FOB vs CIF vs FCA: Differences and Which Incoterm to Quote

Who pays freight and insurance, and where risk passes

Incoterms 2020 rules split delivery, risk, costs and clearance tasks between seller and buyer. Under FOB, CIF and FCA the seller clears the goods for export and the buyer clears them for import and pays the duties and taxes, so the buyer is normally the importer of record. The three rules differ in who books and pays the main carriage, who insures, and where risk passes:

• FOB (Free On Board), sea and inland waterway only: the seller brings the goods to the named port of shipment and loads them on board the vessel the buyer nominates, including origin terminal handling unless agreed otherwise. Risk passes once the goods are on board. The buyer pays the sea freight, insurance, unloading and import costs.
• CIF (Cost, Insurance and Freight), sea and inland waterway only: the seller also pays the sea freight to the named destination port and buys minimum cargo insurance for the buyer. Risk still passes on board at the port of shipment, so if the goods are lost at sea the buyer claims on the insurance the seller bought. The buyer pays destination port charges not included in the freight, unloading and import costs.
• FCA (Free Carrier), any mode: the seller hands the goods to the carrier or person named by the buyer at the named place. At the seller's premises, delivery happens when the goods are loaded onto the buyer's vehicle; at any other place, such as a terminal, when they are placed at the disposal of the buyer's carrier on the seller's vehicle, ready for unloading. The buyer arranges and pays the main transport and insurance.
• The related rules: CFR is CIF without the seller's insurance obligation, and CPT and CIP are the any-mode versions of CFR and CIF, with risk passing when the goods are handed to the first carrier in the country of shipment.

FOB and CIF for ships, FCA for containers and air: which to quote

FAS, FOB, CFR and CIF are the four Incoterms 2020 rules for sea and inland waterway transport only, because delivery is tied to the vessel. A container is usually handed to the carrier at a terminal or depot before it is loaded, so under FOB or CIF the seller still carries the risk while the box sits in a yard it does not control. ICC's introduction to the rules advises sellers of containerised goods handed to a carrier before loading to sell FCA rather than FOB; the any-mode rules matching CFR and CIF are CPT and CIP. The sea rules also do not fit air, road or rail, or an inland place: "FOB airport" or "FOB factory" is not a valid Incoterms rule, and Export Development Canada calls FOB for an inland point of delivery the most common mistake.

So quote FOB for bulk or break-bulk cargo loaded directly onto the vessel when the buyer controls the freight, and CFR or CIF when you get better freight rates or a letter of credit asks for an insurance document. For containers, air, road or rail, quote FCA when the buyer controls the freight, and CPT or CIP when you pay it. FOB is still widely used for containers in practice; if a buyer insists on it, know that the risk between handover at the terminal and loading is yours.

Sellers often keep FOB because a letter of credit asks for an on-board bill of lading, which an FCA seller would not normally receive. Incoterms 2020 added an option in FCA A6/B6: if the parties agree, the buyer must instruct its carrier to issue a transport document with an on-board notation to the seller after loading. The carrier is not a party to the sale, so confirm with the buyer's forwarder before shipment that it will issue one.

Insurance under CIF and CIP

Only CIF and CIP oblige the seller to insure. CIF requires at least Institute Cargo Clauses (C), a limited cover for major casualties such as fire, sinking or collision, not theft or rough handling; since 2020 CIP requires Clauses (A), all risks. Cover should be at least the contract price plus 10% (110%), in the contract currency, and the parties may agree a different level. Under FOB and FCA insurance is the buyer's cost, because the buyer carries the risk from delivery.

If the buyer wants all-risks cover on a sea shipment, agree Clauses (A) in the contract or use CIP. Some countries do not allow foreign transport insurance on imports: ICC's 2025 report on national regulatory barriers lists, for example, Brazil and Nigeria, so check before quoting CIF or CIP there.

