FOB, CIF or CFR: Which Incoterm Should a Steel Buyer Choose?
FOB, CIF or CFR: Which Incoterm Should a Steel Buyer Choose?
Direct answer: FOB means the seller delivers the goods on board at the named Chinese port, and the buyer arranges and pays freight and insurance. CFR adds the ocean freight to the seller's obligation; CIF adds freight plus minimum insurance cover. In all three, risk transfers when the goods are on board at the origin port - not when they arrive - which is the detail most buyers misread.
| Term | Freight | Insurance | Risk transfers | Suited to |
|---|---|---|---|---|
| FOB | Buyer | Buyer | On board at origin port | Buyers with their own forwarder and freight contract |
| CFR | Seller | Buyer | On board at origin port | Buyers who want a fixed delivered freight cost |
| CIF | Seller | Seller, minimum cover | On board at origin port | First-time importers wanting one all-in number |
The misconception that costs money
Under CIF and CFR the seller pays the freight, so buyers reasonably assume the seller carries the risk until arrival. It does not. Risk passes on board at the origin port, exactly as under FOB. If the vessel is lost in the South China Sea, a CIF buyer whose insurer was not properly instructed owns the loss.
That is why CIF only includes minimum cover under the Institute Cargo Clauses - enough to satisfy the term, not necessarily enough for your cargo. Buy the cover you actually need, and confirm who is named on the policy.
Which term fits which buyer
If you have a freight forwarder with better rates and a container plan, FOB gives you control and usually the lowest landed cost. If you are importing for the first time and want one number to compare suppliers, CIF is simpler. CFR sits between: you set the insurance, the supplier sets the freight.
The mistake to avoid is comparing an FOB price with a CIF price. They are different products, and the gap is the freight plus insurance, not a margin difference.
Two practical checks
Confirm the named port, because FOB Shanghai and FOB Tianjin are not interchangeable. And confirm who handles export clearance and documentation under your chosen term - the Incoterm allocates it, but the fee structure in the quotation should reflect it.
