Buyer education only. Examples and ranges are illustrative. Confirm specifications, evidence and destination requirements for each order.
1. Why the Incoterm matters
An Incoterm is a standard trade term, published by the International Chamber of Commerce (the current edition is Incoterms 2020). It states who arranges and pays for transport, who handles export and import clearance, and the point at which risk of loss passes from seller to buyer. Two quotations for the same product are not comparable unless they use the same term and the same named place.
| Term | Seller typically arranges | Buyer typically arranges | Risk passes to buyer |
|---|---|---|---|
| EXW (Ex Works) | Makes the goods available at its premises | Loading, export clearance, all freight, insurance, import clearance | When the goods are placed at the buyer’s disposal at the named place |
| FOB (Free On Board) | Delivery to the port, export clearance, loading on board | Main sea freight, insurance, import clearance | When the goods are on board the vessel at the named port of shipment |
| CFR (Cost and Freight) | Export clearance and main sea freight to the named destination port | Insurance, import clearance, unloading and onward transport | When the goods are on board at the port of shipment, not at destination |
| CIF (Cost, Insurance and Freight) | As CFR, plus insurance for the buyer’s benefit (minimum cover by default) | Import clearance, unloading and onward transport | When the goods are on board at the port of shipment |
With CFR and CIF the seller pays freight to your port, but risk passes to you earlier, when the goods are loaded in India. Check that the CIF policy, or your own cargo insurance, covers the sea voyage at the level you need.
2. Which term tends to suit which buyer
- FOB suits buyers with their own freight forwarder who want control over the shipping line and freight cost.
- CFR or CIF suits buyers who want a delivered-to-port price for comparison and prefer the supplier to book freight, accepting less choice of carrier.
- EXW is often impractical for a first order from abroad, because export clearance in India then falls to the buyer. FCA is usually the better alternative.
- Containers: FOB, CFR and CIF are defined for sea and inland waterway transport. Where a container is handed to a carrier before loading on board, ICC guidance points to FCA, CPT or CIP. Many container trades are still quoted FOB or CIF, so agree the term explicitly.
3. What to confirm in a quotation
- The term and the named place, for example “FOB” followed by the actual Indian port of loading, and the Incoterms edition.
- What the price includes: packing, marking, inland transport, export clearance and port handling charges.
- Freight validity: freight rates change, so a CFR or CIF quotation normally carries a validity date.
- Insurance level for CIF, and who is the named beneficiary.
- Container size and loading, such as 20 ft or 40 ft, palletised or floor-loaded.
- Payment terms and the document set that triggers payment.
4. How the term shows up in the documents
The commercial invoice and packing list should show the same term and named place as the contract. The bill of lading will normally show freight as prepaid under CFR and CIF, and as collect under FOB. A mismatch between the quotation, the invoice and the transport document is a common cause of delay at the destination port.
Confirm order requirements
Rules and documents vary by product, origin, destination and shipment. Confirm the applicable requirements for the exact order before production or dispatch.
Ready to prepare a buying brief?
Share product, specification, quantity and destination for a B2B sourcing review from India.