Under a letter of credit, the insurance document must be issued and signed by an insurer, underwriter or their named agent, not a broker's cover note, be in the credit's currency, cover at least 110% of the CIF or CIP value unless the credit states otherwise, and be dated no later than shipment or state that cover starts by then (UCP 600 Article 28).

Customs value: FOB-based in the US, CIF-based in the EU

Under the WTO Customs Valuation Agreement, customs value is normally the transaction value, and each country decides whether transport, loading and insurance up to the place of import are part of it. The EU and UK include transport and insurance up to the point where the goods enter their territory, a CIF-type value (Union Customs Code, Article 71), as do Japan, China and India. The US leaves out international freight and insurance (19 U.S.C. 1401a), an FOB-type value, and Canada and Australia also use FOB-type values.

The rule you quote decides which of these costs are in your price, and the destination decides which of them count. On a CIF sale to the US, the freight and insurance in your price should come out of the customs value; on an FOB or FCA sale to the EU, the costs to the EU border count even though the buyer paid them outside your price. Customs can add or deduct them only if the invoice shows freight, insurance, packing and other charges as separate amounts, so list them even on a CIF invoice; US rules (19 CFR 141.86) ask for every charge itemized by name and amount (see Triplicate's note on commercial invoice requirements).

Bill of lading and letter of credit: keep the documents consistent

Banks check documents against the credit and against each other, and data must not conflict (UCP 600 Article 14(d)). If the credit states a trade term, banks expect the invoice to show it, with the same source, such as "Incoterms 2020", when the credit names one. The bill of lading's freight statement must fit too: a CIF or CFR sale normally means a bill marked "freight prepaid", an FOB or FCA sale one marked "freight collect". A CIF invoice with a "freight collect" bill invites a refusal.

A marine bill of lading under a credit must be dated on or before the latest shipment date and carry a dated on-board notation unless its printed wording already says shipped on board (Article 20). Check when the credit arrives that its trade term, place and edition match your contract, and under FCA ask for an on-board bill only if you agreed the A6/B6 option (see Triplicate's notes on letters of credit and on L/C discrepancies).

Incoterms do not deal with the price, payment terms or the transfer of title, so "FOB Busan" says nothing about when you are paid or when the buyer owns the goods. Put the payment term, any retention of title and the governing law in the sale contract, and choose the type of bill of lading with the payment term (see Triplicate's bill of lading note).

How to price each rule and write it on the quote

Build the price up from your EXW price, your cost plus margin with the goods at your premises. FCA at your premises adds loading and export clearance; FCA at a terminal also adds transport to the terminal; FOB adds transport to the port and the origin charges up to loading on board; CFR adds the main sea freight to the destination port; CIF adds the insurance premium on at least 110% of the price. CPT adds the main freight to an FCA price, and CIP adds insurance on Clauses (A) as well. Get a current freight rate from your forwarder, and agree in writing who pays origin and destination terminal handling charges (THC): under articles A9/B9 the seller pays unloading charges at destination only if they were for its account under its contract of carriage. Triplicate's export price calculator shows the price under each rule from one set of costs.

Write the rule, a precise named place and the edition, for example "FOB Busan Incoterms 2020", "CIF Shanghai Incoterms 2020" or "FCA [warehouse address] Incoterms 2020". Under FOB name the port of shipment; under CIF the destination port, and because risk passes in the country of shipment, also agree the port of shipment in the contract; under FCA name the exact address, terminal or warehouse, because who loads or unloads depends on it. Incoterms 2020 has applied since 1 January 2020 and is still the current edition, but older editions can be used if a contract names them, so an unmarked "CIF" can be read under different rules.

In the US, "FOB shipping point" and "FOB destination" come from the Uniform Commercial Code (UCC § 2-319), not from Incoterms, and can name any place and any carrier. In export contracts write the full Incoterms form, such as "FOB Long Beach Incoterms 2020", instead (see Triplicate's note on common Incoterms mistakes).