Freight & Insurance Calculations for CFR and CIF Quotations
Lesson Contents Overview
Learning Objectives
Comprehensive Technical GuidanceTextbook & Training SOP
Freight & Insurance Calculations for CFR and CIF Quotations
1. From FOB to CFR to CIF in One Line Each
An FOB price stops at the port of shipment. Most buyers, however, ask for a price that includes delivery further along the chain, and the two standard steps are CFR and CIF. CFR equals FOB plus freight. CIF equals CFR plus insurance. Each step adds exactly one cost, and each step must be shown per garment, because the buyer compares per-garment prices and the factory plans margin per garment. A quotation that shows freight only as a container total cannot be compared, cannot be checked, and cannot be negotiated.
The discipline of this lesson is division. A container rate means nothing until it is divided by cartons and then by pieces per carton. An insurance rate means nothing until it is applied to an insured value and divided by the order quantity. Every freight and insurance line in this lesson ends as a per-garment figure, and every per-garment figure can be re-multiplied back to the total.
2. Sea Freight: Divide the Container Down to the Garment
Take the woven casual shirt from the previous lesson at BDT 719.40 FOB per garment, shipped by sea as 10,000 pieces in 500 cartons of 20 pieces each, all figures illustrative. The forwarder quotes one 40-foot container at USD 1,850. Divide by cartons first: 1,850 divided by 500 is USD 3.70 per carton. Divide by pieces next: 3.70 divided by 20 is USD 0.185 per garment. Convert at the stated rate of BDT 120 per dollar: 0.185 multiplied by 120 is BDT 22.20 of freight per garment.
Add freight to FOB: 719.40 plus 22.20 gives a CFR price of BDT 741.60 per garment. That is the whole sea freight calculation, and every number in it can be checked by re-multiplying: 22.20 multiplied by 10,000 is BDT 222,000 of freight, and 222,000 divided by 120 is USD 1,850, which is exactly the container rate. A freight line that re-multiplies to the forwarder invoice is a freight line nobody can dispute.
3. Volume Check: Cubic Metres
Before accepting a freight quotation, check the volume. Each carton measures 60 by 40 by 40 centimetres. Convert to metres: 0.60 multiplied by 0.40 multiplied by 0.40 is 0.096 cubic metres per carton. Multiply by 500 cartons: 0.096 multiplied by 500 is 48.00 cubic metres for the shipment. A 40-foot container holds roughly 67 cubic metres, so 48 cubic metres fits one container with room to spare, which confirms that a single-container rate is the right basis.
The volume check also gives a second way to price the freight: 1,850 divided by 48 is USD 38.5416 per cubic metre, rounded to USD 38.54. Multiply back: 48 multiplied by 38.54 is USD 1,849.92, which is the container rate within rounding. When the forwarder quotes a less-than-container rate per cubic metre instead of a container rate, this same volume figure prices the shipment directly, and the per-garment division proceeds exactly as before.
4. Insurance: 110 Percent of CFR Value
Insurance under CIF is calculated on 110 percent of the CFR value, not on the FOB value, because the insured value must cover the goods plus the freight already paid, plus a margin for the buyer claim process. Start from the CFR order value: 741.60 multiplied by 10,000 is BDT 7,416,000. Multiply by 110 percent: 7,416,000 multiplied by 1.10 is BDT 8,157,600 of insured value. Apply the premium rate of 0.5 percent: 8,157,600 multiplied by 0.005 is BDT 40,788 of premium for the whole order. Divide by the order quantity: 40,788 divided by 10,000 is BDT 4.0788 per garment, rounded half-up to BDT 4.08.
Add insurance to CFR: 741.60 plus 4.08 gives a CIF price of BDT 745.68 per garment. The full journey for the shirt is now visible in three prices: BDT 719.40 FOB, BDT 741.60 CFR, BDT 745.68 CIF. Freight added BDT 22.20 and insurance added BDT 4.08, and each addition is a separate line a buyer can question and a factory can defend.
5. Air Freight: Priced by Chargeable Weight
Air freight breaks the container logic, because it is priced per kilogram of chargeable weight, which is the higher of actual weight and volumetric weight. Take the knit polo shirt from the previous lesson at BDT 505.12 FOB per garment, shipped by air as 2,000 pieces with a chargeable weight of 1,150 kilograms at USD 4.20 per kilogram, all figures illustrative. Total freight is 1,150 multiplied by 4.20, which is USD 4,830. Per garment, 4,830 divided by 2,000 is USD 2.415. Convert at BDT 120 per dollar: 2.415 multiplied by 120 is BDT 289.80 of freight per garment.
