Incoterms 2020: FOB, CFR and CIF
Three sea rules, one risk point
FOB, CFR and CIF are Incoterms 2020 rules for sea or inland waterway transport. They are not the correct labels for a pure air or road move. Under all three, risk passes from seller to buyer when the goods are on board the vessel at the named port of shipment. Arrival at Chattogram, Mongla, or a buyer’s warehouse is not the risk point. A credit that says CFR Chattogram still has a shipment-port risk point. The destination port is where the seller’s carriage contract must reach, not where risk passes.
Who books the ship
Under FOB the buyer contracts for carriage and nominates the vessel. The seller delivers on board that vessel and clears the goods for export. Under CFR and CIF the seller contracts and pays for carriage to the named port of destination. The buyer still clears the goods for import. Confusing “seller pays freight” with “seller bears transit risk” is the usual CFR mistake. Freight and risk are split.
Insurance only under CIF
CFR does not require the seller to insure. CIF does. The Incoterms 2020 minimum is Institute Cargo Clauses (C), or similar clauses, for at least 110 percent of the invoice value where that is how the cover is calculated. The buyer can agree a wider cover in the sale contract. That contract minimum is not automatically the document requirement. If the credit is subject to UCP 600 and states no percentage, Article 28 still asks for at least 110 percent of the CIF or CIP value, with the fallback to the honour amount or the gross invoice value when CIF or CIP cannot be determined from the documents.
What the bill of lading must still do
The Incoterm does not sign the bill of lading. If the credit asks for a port-to-port bill, UCP 600 Article 20 still requires the carrier indication, the ports, and the on-board notation. A CFR or CIF shipment can be discrepant because the on-board notation names the wrong port, even though the seller did book the vessel. Examine the credit’s ports. Then read Article 20. Then read the Incoterm only to see who was supposed to arrange carriage and insurance in the contract.
Named place
Each rule needs a named port. “FOB Bangladesh” is not a complete Incoterms 2020 term. “FOB Chattogram” is. The same is true of CFR and CIF: name the port of destination. This page does not choose the term for a particular ready-made garment contract. It only separates risk, carriage, and insurance so the LC schedule is not copied from the wrong column.
Source
ICC, Incoterms 2020, rules FOB, CFR and CIF. Summary of delivery, risk, carriage and insurance. Not a reprint. iccwbo.org. Document examination remains UCP 600 where the credit incorporates it. Open the cited source.
Frequently asked questions
When does risk pass under FOB?
When the goods are on board the vessel nominated by the buyer at the named port of shipment. Not on arrival.
Who buys insurance under CFR?
The seller does not have to insure. The seller does contract and pay for carriage to the named port of destination. Risk still passes on board at shipment.
What insurance does CIF require?
The seller contracts for carriage and must obtain insurance. The Incoterms 2020 minimum is Institute Cargo Clauses (C) or similar, at least 110 percent of the invoice value where the cover is calculated that way. Risk still passes on board at the port of shipment.