What are the differences between FOB and CFR?

Previously on this website, I have explained the differences between EXW & FCA, FOB & FCA and FOB & CIF.

Today I would like to talk about the differences between FOB Incoterms and CFR Incoterms.

Firstly, I need to make the definitions on each incoterms as follows.

Definition of FOB according to Incoterms 2010 rules

FOB means Free on Board. According to incoterms 2010 rules, an exporter delivers the goods to the importer once the goods shipped on board a named vessel at the port of loading.

Exporter neither arranges the transportation from port of loading to port of discharge, nor pays for the freight cost under FOB terms.

Additionally exporter has no obligation against the importer in regards to marine insurance.

What are the differences between CIF and FOB?

So far on advancedontrade.com, I have explained the differences between EXW and FCA as per Incoterms 2010 rules and the differences between FOB and FCA as per Incoterms 2010 .

Today I want to mention the differences between CIF Incoterms and FOB Incoterms according to latest ICC rules of international commercial terms.

First of all let me make the definitions of both trade terms according to current incoterms rules:

• Definition of FOB according to Incoterms 2010: “Free on Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered.
• Definition of CIF according to Incoterms 2010: “Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered.

Once you read above definitions, which are taken from Incoterms 2010, you should be amazed like myself, as both definitions are the same. No I did not make any mistake. These are the real definitions of FOB and CIF from Incoterms 2010.

How to calculate minimum insurance cover under CIF deliveries?

CIF means "Cost, Insurance and Freight" in international commercial terms terminology.

CIF is one of the most frequently used incoterms in foreign trade transactions, but it is widely misunderstood and misused by the practitioners.

For example CIF term is commonly used with land or air shipments, whereas CIF can only be used with sea shipments according to ICC Incoterms 2010 rules.

Additionally, under CIF trade term risk passes from exporter to importer when the goods are shipped on board a vessel at the port of loading. 

But many exporters believe that their risk will not be over until goods are being discharged at the port of destination. 

Above I have defined two major misunderstandings regarding the mode of transport usage and delivery responsibility of the CIF incoterms. 

Now I would like to focus on the insurance coverage of the CIF incoterms.

What are the differences between EXW and FCA as per Incoterms 2010?

On my previous article, I have explained the differences between FOB and FCA as per Incoterms 2010 rules. 

Today I would like to write about the differences between another two frequently used incoterms: EXW and FCA.

Let me start with the definitions of these trade terms in question.

• EXW (Ex Works) means that the exporter delivers when it places the goods at the disposal of the buyer at the exporter’s premises or at another named place (i.e., works, factory, warehouse, etc.).
• FCA (Free Carrier) means that the exporter delivers the goods to the carrier or another person nominated by the buyer at the exporter’s premises or another named place.

What are the differences between FOB and FCA as per Incoterms 2010?

FCA( Free Carrier) is a very flexible trade term, which should be preferred instead of EXW (Ex Works) and FOB (Free on Board) incoterms in most situations, because the usage of Ex Works and Free on Board is not suitable for large scale of situations.

For example, frequently exporters and importers use Ex Works trade term, where the exporter handles and pays for the export custom duties. 

But according to Incoterms 2010 rules, importer must arrange the export custom operations under Ex Works trade term, where such clearance is applicable.

In these situations foreign trade parties should use FCA instead of EXW.