Compare the two journeys. Sea freight added BDT 22.20 to the shirt. Air freight added BDT 289.80 to the polo, more than half the FOB price itself. That comparison is why air freight is reserved for urgent replenishment or high-value styles, and why a quotation that mixes an air rate into a sea shipment, as happened to a Narayanganj factory that lost an order over a tripled freight line, is so destructive.
6. The Per-Kilogram Versus Per-Container Trap
The most common freight error is using the wrong unit. A merchandiser who takes an air rate per kilogram and applies it to a sea shipment, or a sea container rate and applies it per garment, produces a freight line that is wrong by an order of magnitude, and the error survives because nobody divides the line back down to a per-garment figure. The defence is mechanical: every freight line must state its unit, its divisor, and its per-garment result. Container rate, divided by cartons, divided by pieces. Kilogram rate, multiplied by chargeable weight, divided by pieces. If the unit and the divisor are not on the sheet, the line is not finished.
A second trap is the missing exchange rate. Freight is usually quoted in dollars and the garment price in taka, so the conversion rate must be stated on the sheet. At BDT 120 per dollar, the shirt freight is BDT 22.20. At BDT 125, it would be 0.185 multiplied by 125, which is BDT 23.13, and the CFR price would move to BDT 742.53. Stating the rate lets both sides re-check the conversion and agree in advance how a rate movement before shipment will be handled.
7. Choosing FOB, CFR, or CIF
The choice of basis is a risk decision, not a pricing preference. Under FOB, the buyer books freight and carries freight risk, and the factory price stops at the ship rail. Under CFR, the factory books and pays freight but risk still passes at loading, so the factory carries a cost it does not fully control. Under CIF, the factory also arranges insurance, adding a second service it must manage. A factory should quote CFR or CIF only when it actually books the freight itself and can lock the rate for the shipment window. Quoting CIF on a rate the factory does not control means absorbing any freight increase between quotation and booking, straight out of margin.
As a rule, quote FOB when the buyer has its own forwarder, CFR when the factory books sea freight on a stable lane, and CIF when the buyer contract or letter of credit requires insurance arranged by the seller. Whatever the basis, show the build-up: FOB plus freight equals CFR, CFR plus insurance equals CIF, each on its own line, each divisible back to its source.
8. Summary and Checklist
CFR is FOB plus freight, and CIF is CFR plus insurance, and every step must be shown per garment. Divide container rates down through cartons to pieces, price air freight by chargeable weight, check volume in cubic metres, insure 110 percent of the CFR value, and state the exchange rate. A freight line that divides cleanly to a per-garment figure and re-multiplies to the forwarder invoice is a freight line a buyer can trust, and a quotation built that way will not lose an order to a unit error.
1. Sea Shipment Build-Up: Woven Casual Shirt, 10,000 Pieces (all figures illustrative)
| Line | Calculation | Result |
|---|---|---|
| FOB price per garment | From the FOB quotation sheet | BDT 719.40 |
| Cartons | 10,000 pieces divided by 20 per carton | 500 cartons |
| Carton volume | 60 x 40 x 40 cm = 0.096 CBM each | 48.00 CBM total |
| Sea freight total | One 40-foot container | USD 1,850.00 |
| Freight per carton | 1,850 divided by 500 | USD 3.70 |
| Freight per garment | 3.70 divided by 20 | USD 0.185 |
| Freight per garment (BDT) | 0.185 x 120 | BDT 22.20 |
| CFR price per garment | 719.40 + 22.20 | BDT 741.60 |
| CFR order value | 741.60 x 10,000 | BDT 7,416,000 |
| Insured value at 110 percent | 7,416,000 x 1.10 | BDT 8,157,600 |
| Insurance premium at 0.5 percent | 8,157,600 x 0.005 | BDT 40,788 |
| Insurance per garment | 40,788 divided by 10,000 | BDT 4.08 |
| CIF price per garment | 741.60 + 4.08 | BDT 745.68 |
2. Air Shipment Check: Knit Polo Shirt, 2,000 Pieces (all figures illustrative)
| Line | Calculation | Result |
|---|---|---|
| FOB price per garment | From the FOB quotation sheet | BDT 505.12 |
| Air freight total | 1,150 kg x USD 4.20 per kg | USD 4,830.00 |
| Freight per garment | 4,830 divided by 2,000 | USD 2.415 |
| Freight per garment (BDT) | 2.415 x 120 | BDT 289.80 |
| CFR price per garment | 505.12 + 289.80 | BDT 794.92 |
| CFR order value | 794.92 x 2,000 | BDT 1,589,840 |
| Insured value at 110 percent | 1,589,840 x 1.10 | BDT 1,748,824 |
| Insurance premium at 0.5 percent | 1,748,824 x 0.005 | BDT 8,744.12 |
| Insurance per garment | 8,744.12 divided by 2,000 | BDT 4.37 |
| CIF price per garment | 794.92 + 4.37 | BDT 799.29 |
Practical Commercial Flow
The shirt from the previous lesson at BDT 719.40 FOB per garment, 10,000 pieces in 500 cartons of 20 pieces. Sea freight USD 1,850 per 40-foot container, one container, 48 cubic metres. Freight per garment is USD 0.185, which is BDT 22.20 at BDT 120 per dollar, giving CFR BDT 741.60. Insurance at 0.5 percent on 110 percent of the CFR value is BDT 4.08 per garment, giving CIF BDT 745.68 per garment.
