Detailed explanation of International terms FOB, CFR and CIF and their applicable scenarios

In the International, FOB (Free On Board), CFR (Cost and Freight), and CIF (Cost, Insurance and Freight) are three common trade terms that define the distribution of responsibilities between buyers and sellers during the transportation of goods. Understanding these terms is essential to ensure that the transaction goes smoothly.

FOB: Free on board

FOB means that the seller is responsible for delivering the goods to the designated port of shipment and loading them onto the vessel designated by the buyer. Once the goods cross the side of the ship, the risk is transferred from the seller to the buyer. This means that the seller needs to bear all the costs and formalities of customs clearance in EXP, while the buyer needs to arrange the subsequent sea transportation and pay the related freight. In addition, the buyer is also responsible for import customs clearance and possible insurance costs. This model is suitable for buyers who have a reliable logistics partner or who want to maintain a high degree of control over the shipping process. For example, as one of China's largest ports, located at the mouth of the Yangtze River, Shanghai is one of the busiest Container ports in the world, and the use of FOB clauses here allows full use of its developed shipping network.

CFR: Cost plus freight

When CFR is adopted, the seller not only has to load the goods onto the ship, but also pays the ocean freight needed to get the goods to POD. However, once the goods leave the port of shipment, any risk of loss or damage is borne by the buyer. Therefore, while the seller bears some of the transportation costs, the buyer still needs to purchase insurance on his own to cover potential risks. This approach is suitable for businesses that are willing to let the seller handle most of the preliminary work but want to retain the right to choose an insurance company. For example, Ningbo Zhoushan Port is an important comprehensive deep-water port on the eastern coast of China. Through CFR trading can effectively utilize the port's convenient international route resources.

CIF: Cost, INSURANCE CHARGE plus freight

Under CIF conditions, the seller has the greatest responsibility. In addition to completing all the tasks required by FOB and CFR, it is also necessary to insure the goods until they arrive at their destination. This provides extra security for the buyer, especially when shipping high-value merchandise. However, even so, all problems that occur once the goods are loaded are still attributed to the buyer. As an important gateway to South China, Guangzhou Nansha Port is famous for its efficient loading and unloading capacity and perfect supporting facilities, making it ideally suitable for executing CIF contracts involving complex logistics arrangements.

Select suggestions

• FOB is a good option for those enterprises that have established a stable supply chain system and have the ability to manage the entire logistics process.
• CFR is suitable for companies that want to simplify their operations while also having the flexibility to choose insurance services.
• CIF is more suitable for small businesses that are inexperienced or unwilling to get too involved in logistics details or novices entering the international market for the first time.

In short, there is no absolute distinction between good and bad. The key lies in making reasonable choices according to one's own conditions and specific needs. Either way, clearly defining the obligations of all parties, cost structure and risk management strategy are the basis for successful cross-border transactions.