FOB, CFR or CIF from Vietnam: who pays, who carries risk
A spice importer in Hamburg buys a container of black pepper CIF Hamburg. Two weeks out of Ho Chi Minh City the ship runs through a storm, seawater gets into the box, and the bottom layer of bags arrives wet. He calls the seller first. The terms said Hamburg, so surely the goods were the seller's problem until Hamburg? They were not. Under CIF the risk passed to him when the container was loaded on board in Vietnam. Then he reads the insurance certificate the seller sent with the documents: Institute Cargo Clauses (C). Seawater entering a container is not one of the perils that cover lists.
In all three Incoterms 2020 rules the risk moves from seller to buyer at the same moment, when the goods are on board the vessel at the port of shipment. What changes is who pays. Under FOB you book and pay the ocean freight. Under CFR the seller pays freight to your port. Under CIF the seller pays freight and also buys minimum insurance for you. The port written after CFR or CIF marks where the seller's costs stop, and buyers often read it as the place where the seller's risk stops too.
Who pays and who carries the risk
| FOB | CFR | CIF | |
|---|---|---|---|
| Port named in the term | Port of loading in Vietnam | Your destination port | Your destination port |
| Export clearance in Vietnam | Seller | Seller | Seller |
| Loading on board | Seller | Seller | Seller |
| Risk passes to you | On board at the port of loading | On board at the port of loading | On board at the port of loading |
| Ocean freight booked and paid by | You | Seller | Seller |
| Cargo insurance | Up to you | Up to you | Seller buys minimum cover for you |
| Import clearance, duties and taxes | You | You | You |
Every row except freight and insurance is identical across the three rules. A C rule therefore has two points to keep apart: the point where the risk passes, in Vietnam, and the point where the seller's paid carriage ends, at your port.
FOB: you control the ship
On an FOB order the factory clears the goods for export and loads them on the vessel your forwarder booked. Luason quotes every product FOB Ho Chi Minh City (Cat Lai), Vietnam, and the price board publishes those FOB prices with their dates.
FOB suits you if you already have a forwarder with good rates out of Vietnam, if you combine origins on one vessel schedule, or if your company buys freight centrally. You choose the carrier, the transit time and the free days at destination. The FOB order guide walks through an FOB order step by step, from the quotation to the bill of lading, so this guide does not repeat it.
The catch is that the factory cannot load until your booking arrives. A late booking leaves the goods waiting at the factory, so book early enough to meet the shipment date in the contract.
CFR: the seller pays freight, you insure
CFR (Cost and Freight, sometimes written C&F or CNF on older contracts) adds the ocean freight to your port. The seller contracts the carriage, and you deal with the carrier's agent when the ship arrives. CFR is the simplest choice for a buyer who has no forwarder in Vietnam and does not want one.
Two things stay with you. First, insurance: the risk is still yours from loading in Vietnam, and the seller has no duty to insure it. The ICC rule text itself says a CFR buyer would be well advised to buy some cover. Second, the arrival side. Terminal handling, delivery order fees and demurrage at the destination are usually charged by the carrier's local agent to the consignee. Ask your customs broker what the carrier's line typically charges at your port before you compare a CFR offer against your own forwarder's door rate.
CIF: freight plus a minimum policy
CIF adds insurance to CFR. Under Incoterms 2020 the seller must buy cargo insurance that at a minimum:
- follows Institute Cargo Clauses (C) or similar clauses,
- covers the contract price plus 10%, so 110% of the invoice value,
- is in the currency of the contract,
- lets you claim directly from the insurer.
The 2020 edition raised CIP to Institute Cargo Clauses (A) but kept CIF at (C), because CIF is mostly used for bulk commodities. The Hamburg importer's certificate said (C), which covers a list of major casualties. Cover (A) is "all risks", with exclusions.
| Event during transit | Clauses (C) | Clauses (B) | Clauses (A) |
|---|---|---|---|
| Fire or explosion | Covered | Covered | Covered |
| Vessel stranded, sunk or capsized | Covered | Covered | Covered |
| General average sacrifice, jettison | Covered | Covered | Covered |
| Seawater or river water entering the container | Not covered | Covered | Covered |
| Package lost overboard or dropped while loading | Not covered | Covered | Covered |
| Theft, rough handling, other accidental damage | Not covered | Not covered | Covered unless excluded |
| Insufficient packing, inherent vice, delay | Excluded | Excluded | Excluded |
The last row matters for food commodities. All three sets of clauses exclude loss from insufficient packing or the nature of the goods, so mould from cargo shipped too wet is not an insurance claim under any of them. The moisture limit in your contract and the inspection before loading are what protect you there.
If you want cover (A) on a CIF order, say so in your quote request. Higher cover is allowed under CIF when the parties agree it, and we confirm the cover and its cost on your quotation.