Factory Real-Life Scenario
Scenario: A knitwear factory in Narayanganj quoted CIF to a European buyer using a freight rate per kilogram taken from an air shipment, applied to a sea shipment of 12,000 polo shirts. The freight line came out three times higher than the forwarder invoice, the buyer rejected the quote as uncompetitive, and the order went to a competitor.
Solution: The merchandiser rebuilt the freight line from the forwarder container quotation: one 40-foot container at USD 1,850 for 600 cartons, divided down to a per-garment figure, and added insurance at 0.5 percent on 110 percent of the CFR value. The corrected CIF price was competitive and the buyer accepted.
Impact: The factory won the next order at the corrected CIF price and now keeps a freight file by destination port, so no quotation ever mixes an air rate into a sea shipment again.
Commercial Officer Best Practice
Keep a freight file by destination port with the current container rate, transit time, and carton capacity. When a buyer asks for CFR to a new port, the file gives the answer in minutes instead of days.
Top Beginner Mistakes to Avoid
- Adding a container freight rate directly to a per-garment price without dividing by cartons and pieces.
- Mixing an air freight rate per kilogram into a sea shipment quotation, or a sea rate into an air shipment.
- Calculating insurance on the FOB value instead of 110 percent of the CFR value, which under-insures the shipment.
- Forgetting to state the exchange rate used for conversion, so the same quotation gives different answers on different days.
- Quoting CIF when the factory has no control over the freight booking, and then absorbing a freight increase it never agreed to carry.
Important Commercial & Trade Terminology (5 Terms)
A price basis under which the seller pays the cost of the goods plus freight to the destination port. Risk passes to the buyer once the goods are loaded on board.
💡 Note: CFR includes freight but not insurance.A price basis under which the seller pays the cost of the goods plus freight plus marine insurance to the destination port.
💡 Note: CIF adds insurance to CFR. The seller arranges insurance but the buyer carries the risk in transit.The value on which the insurance premium is calculated, normally 110 percent of the CFR or CIF value, so the cover includes freight and a margin for the claim process.
💡 Note: Insuring only the FOB value leaves freight uncovered.The weight used for air freight pricing, which is the higher of the actual gross weight and the volumetric weight calculated from the shipment dimensions.
💡 Note: Light, bulky cartons are charged on volume, not on scale weight.A volume unit equal to one metre by one metre by one metre. A carton of 60 by 40 by 40 centimetres occupies 0.096 CBM.
💡 Note: Sea freight on less-than-container loads is often priced per CBM.Interview Preparation Questions & Answers (4 Questions)
Master these high-frequency interview questions for Commercial Officer, Merchandising, and Export Executive roles.
CFR is FOB plus freight to the destination port. CIF is CFR plus marine insurance to the destination port. In this lesson the shirt is BDT 719.40 FOB, BDT 741.60 CFR, and BDT 745.68 CIF per garment.
Frequently Asked Questions (4 FAQs)
Clear, beginner-friendly answers to the most common questions about the Commercial Department.
Key Takeaways & Summary Points
Executive Lesson Summary
CFR is FOB plus freight, and CIF is CFR plus insurance, and every step must be shown per garment. Divide container rates down through cartons to pieces, price air freight by chargeable weight, insure 110 percent of the CFR value, and state the exchange rate. A freight line that divides cleanly to a per-garment figure is a freight line a buyer can trust.