Part 1: Incoterms for Sea Freight: FAS, FOB, CFR, and CIF Explained

Introduction

When shipping goods by sea, four Incoterms are used exclusively: FAS, FOB, CFR, and CIF. These terms are designed for bulk and non-containerized cargo such as grain, oil, or machinery, but they are still widely referenced in contracts today. Understanding their differences is crucial for avoiding confusion and managing risk.

FAS – Free Alongside Ship

Definition:

Under FAS, the seller delivers the goods alongside the vessel at a named port. Once the goods are positioned next to the ship, risk transfers to the buyer.

Seller’s Responsibilities:

Export clearance and documentation

Transport to the designated port of shipment/exit

Delivery alongside the vessel (not loaded)

Buyer’s Responsibilities:

Loading goods onto the ship

Paying for main carriage, insurance, and unloading at destination

When to Use FAS:

Common for bulk commodities (e.g., coal, grain, minerals)

Suitable when the buyer controls vessel chartering

Example:

A Canadian exporter delivers large steel pipes to the Port of Halifax. Once the pipes are placed on the quay next to the vessel, responsibility shifts to the buyer, who arranges loading and sea transport.

FOB – Free On Board

Definition:

FOB means the seller delivers goods on board the vessel at the port of shipment. Risk transfers to the buyer once the goods are physically loaded onto the ship.

Seller’s Responsibilities:

Export clearance and documentation

Delivery to port

Loading goods onto the vessel

Buyer’s Responsibilities:

Sea freight

Insurance (if desired)

Unloading and onward transport to final destination

When to Use FOB:

Traditional and widely used in bulk shipping, and containerized shipping

Still common in practice, though FCA is recommended for containerized cargo

Example:

A machinery exporter in Germany loads heavy equipment onto a vessel in Hamburg. Once the crane lowers the machinery into the hold, the buyer assumes responsibility.

CFR – Cost and Freight

Definition:

Under CFR, the seller pays for transport to the destination port but risk transfers once the goods are on board at the port of origin.

Seller’s Responsibilities:

Export clearance

Loading goods and inland transport to port of exit

Paying freight to destination port

Buyer’s Responsibilities:

Insurance (optional)

Risk of loss or damage during transit once loaded on vessel

Import clearance and onward transport to final destination

Key Point:

The seller pays freight, but the risk still transfers at the port of shipment/exit.

Example:

An Italian exporter ships marble slabs to Dubai. The seller books and pays for sea freight, but if the slabs are damaged during the voyage, the buyer bears the loss unless insurance was arranged.

CIF – Cost, Insurance, and Freight

Definition:

CIF is similar to CFR, but the seller also arranges insurance coverage up to the port of destination.

Seller’s Responsibilities:

Export clearance

Loading goods

Freight costs to destination

Minimum insurance coverage for the buyer’s benefit

Buyer’s Responsibilities:

Additional insurance (if higher coverage is desired)

Insurance risk beyond the arrival port

Import clearance and local delivery

Liable for cargo during voyage

Example:

A wine producer in France sells bulk shipments to a buyer in China. The seller arranges freight and minimum insurance, ensuring the buyer’s cargo is covered during the sea journey.

Key Differences Between the Four Sea Freight Terms

Term	Seller Pays For	Risk Transfers At	Insurance Required?
FAS	Delivery alongside ship	Once goods are next to vessel	❌ No
FOB	Delivery + loading onto ship	Once goods are on board	❌ No
CFR	Delivery + loading + freight	Once goods are on board	❌ No
CIF	Delivery + loading + freight + insurance	Once goods are on board	✅ Yes (minimum)

Which Term Should You Use?

FAS → When the buyer wants full control of vessel loading and shipping contracts.
FOB → Common for bulk goods; suitable when seller arranges loading.
CFR → When the seller pays for freight, but buyer assumes ocean transit risk.
CIF → When the buyer wants both freight and insurance handled by the seller.

Final Takeaway

Choosing the right Incoterm for sea freight depends on who should control shipping arrangements and how risk is managed. FAS and FOB work best when buyers have strong shipping operations, while CFR and CIF simplify freight arrangements at the seller’s expense—but shift risk earlier than many buyers expect.

👉 In the next article of this series, we’ll cover Incoterms for All Modes of Transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP).