Two companies can agree on a product, a grade and a price, and still end up in a dispute — because they never agreed on who carries the goods, the cost and the risk at each step of the journey. That is the job Incoterms do. They are a standard set of three-letter trade terms that divide responsibility between buyer and seller, and reading them correctly is the difference between a clean transaction and an expensive surprise.
What an Incoterm actually decides
Every Incoterm answers three questions: who pays for transport, who carries the risk if something goes wrong, and at exactly what point that responsibility passes from seller to buyer. Price is meaningless without this context — a low FOB price and a higher CIF price can describe the same deal, because one includes freight and insurance and the other does not.
The terms you will meet most
FOB — Free On Board
The seller delivers the goods, cleared for export, onto the vessel. From the moment the cargo is on board, cost and risk are the buyer’s. Common when the buyer wants to control freight and insurance.
CFR — Cost and Freight
The seller pays freight to the destination port, but risk still passes at origin once loaded. The buyer arranges insurance.
CIF — Cost, Insurance and Freight
As CFR, but the seller also buys marine insurance. Convenient for a single landed-at-port number, though the minimum cover may be lighter than you would choose.
DAP — Delivered At Place
The seller carries cost and risk to a named destination, with the buyer handling import clearance and duties.
How to read a quote
Never compare headline numbers alone. Convert both quotes to the same basis — if one is FOB and the other CIF, add your own freight and insurance to the FOB figure first. Then ask where risk passes, who clears export and import, and what the insurance is actually worth.
Why it matters
For most shipments the term is routine. It becomes critical the day a container is damaged or delayed — because the Incoterm, agreed months earlier, decides who absorbs the cost. A good supplier states the term plainly and makes sure both sides read the same word the same way.
Creston Chem supplies polyols, TDI, MDI and polyurethane additives to manufacturers across India. For grade-specific guidance, talk to our desk.