FOB, CFR and CIF: Incoterms for Grain Sales

When a cargo of grain crosses an ocean, the buyer and seller have to settle who pays for what and who carries the risk at each stage. Incoterms, a set of standard trade terms published by the International Chamber of Commerce, give them a shared shorthand. Three of the most common in bulk grain are FOB, CFR and CIF.

Why the terms exist

Without a standard, a contract might say delivered, and each side could read it differently. Does the price include freight? Who pays if the cargo is damaged at sea? Incoterms answer two basic questions: who pays the costs of each step, and when does risk move from the seller to the buyer. Always name the edition you are using, for example Incoterms 2020, in the contract.

FOB: Free On Board

Under FOB, the seller delivers the grain on board the vessel the buyer has named, at the named port of loading. The seller clears the goods for export and pays costs up to that point. After the grain is on board, risk and cost pass to the buyer, who arranges the ocean freight and usually the insurance.

FOB suits buyers who want to control the shipping and who have good access to freight rates.

CFR: Cost and Freight

Under CFR, the seller books and pays for the ocean freight to the named destination port. The unusual point is that risk still passes to the buyer once the cargo is on board at the loading port, even though the seller has paid for the voyage. That means the buyer bears the danger of loss during the journey, while the seller pays the freight bill.

CIF: Cost, Insurance and Freight

CIF is the same as CFR, with one addition. The seller must also buy insurance for the buyer's benefit, usually at a minimum level of cover. Risk still passes on board at the loading port, but the insurance gives the buyer protection if something goes wrong during the voyage.

A simple cost comparison

Imagine a seller offers grain at $280 per metric ton FOB. Freight to the destination is $30 per ton and insurance is around $2 per ton. These numbers are illustrative only.

• FOB price: $280
• CFR price: 280 + 30 = $310
• CIF price: 280 + 30 + 2 = $312

Three quotes can describe the same grain at the same source. A buyer comparing offers must bring them to the same basis before deciding.

Points that often cause confusion

• FOB, CFR and CIF are meant for sea and inland waterway transport. Other terms exist for rail, truck or any mode of transport.
• Risk and cost transfer at different points under CFR and CIF.
• The named port matters. FOB at one port is different from FOB at another.
• Incoterms do not decide who owns the goods or what happens if there is a dispute about quality. Those points belong in the contract.

Paperwork that follows the term

The chosen term influences who orders documents and who pays for them. The bill of lading, commercial invoice, insurance certificate and plant health certificate should all fit the contract. For details on the main shipping document, read our guide to reading a bill of lading for bulk grain. For plant health paperwork, see phytosanitary certificates explained.

Terms and details change between editions, and local law can add requirements. For a real contract, check with a freight forwarder, broker or trade lawyer.

Frequently asked questions

Which term is best for a small trader? It depends on who has better access to freight and insurance. Many small sellers prefer terms that stop at their own loading point, while some buyers prefer to have the seller manage delivery.

Does CIF mean the seller is responsible if cargo is damaged at sea? No. The seller buys the insurance, but the risk of loss passes to the buyer once the cargo is on board at the loading port. The buyer claims under the insurance.

Do I have to use Incoterms? No, they are optional. But they reduce misunderstandings, and many grain contracts refer to them.