FOB, CFR, CIF vs. Container Shipments: Why Theory and Practice Don’t Always Match

Intro

One of the recurring debates in Incoterms is whether FOB, CFR and CIF should ever be used for containerized shipments. The theory says “no,” but in practice, traders and banks keep using them every day without issue. Let’s look at why the theory clashes with practice, and what happens with FCL and LCL cargoes.

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Question

One of the members of the Incoterms 2020 drafting group considers FOB, CFR and CIF unsuitable for containerized shipments. He argues that FCA, CPT and CIP are more appropriate, because with containerized shipments delivery is not “on board” the vessel but rather when goods are handed to the carrier.

He also believes this is problematic for banks, since many letters of credit still stipulate container shipment under FOB/CFR/CIF. He advises banks to request an amendment to change the trade term, arguing that under container trade the exporter cannot deliver on board.

Yet, he seems to say that this issue applies only to FCL shipments, not LCL, implying that FOB/CFR/CIF can still work for LCL. Why would LCL be “safe” while FCL is not?

Roshani

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Answer

Hi,

In theory, he is right. Under Incoterms 2020, delivery under FOB, CFR and CIF occurs when goods are placed on board the vessel. But for container shipments, the seller does not load goods directly on board:

• For FCL, the seller delivers the sealed container to the Container Yard (CY).
• For LCL, the seller delivers goods to the Container Freight Station (CFS) for consolidation.

In both cases, delivery is to the carrier at CY or CFS—not on board the vessel. Actual loading is done by the carrier. This is why FCA, CPT and CIP are the more technically correct terms for container trade.

In practice, however, exporters and importers continue to use FOB, CFR and CIF for container shipments. Carriers often issue a “received for shipment” B/L and later add an “on board” notation once the container is loaded. Banks accept such documents under LCs, so no systemic problem has arisen.

As for FCL vs. LCL:

• Some commentators argue that LCL appears less problematic because the carrier consolidates goods at CFS and issues an on-board B/L for the consolidated shipment.
• With FCL, the exporter delivers a full sealed container to CY, but carriers also routinely issue an on-board B/L after loading.

In truth, neither FCL nor LCL strictly matches FOB/CFR/CIF delivery definitions. The difference is more about perception than legal substance.

Conclusion:

FCA, CPT and CIP are indeed the proper terms for containerized shipments. But trade practice still embraces FOB, CFR and CIF—even for containers—and as long as carriers issue an on-board bill of lading, banks and traders continue without difficulty.

Best regards,

Mr. Old Man