What is the difference between FOB, CFR, and CIF? Which is better?

In international trade, FOB, CFR, and CIF are like three different "transportation packages", each with its own characteristics and suitable for buyers and sellers with different needs.

Let's talk about FOB, which means delivery on board. This is like going to a market to buy fruits. You just need to ｓｅｌｅｃｔ the fruits at the stall, and then the stall owner will carry them to your car. After that, how the fruits will be transported and whether there will be any damage on the road are all your business.

Under FOB terms, the seller acts like a vendor, loading the goods onto the buyer's designated vessel at the designated port of shipment, and then notifying the buyer, completing their task. The seller is responsible for handling the export customs clearance procedures for the goods, just like a vendor legally moving fruits from their stall to your car.

And the buyer, like a person driving fruits, is responsible for arranging transportation, paying freight, and handling import customs clearance procedures for the goods.

Moving on to CFR, cost plus shipping. This is a bit like buying a large item online, where the seller not only has to pack the item and hand it over to the courier, but also has to pay a portion of the shipping fee. Under CFR terms, the seller not only needs to load the goods onto the ship and handle export customs clearance procedures, but also needs to pay for the freight to transport the goods to the destination port.

However, just as there may be a risk of damage during the transportation of express delivery, the risk of goods during transportation is transferred to the buyer when the goods cross the ship's rail. The buyer is responsible for handling the import customs clearance procedures for the goods and bearing the insurance costs during transportation, just like when you receive a package, you need to check if the goods are damaged. If you want insurance, you have to buy it yourself.

Finally, let's talk about CIF, including cost, insurance, and freight. It's like buying a valuable item at a high-end store, where the seller not only packages it for the courier and pays for shipping, but also buys insurance.

Under CIF terms, the seller has the greatest responsibility, which is to load the goods onto the ship, handle export customs clearance procedures, pay the freight, and also purchase insurance for the goods during transportation. The risk of goods during transportation is also transferred to the buyer when the goods cross the ship's rail. The buyer is responsible for handling the import customs clearance procedures for the goods.

So, which of these three "packages" is better? There is no absolute answer to this, it depends on the specific situation.

If the buyer has a transportation company and insurance channel that they particularly trust, just like you have a courier company that you often cooperate with, knowing that their service is good, fast, and reliable, then FOB may be more suitable for you. Under FOB terms, the buyer can choose the appropriate transportation method and insurance company according to their needs, just like choosing a familiar courier company, and can better grasp the transportation progress of the goods.

If the seller feels that handling transportation and insurance matters is too troublesome and wants to handle them all at once, they can choose CIF. Just like when you buy valuable items in a high-end store, the seller has everything arranged and you just need to wait for the goods to arrive. Under CIF terms, the seller is responsible for arranging transportation and purchasing insurance, reducing the workload of the buyer in this regard. At the same time, the insurance purchased by the seller can also provide certain protection for the buyer.

And CFR is between FOB and CIF. If the buyer wants some control over shipping costs but doesn't want to worry about buying insurance, CFR may be a good choice. Just like when you buy a large item online and the seller pays a portion of the shipping cost, you feel that the shipping price is reasonable, while you can decide whether to buy insurance based on the situation.

FOB, CFR, and CIF each have their own advantages and disadvantages, just like different transportation packages are suitable for different people. When making a choice, both the buyer and seller should consider the specific transaction situation, such as the nature of the goods, transportation distance, market habits, and other factors comprehensively. It is essential to clearly define each party's responsibilities, costs, and risks in the contract in order to avoid disputes during the transaction process.

Of course, with the continuous development and changes of international trade, other suitable trade terms can also be flexibly selected according to the actual situation to meet different transaction needs.