Illustration
A note on containers
In FOB, CFR and CIF the seller delivers by putting the goods on board. The ICC's notes to Incoterms 2020 point out that container cargo is usually handed to the carrier earlier, at a container terminal, and suggest FCA, CPT or CIP for that case. Plenty of container trade still runs on FOB, CFR and CIF, and so do our quotations.
A sealed container waits in the yard at Cat Lai before it is lifted on board. Under these three rules the risk is still the seller's while it waits, but once the box is sealed nobody can see when damage happened, and a dispute over that slows any claim. Ask your insurer for warehouse to warehouse cover from the factory, which the standard transit clause allows. The whole journey then sits under one policy.
How Luason quotes each term
On the quote form you pick the product, grades, packing, tonnes and the Incoterm. FOB needs nothing more. CFR and CIF need a destination port, chosen from the list on the form. If your port is not on the list, write to us from the contact page and we quote it.
- FOB: once you confirm your email address, the PDF quotation goes out at once for every grade with a published price.
- CFR or CIF: you receive the FOB quotation first. Our sales team then gets the ocean freight for your port and sends the CFR or CIF quotation within 24 hours. A CIF quotation lists an insurance policy among the documents.
The FOB price on your quotation does not change when freight is added. The CFR price per tonne is the FOB price plus the freight per tonne, and CIF adds the insurance per tonne as well. Carriers price freight per container, so we spread the container rate over the tonnes the container holds. The same box carries a different weight for each product, which is why freight adds more per tonne to light goods than to heavy ones:
| Product | Tonnes per 20ft | Tonnes per 40ft | Quotation valid for |
|---|---|---|---|
| Cashew kernels | 13 | 26 | 7 days |
| Black pepper | 13 | 26 | 7 days |
| Robusta coffee | 19 | 21 | 5 days |
| Vietnamese cassia | 8 | 18 | 7 days |
| Jasmine rice | 25 | 27 | 3 days |
| Dried mango | 8 | 16 | 7 days |
| Coconut shell charcoal | 18 | 26 | 7 days |
A 40ft box of dried mango holds 16 tonnes and the same box of jasmine rice holds 27, so each tonne of mango carries about 1.7 times as much freight. If you are comparing a CFR offer with your forwarder's rate, divide the container rate by these tonnes and you are comparing like with like. The shipping page lists the same figures with typical transit times.
Five lines to check on a CFR or CIF quotation
Before you sign, read the quotation with these questions in mind:
- The named port. Is it your port of discharge, spelled out (for example CIF Rotterdam), and not just a country?
- The insurance clauses. On CIF, does the contract say Clauses (C) or Clauses (A)? If it says nothing, assume (C).
- The insured value. At least 110% of the invoice, in USD.
- Destination charges. Which charges at your port are in the freight and which will the carrier's agent bill you?
- The quotation date. The freight in a CFR or CIF price is tied to the date on the PDF and to its Valid until date, like the goods price.
If one of these is unclear, reply to the quotation email and we confirm it in writing before the contract is drawn up.
Frequently asked questions
Does CIF mean the seller carries the risk until my port?
No. Under FOB, CFR and CIF alike, the risk passes to you when the goods are loaded on board in Vietnam. CIF only means the seller pays the freight and buys minimum insurance for you.
What insurance does a CIF price include?
Under Incoterms 2020, at least Institute Cargo Clauses (C) for 110% of the contract value, in the contract currency. Wider cover such as Clauses (A) can be agreed. Ask for it in your quote request and we confirm it on the quotation.
Should I buy FOB or CIF from Vietnam?
Buy FOB if you have a forwarder you trust with good rates out of Ho Chi Minh City. Buy CFR or CIF if you would rather receive one delivered price to your port. Under CFR, insure the cargo yourself.
Does CIF increase my import duty?
In the EU, usually not. The customs value includes transport and insurance up to the EU border whatever the Incoterm, so an FOB buyer adds them at import anyway. In the United States the dutiable value normally excludes international freight and insurance. Your customs broker confirms how your country does it.
How fast do I get a CFR or CIF price?
The FOB quotation arrives as soon as you confirm your email address. The CFR or CIF quotation with freight to your port follows within 24 hours.
Sources
- International Chamber of Commerce (ICC), Incoterms 2020 rules for sea and inland waterway transport (FOB, CFR, CIF), explanatory notes and A5 insurance
- ICC Academy, CFR and CIF Incoterms 2020 explained
- ICC Academy, Incoterms 2020 vs 2010, CIF at Clauses (C), CIP raised to Clauses (A)
- Institute Cargo Clauses (A), (B) and (C), 1/1/09 (CL382, CL383, CL384), in Aviva's Cargo Clauses Booklet
- Regulation (EU) No 952/2013, Union Customs Code, article 71(1)(e), transport and insurance costs in the customs value
- U.S. Customs and Border Protection, What Every Member of the Trade Community Should Know About: Customs Value
