International coffee trade involves standardized contract terms that define responsibilities for costs, risks, and logistics. Understanding these terms—particularly Incoterms like FOB and CIF—is essential for exporters, importers, and brokers to negotiate fair deals and manage risk effectively.
What Are Incoterms?
Definition and Purpose
Incoterms (International Commercial Terms) are standardized trade definitions published by the International Chamber of Commerce (ICC). They specify:
- Who pays for what: Transport, insurance, customs costs
- Risk transfer point: When responsibility shifts from seller to buyer
- Documentation duties: Who handles paperwork
Why They Matter
Clear Incoterms prevent disputes by:
- Defining responsibilities unambiguously
- Providing internationally recognized standards
- Enabling accurate price comparisons
- Clarifying insurance requirements
Common Coffee Trade Incoterms
FOB (Free On Board)
Definition: Seller delivers goods on board the vessel; risk transfers at that point
Seller responsibilities:
- Deliver coffee to the port
- Load onto vessel
- Export clearance and documentation
- Pay all costs until goods are on board
Buyer responsibilities:
- Book and pay for ocean freight
- Marine insurance (optional but recommended)
- Import clearance and duties
- Destination transport
Risk transfer: When goods pass the ship’s rail
Typical use: Most common term for green coffee exports
Example pricing: “$3.50/lb FOB Mombasa”
CIF (Cost, Insurance, and Freight)
Definition: Seller pays cost, insurance, and freight to destination port
Seller responsibilities:
- All FOB obligations
- Ocean freight to destination
- Marine insurance (minimum coverage)
- Cost to destination port
Buyer responsibilities:
- Import clearance and duties
- Unloading costs (typically)
- Destination transport
Risk transfer: Still at origin port (when loaded on vessel)
Important note: Despite paying for freight and insurance, seller’s risk ends at loading
Example pricing: “$4.20/lb CIF Hamburg”
CFR (Cost and Freight)
Definition: Like CIF, but without insurance
Seller responsibilities:
- All FOB obligations
- Ocean freight to destination
Buyer responsibilities:
- Marine insurance
- Import clearance
- Destination transport
Risk transfer: At origin port (when loaded)
Use case: When buyer has preferred insurance arrangements
EXW (Ex Works)
Definition: Seller makes goods available at their premises
Seller responsibilities:
- Package goods for transport
- Make available at specified location
Buyer responsibilities:
- All transport from seller’s location
- Export and import clearance
- All costs and risks from pickup
Use case: Less common in coffee; used for local transactions
FCA (Free Carrier)
Definition: Seller delivers to carrier at specified location
Use in coffee:
- Inland pickup points
- Container yards
- Warehouse releases
DAP (Delivered at Place)
Definition: Seller delivers to specified destination, unloaded
Seller responsibilities:
- All transport to destination
- Export clearance
- Risk until delivery at destination
Buyer responsibilities:
- Import clearance and duties
- Unloading
Comparing Key Terms
| Term | Seller Pays | Risk Transfers | Best For |
|---|---|---|---|
| FOB | To ship loading | At loading | Standard export |
| CFR | To destination port | At loading | Buyer has insurance |
| CIF | To destination + insurance | At loading | Destination pricing |
| DAP | To destination door | At destination | Door delivery |
Understanding Price Quotes
FOB Pricing
Components:
Farm gate price
+ Processing costs
+ Transport to port
+ Export documentation
+ Loading costs
= FOB priceComparison notes:
- Enables apples-to-apples origin comparison
- Buyer controls shipping choices
- Most transparent for cost analysis
CIF Pricing
Components:
FOB price
+ Ocean freight
+ Marine insurance
= CIF priceComparison notes:
- Easier for destination budgeting
- Seller negotiates shipping rates
- Insurance may be minimum coverage
Differential Pricing
Coffee often quoted as differential to futures:
Example: “FOB +15 NY C”
- Price = NY C futures + $0.15/lb
- Differential fixed; base price moves with market
- Common for Arabica contracts
Contract Elements Beyond Incoterms
Quality Specifications
Essential contract terms:
- Grade and screen size
- Defect allowances
- Moisture content
- Cupping score requirements
- Reference sample
Quantity Terms
- Total bags or metric tons
- Tolerance (+/- percentage)
- Partial shipment allowances
- Minimum lot sizes
Shipping Terms
- Shipping period/window
- Partial shipment rights
- Port of loading/destination
- Container type
Payment Terms
Common payment mechanisms:
Letter of Credit (L/C):
- Bank guarantees payment
- Document-based release
- Most secure for both parties
Cash Against Documents (CAD):
- Payment when documents presented
- Less bank involvement
- Requires trust
Open Account:
- Payment after delivery/inspection
- High trust required
- Common in established relationships
Documentation Requirements
Typical document set:
- Commercial invoice
- Bill of lading
- Certificate of origin
- Phytosanitary certificate
- Weight/quality certificates
- ICO certificate (where required)
Risk Management in Contracts
Price Risk
Tools:
- Differential contracts (versus futures)
- Fixed price agreements
- Price-to-be-fixed contracts
- Options strategies
Quality Risk
Protections:
- Pre-shipment samples
- Third-party inspection
- Quality claims procedures
- Reference sample retention
Delivery Risk
Safeguards:
- Performance bonds
- Letter of credit conditions
- Reputation assessment
- Relationship history
Negotiating Contract Terms
For Sellers (Exporters)
Priorities:
- Secure payment terms
- Reasonable quality claims procedures
- Clear shipping windows
- Fair price adjustment mechanisms
Leverage points:
- Quality reputation
- Reliability track record
- Unique coffee offerings
- Relationship value
For Buyers (Importers/Roasters)
Priorities:
- Quality verification rights
- Sample approval process
- Delivery flexibility
- Competitive pricing
Considerations:
- Balance price versus reliability
- Assess supplier capacity
- Plan for quality variation
- Build partnership trust
Common Contract Disputes
Quality Claims
Prevention:
- Clear specifications
- Reference samples
- Pre-shipment approval
- Defined claim procedures
Resolution:
- Third-party arbitration
- Sample retention
- Documented communication
- Relationship preservation
Delivery Issues
Common problems:
- Shipping delays
- Partial shipments
- Container condition issues
- Documentation errors
Solutions:
- Clear force majeure clauses
- Communication protocols
- Penalty/bonus structures
- Flexibility provisions
Sample Contract Checklist
Essential elements to include:
- [ ] Parties identified clearly
- [ ] Incoterm and location
- [ ] Coffee specifications
- [ ] Quantity and tolerance
- [ ] Price and payment terms
- [ ] Shipping period
- [ ] Document requirements
- [ ] Quality claims procedure
- [ ] Arbitration clause
- [ ] Force majeure provisions
Conclusion
Understanding coffee contract terms—especially Incoterms like FOB and CIF—is fundamental to successful international coffee trade. Clear contracts that define responsibilities, costs, and risk transfer points protect both parties and facilitate smooth transactions. Taking time to understand and negotiate appropriate terms pays dividends in reduced disputes and stronger trading relationships.
Keywords: coffee contracts, FOB coffee, CIF coffee, coffee trade terms, Incoterms coffee, coffee export contracts, international coffee trade
Meta Description: Understand coffee contract terms including FOB, CIF, and other Incoterms. Learn about responsibilities, risk transfer, pricing structures, and key elements of international coffee trade agreements.
