the carrier and routing.
One caution: FOB was designed for conventional cargo delivered alongside or onto the ship. For containers that are handed to the carrier at a container yard days before loading, FCA is technically the better-fitting term, though commodity trade still uses FOB widely in practice.
CFR explained
CFR - Cost and Freight - keeps everything from FOB and adds one task to the seller's side: the seller books and pays for ocean freight to the named destination port. The critical subtlety is that risk still transfers at origin, when the goods are loaded on board. If the cargo is damaged mid-voyage, the loss falls on the buyer even though the seller paid the freight.
That split - seller pays the voyage, buyer bears its risks - is why insurance matters so much under CFR. The buyer should arrange marine cargo insurance for the voyage, because the seller has no obligation to insure and the carrier's liability under the bill of lading is limited. CFR works well when the seller has good freight rates from the origin port but the buyer prefers to use their own insurance arrangements, which is common for buyers with annual open-cover policies.
CIF explained
CIF - Cost, Insurance and Freight - is CFR plus insurance. The seller pays the ocean freight to the named destination port and must also arrange and pay for cargo insurance covering the voyage, with the buyer named as the party able to claim. Under Incoterms 2020, the default insurance level for CIF is minimum cover (Institute Cargo Clauses C), so buyers who want wider all-risks cover should say so in the contract or top up the policy themselves.
As with CFR, risk transfers at origin when the goods are loaded on board. The insurance exists precisely because the buyer is carrying voyage risk on a policy the seller purchased. CIF is popular with first-time and smaller importers because a single price covers goods, freight and insurance to their port - one number to compare, one counterparty to deal with until the ship arrives.
Which should agro buyers and sellers choose?
There is no universally correct answer, but these patterns hold across most agro trades:
- New importers: CIF or CFR keeps things simple. The exporter, who ships from the origin port every week, handles vessel booking, origin charges and export formalities. The buyer focuses on import clearance and onward delivery.
- Experienced, high-volume buyers: FOB gives control. Buyers with freight contracts and open-cover insurance usually prefer to buy FOB and manage the voyage themselves.
- Perishables such as onions and green chillis: whoever controls the freight controls transit time and equipment (ventilated or reefer containers), so the party with the better carrier relationships should take the freight leg.
- Letter of credit shipments: the Incoterm must match the documents the LC demands - a CIF LC will call for an insurance certificate, an FOB LC will not. Align the term, the LC wording and the document set before shipment; our export documentation checklist shows how these pieces fit together.
The table below compares the three main sea-freight terms at a glance.
| Question | FOB | CFR | CIF |
|---|---|---|---|
| Who books and pays ocean freight? | Buyer | Seller | Seller |
| Who arranges cargo insurance? | Buyer (optional but advisable) | Buyer (optional but advisable) | Seller (minimum cover by default) |
| Where does risk transfer to the buyer? | On board vessel at origin port | On board vessel at origin port | On board vessel at origin port |
| Who clears export customs? | Seller | Seller | Seller |
| Who clears import customs and pays duties? | Buyer | Buyer | Buyer |
Other Incoterms you will meet
Three more terms appear regularly in agro trade conversations:
- EXW (Ex Works): the buyer collects the goods at the seller's premises and handles everything, including export clearance. It looks cheap on paper but is rarely practical for international buyers, who would struggle to file Indian export customs documents themselves.
- FCA (Free Carrier): the seller delivers the goods, export-cleared, to the carrier at a named point - often the container yard or forwarder's depot. It is the technically correct container-era replacement for FOB and is increasingly used in LC trades since the 2020 rules allow the parties to agree that an on-board bill of lading will still be issued.
- DAP (Delivered at Place): the seller delivers to a named place in the buyer's country, bearing all transport risk up to that point, with the buyer handling import clearance and duties. It is used where the seller offers a door-delivered service, but it loads significant destination risk onto the exporter.
Whatever term you choose, write it precisely: term, named place, and edition. "CIF Nhava Sheva" means something different from "CIF Rotterdam", and the named place is where cost responsibility ends. Since interpretations and standard practices evolve with each ICC revision, verify the current edition's wording when drafting new contracts. To see how the Incoterm slots into the wider shipping flow, read our step-by-step rice export procedure guide.
Frequently asked questions
What is the difference between CIF and CFR?
Under both terms the seller pays ocean freight to the named destination port, and risk transfers to the buyer when the goods are loaded on board at origin. The only difference is insurance: under CIF the seller must also arrange and pay for cargo insurance for the voyage, while under CFR insuring the cargo is the buyer's decision and cost.
Who files export customs under FOB?
The seller. Under FOB the exporter is responsible for export packing, inland transport to the port, export customs clearance and loading the goods on board the vessel. The buyer takes over from loading onwards, including freight, insurance and import clearance at destination.
Which Incoterm is best for first-time importers?
Many first-time importers prefer CIF or CFR because the experienced exporter handles vessel booking and origin formalities, leaving the buyer to manage only import clearance and delivery. As buyers gain volume and freight relationships, many move to FOB to control freight costs and carrier choice themselves.
Do Incoterms decide when payment happens?
No. Incoterms allocate costs, risk and tasks between seller and buyer; they say nothing about when or how payment is made. Payment timing is set separately in the contract through terms such as advance payment, letters of credit or documents against payment.
Arcas Impex is an agro export house based in Belagavi, Karnataka, India, exporting rice, cashews, onions, green chillis and coffee to buyers worldwide on FOB, CFR and CIF terms. Explore our rice export range and the rest of our product line.
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