FOB, CFR, CIF or EXW? Incoterms 2020 for Indian food containers

After reading this you will be able to choose between EXW, FOB, CFR and CIF for a food container from India, know exactly where your risk starts, and spot when FCA, CPT or CIP would describe the deal more accurately.

The four questions every Incoterm answers

An Incoterms® 2020 rule settles four things between buyer and seller:

• Delivery: the point where the seller has done its job.
• Risk: the moment loss or damage to the goods becomes the buyer's problem.
• Costs: who pays for each leg, handling charge and clearance.
• Documents and formalities: who clears export and import customs, and who arranges insurance.

Incoterms do not cover payment, title to the goods or the price. Those belong in the sales contract. Always write the rule with a named place and the version, for example "CFR Jebel Ali, Incoterms® 2020".

EXW: Ex Works

The seller makes the goods available at its premises. The buyer loads, transports, clears Indian export customs and carries every risk from the warehouse door.

In practice EXW is awkward for an Indian food shipment. The buyer's agent must handle export filing in India, and the seller is not even obliged to load the truck. If you want to collect from the seller's door, FCA seller's warehouse is usually the better choice, because under FCA the seller loads the vehicle and clears export.

FOB: Free On Board

The seller clears export, pays inland haulage and origin port charges, and delivers the goods on board the vessel nominated by the buyer at the named port of shipment. Risk passes when the goods are on board. The buyer books and pays ocean freight and insurance.

FOB suits buyers who have their own freight contracts or a forwarder they trust, and who want control over routing and transit time.

CFR: Cost and Freight

The seller also books and pays ocean freight to the named destination port. Risk still passes on board at the origin port, the same point as FOB. This catches buyers out: the seller pays freight to Jebel Ali or Port Klang, yet if the container is damaged at sea, the claim is the buyer's. Under CFR the buyer should arrange its own cargo insurance from the port of loading.

CIF: Cost, Insurance and Freight

CIF is CFR plus insurance bought by the seller for the buyer's benefit. Under Incoterms® 2020 the seller need only buy minimum cover, Institute Cargo Clauses (C), for at least 110% of the contract value. Clauses (C) cover major casualties such as sinking, stranding or fire, but not most of the risks that worry food buyers, such as water damage, theft or partial loss. If you want wider cover, specify Institute Cargo Clauses (A) in the contract.

Who pays what

Destination terminal handling charges (DTHC) depend on the carrier's terms. Under CFR and CIF, confirm whether the freight quote includes them, or you may receive a separate bill at arrival.

Containers leaving from an inland depot

Much North Indian cargo does not start its journey at the seaport. A container of rice from Haryana, or pulses and spices from Delhi, is typically stuffed and sealed at the warehouse or at an inland container depot (ICD) in the Delhi region, cleared by Indian customs there, and then moved by rail to Nhava Sheva (JNPT) near Mumbai for loading on the vessel.

That sequence matters for risk:

• Under FOB Nhava Sheva, the seller carries the risk of the rail leg and the port stay. Risk only passes when the box is loaded onto the ship.
• The shipping line often takes charge of the container at the ICD and may issue a bill of lading showing the ICD as place of receipt. From that moment the seller has handed over the goods, yet under FOB it still carries their risk for several more days.

Why ICC recommends FCA, CPT and CIP for containers

The ICC's own guidance notes to Incoterms® 2020 say FOB, CFR and CIF may not be appropriate where goods are handed to a carrier before they are on board, which is the normal situation for containers delivered to a terminal. The recommended alternatives:

• FCA (Free Carrier) in place of FOB. Risk passes when the seller hands the container to the carrier at the named place, for example "FCA ICD Tughlakabad, Incoterms® 2020".
• CPT (Carriage Paid To) in place of CFR. The seller pays carriage to destination, risk passes at handover to the first carrier.
• CIP (Carriage and Insurance Paid To) in place of CIF. Under the 2020 rules, CIP requires the higher ICC (A) cover by default.

Incoterms® 2020 also added an option in FCA for the buyer to instruct its carrier to issue an on-board bill of lading to the seller. This removed a practical obstacle for letter of credit deals, where banks usually require an on-board B/L.

Why many buyers still use FOB and CFR

FOB and CFR remain common for Indian food containers, for reasons that are practical:

• Habit and price comparison. Importers compare offers from several origins on an FOB or CFR basis, and a change of term makes comparison harder.
• Letter of credit templates. Many issuing banks and buyers' L/C forms are built around FOB, CFR and CIF wording.
• Customs valuation. Many importing countries assess duty on a CIF value, so buyers already think in sea-term values.
• Freight control. Buyers who negotiate their own freight contracts want an FOB price.

Using FOB or CFR for a container is not wrong. Both sides should understand that the seller then carries risk on the inland leg, and the contract should say so clearly. If you prefer the ICC-recommended terms, ask for an FCA ICD or CPT destination port quote alongside the FOB or CFR price.

Choosing a rule

• You have a freight forwarder and want control: FOB Nhava Sheva, or FCA at the ICD.
• You want one landed-port price and will insure yourself: CFR, or CPT.
• You want the seller to insure: CIF or CIP, and state the cover (ICC A or C) in the contract.

Before you order

• Name the rule, the exact place and "Incoterms® 2020" in the contract and pro forma invoice.
• Check where the container will be stuffed and sealed, and where export customs clearance happens.
• Under CFR, arrange your own insurance from the port of loading.
• Under CIF or CIP, confirm the Institute Cargo Clauses and insured value.
• Ask whether the freight quote includes destination terminal handling.
• If paying by L/C, make sure the transport document and Incoterm in the credit match each other.

If you are comparing offers for rice, pulses or spices, send us the product, quantity, destination port and preferred Incoterm, and we will come back with a written quote on that basis.