FOB vs CIF Colombo: who pays the sea freight and the insurance on your order?

FOB, CFR and CIF are the three sea-freight terms you will meet most often on a quote from Colombo, and they differ on two points: who pays the sea freight and who buys the marine insurance. Under FOB your supplier delivers the goods on board the vessel and you carry the voyage from there. Under CFR the seller also pays the freight to the destination port, and under CIF the seller adds marine insurance on top. Name the rule and the port in your enquiry before you compare any offers.

What FOB, CFR and CIF mean on an order from Sri Lanka

The International Chamber of Commerce describes Incoterms as a set of eleven three-letter trade terms that reflect business-to-business practice in sales contracts, and Incoterms 2020 entered into force on 1 January 2020 (ICC Incoterms rules page). Four of the eleven are for sea and inland waterway transport only: FAS (Free Alongside Ship), FOB (Free on Board), CFR (Cost and Freight) and CIF (Cost Insurance and Freight).

That matters for the port in your term. These four rules fit a shipment that travels by vessel, and the Sri Lanka Ports Authority describes the Port of Colombo as primarily a container port connecting cargo to and from Europe, East and South Asia, the Persian Gulf and East Africa (Port of Colombo). If your order moves by air, these terms are the wrong tool. Our guide to all eleven Incoterms 2020 rules for sea and air cargo covers the full list.

FOB, CFR and CIF side by side

The Export Development Board's export procedure guide (2020) states what the seller must do under each rule. The table below keeps to what that guide says, and where it says nothing we say so instead of filling the gap.

Question	FOB	CFR	CIF
Seller clears the goods for export	Yes	Yes	Yes
Seller pays cost and freight to the named destination port	Not listed as a seller duty	Yes	Yes
Seller procures marine insurance	Not listed as a seller duty	Not listed as a seller duty	Yes
Transport mode	Sea and inland waterway only	Sea and inland waterway only	Sea and inland waterway only
Insurance policy in the bank document set	Not required by the guide	Not required by the guide	Yes, if on CIF

Read the "not listed" cells as a prompt to ask, not as a promise either way. If you want the seller to quote the voyage but you have a forwarder who handles insurance, say so in the enquiry and let the contract state who does what.

What the seller does before the goods are on board

In all three terms the seller handles export clearance, so it helps to know what that involves. Sri Lanka Customs says the Customs Declaration (CusDec) should be submitted before the goods are exported, that either a Customs House Agent or the exporter can be the declarant, and that export should take place within 30 days of the CusDec registration date (Sri Lanka Customs on exporting goods).

The EDB guide lists the documents filed with the CUSDEC as the commercial invoice, the packing list and, where they apply, permits or licences, tea blend sheets and a material safety data sheet. It also says the exporter pays port charges to the Sri Lanka Ports Authority before moving the goods to the port, and reserves sea cargo space with the shipping agent well ahead of the shipment date (EDB export procedure guide).

For the paper trail after loading, see our checklist of export documents from Sri Lanka. If you are buying from Sri Lanka for the first time, importing from Sri Lanka step by step puts the terms in the order of a whole purchase.

Insurance under CIF: the default level

CIF is the only one of the three where the seller must procure marine insurance. The ICC says that under Incoterms 2020 the default cover for CIF remains Institute Cargo Clauses (C), while CIP now requires cover compliant with Institute Cargo Clauses (A) (ICC on Incoterms 2020).

In plain terms, a CIF quote that does not mention a clause level gives you the default. If your cargo is a high-value spice parcel or a mixed container of coconut products and you want wider cover, ask for it in writing before the order is confirmed.

How the term shows up on your product enquiry

The same rule reads differently depending on what you buy. A buyer of Sri Lankan spices in sealed cartons and a buyer of coconut products in bags or drums are both choosing between the same three terms, but their forwarder, cargo insurer and destination customs broker may differ. The term does not change the product specification: grade, moisture, pack and test reports still belong in the enquiry whichever rule you pick.

How to choose and write the term into your enquiry

1. Confirm the goods will travel by sea. If any leg is by air, move to an any-mode rule such as FCA, CPT or CIP.
2. Decide who will book the vessel: you, through a forwarder you already use, or the seller.
3. Decide who will insure the cargo, and at which Institute Cargo Clauses level.
4. Write the rule, the named port and "Incoterms 2020" in the enquiry, for example "FOB Colombo" or "CIF" followed by your port of discharge.
5. Ask which documents come with the shipment, and whether your bank or letter of credit needs the insurance policy.
6. Confirm the destination country's import requirements with your customs broker before the order is confirmed.

When you are ready, send the product, grade, term and port through the Truly Ceylon quote request and ask the supplier to confirm each point in the reply.

Common mistakes

• Naming a port-less term. "CIF" alone is incomplete. The rule always goes with a named place, such as a port of discharge.
• Using a sea-only term for air cargo. FOB, CFR and CIF are for sea and inland waterway transport only.
• Assuming CIF means full cover. The default is Institute Cargo Clauses (C), not (A).
• Mixing up export and import clearance. The seller clears the goods for export under all three terms. Clearing them into your country is your own task.
• Comparing offers on different terms. A CIF offer and an FOB offer are not like for like, because one includes duties the other leaves to you.
• Skipping the insurance policy in a bank set. If the sale is on CIF, the policy is one of the shipping documents the EDB guide lists for the bank.

Frequently asked questions

Is FOB or CIF better for a small importer buying from Colombo?

Neither is better in every case; they split duties differently. Under CIF the seller arranges the sea freight and the marine insurance, which means fewer steps for you but less control over the carrier and the policy. Under FOB you take on the booking from the port of loading, so choose it only if you already have a forwarder you trust.

Who clears the goods for export from Sri Lanka under FOB, CFR and CIF?

The Export Development Board's export procedure guide says the seller must clear the goods for export under all three rules. The declaration is the CUSDEC, and either a Customs House Agent or the exporter can be the declarant, according to Sri Lanka Customs. Your own import clearance at the destination is a separate matter.

What insurance level does CIF give me by default?

The International Chamber of Commerce says the default cover for CIF under Incoterms 2020 remains Institute Cargo Clauses (C). CIP, an any-mode rule, now requires the higher Institute Cargo Clauses (A). If you want wider cover under CIF, write the clause level into the quote request and the contract.

Can I use FOB, CFR or CIF for air freight?

No. Four Incoterms 2020 rules are for sea and inland waterway transport only: FAS, FOB, CFR and CIF. For air cargo, or a mixed journey, look at the seven any-mode rules such as FCA, CPT and CIP, and name the airport or place in the quote.

Which documents change when the order is CIF?

The EDB guide lists the insurance policy among the shipping documents submitted to the bank if the sale is on CIF. Under FOB or CFR there is no seller's policy in that set, so check what your own bank or letter of credit asks for before you agree the term.

Key takeaways

• FOB, CFR and CIF are sea and inland waterway terms; use another rule for air cargo.
• The seller clears the goods for export under all three.
• CFR and CIF add sea freight to the named destination port; CIF adds marine insurance.
• CIF's default insurance is Institute Cargo Clauses (C); ask in writing for more.
• Always name the rule, the port and Incoterms 2020 in your enquiry.