The three letters after a seaweed price decide who pays for freight and insurance, and, just as importantly, at what point the risk of loss or damage passes from seller to buyer. FOB, CFR and CIF are the terms most often quoted for dried seaweed leaving Indonesia. They are defined by the International Chamber of Commerce in its Incoterms rules, currently the 2020 edition, and a contract should always name both the term and the edition, for example “FOB Makassar, Incoterms 2020”.
The Three Terms Side by Side
FOB (Free On Board, named port of shipment). The seller clears the goods for export and delivers them on board the vessel the buyer has nominated. Risk passes to the buyer once the goods are on board. The buyer books and pays for the sea freight and arranges its own insurance.
CFR (Cost and Freight, named port of destination). The seller clears the goods for export and books and pays for freight to the destination port. Risk still passes to the buyer when the goods are loaded on board at origin. The buyer insures the cargo for the voyage.
CIF (Cost, Insurance and Freight, named port of destination). The same as CFR, plus the seller must buy cargo insurance for the buyer’s benefit. Under Incoterms 2020, the required minimum cover for CIF is limited (Institute Cargo Clauses C), so buyers who want broader cover should say so in the contract.
The key point often missed: under all three, risk transfers at the port of loading, not at destination. A CIF price means the seller pays for freight and insurance; it does not mean the seller carries the risk until the goods arrive.
What This Means for a Container of Seaweed
Dried seaweed normally travels in sacks or pressed bales inside containers. That raises a technical wrinkle. FOB, CFR and CIF were designed for goods loaded directly on to a ship, whereas containers are usually handed over at a terminal days before loading. The ICC recommends FCA, CPT and CIP for containerised cargo, because under those terms risk passes when the goods are handed to the carrier. In practice many seaweed contracts still use FOB, CFR or CIF out of habit, and they work well enough when both parties understand the gap between hand-over and loading.
Quality risks also sit outside the Incoterm. Moisture pickup and weight loss during the voyage are not insurance claims in most cases; they are dealt with by the quality and weight clauses of the contract, which is why agreeing moisture limits and test methods and a yield basis such as clean anhydrous weed matters as much as the delivery term.
Choosing a Term: Practical Advice for First-Time Importers
- Choose FOB if you already have a freight forwarder, regular shipping volumes or good freight rates of your own. You control the booking, the routing and the insurance.
- Choose CFR if the seller can obtain reliable freight from the origin port and you prefer to arrange insurance yourself with your usual insurer.
- Choose CIF if you are new to importing and want the seller to handle both freight and a basic level of insurance, but check the policy cover and the insurer’s claims process.
- Avoid ambiguity: always name the port, the Incoterms edition and who pays for terminal handling, documentation and inspection at origin.
- Remember the documents: whichever term you choose, payment is often tied to receiving the bill of lading and other shipping documents, so agree the full document list in advance.
Our due diligence checklist for importing seaweed from Indonesia covers the supplier checks that should come before any of these decisions.
Frequently asked questions
Is CIF more expensive than FOB?
The quoted price is higher because it includes freight and insurance, but the total landed cost may be similar. Compare the CIF price with the FOB price plus your own freight and insurance quotes.
Who pays for pre-shipment inspection?
Incoterms do not settle this. Inspection that the buyer requests is usually paid by the buyer unless the contract says otherwise, so write it into the agreement.
Can we use EXW for seaweed from Indonesia?
It is possible, but under EXW the buyer is responsible for export clearance, which is difficult for a foreign company. FCA or FOB is usually more practical.
Working with Kospermindo
Kospermindo aggregates supply from organised farmer groups and has a warehouse in the Makassar Industrial Estate (KIMA). Contact us to discuss shipment terms.