FOB vs CFR vs CIF and how to work out landed cost

One product, three prices

Suppose three sellers quote the same product for the same destination. One offers FOB the loading port, one CFR your port, and one CIF your port. The numbers look different, but they cover different amounts of the journey. FOB includes the goods and loading. CFR adds ocean freight. CIF adds ocean freight and marine insurance. To compare, bring every offer to the same endpoint.

Building up from FOB

Start with the FOB price at the loading port, then add each step of the journey:

• Ocean freight from the loading port to the discharge port.
• Marine insurance on the cargo value, often a small percentage of the insured value.
• Discharge, port and terminal handling charges at destination.
• Customs duty and import taxes, if applicable, on the customs value.
• Customs clearance and agent fees.
• Inland transport to your site or warehouse.
• Inspection, sampling and laboratory costs.
• Bank charges and the cost of financing the goods while they are in transit.
• Losses and a margin of safety for weight differences and delays.

Landed cost in one line

Landed cost per ton is the sum of all those lines divided by the delivered quantity. Because shortages and moisture change the weight that counts, divide by the quantity you actually receive and can use, not by the quantity on the bill of lading.

A simple worked example

The numbers below are only an illustration of the method and are not real quotes. Say the FOB price is 400 per ton. Freight to destination is 40, insurance is 2, port and handling charges are 8, and inland transport is 15. Duty is 5 percent of the customs value, which is usually the CIF value, so duty is 5 percent of 442, or about 22. Add inspection and bank costs of 6.

Landed cost is 400 + 40 + 2 + 8 + 15 + 22 + 6, which is 493 per ton. If a CIF offer for the same product states 450, the question is not which headline is lower but which total is lower once the same lines are added to the CIF figure: port, duty, inland transport and inspection.

Who bears which cost under each term

Costs people often miss

• Demurrage if the vessel waits longer than allowed at loading or discharge.
• Storage if the cargo is not collected on time.
• Weight loss in transit for products that dry out or are hygroscopic.
• Certificate and legalisation fees, including for origin documents.
• Currency conversion and the movement of exchange rates between quote and payment.
• Fumigation or other treatments required by the destination country.

Freight is not a fixed number

Ocean freight changes with the route, season, vessel size and market. A rate quoted last month may be out of date. For planning, use a recent quote from a forwarder, and treat rule-of-thumb figures as a starting point only. Tonport's calculators let you override every line with your own quote, which is the right way to use them.

Using the calculators

The landed cost calculator takes a price and an Incoterm, adds freight, insurance and the other lines, and shows a cost per ton. The trade P&L estimator goes one step further: it takes your sale price and shows worst, base and best outcomes after costs and a safety margin. Run both before you agree to a price.

Frequently asked questions

Is CIF always more expensive than FOB?

The CIF headline is higher because it includes freight and insurance, but the landed cost may be similar. Compare totals after adding the missing lines to the lower quote.

What is the customs value?

It is the value on which import duty is calculated. In many countries it is based on the CIF value, but rules differ by country, so check with a customs broker.

Should I include financing cost in landed cost?

Yes, if you pay before you receive and sell the goods. The cost of money while the cargo is in transit is a real cost of the deal.

How accurate are calculator estimates?

They are estimates built from general assumptions. Replace freight, insurance and port lines with real quotes whenever you have them.