Under FOB (Free On Board) the seller's job ends when the goods are on board the vessel at the loading port; the buyer books and pays the ship and the insurance. Under CIF (Cost, Insurance and Freight) the seller also books and pays the ship to the named destination port and buys minimum insurance for the buyer. In both terms the risk passes at the same moment, on board at the loading port. CIF is FOB plus freight plus insurance, arranged by the seller.
The two definitions (Incoterms 2020)
Incoterms are the ICC's standard trade terms. FOB and CIF are both "sea and inland waterway" terms, meant for goods loaded onto a vessel, which is why they dominate bulk commodity trade.
FOB, Free On Board (named port of shipment)
The seller clears the goods for export and delivers them on board the vessel nominated by the buyer at the named loading port. From that moment the buyer bears all costs and risks: freight, insurance, discharge, import clearance and duties.
CIF, Cost, Insurance and Freight (named port of destination)
The seller clears the goods for export, contracts and pays for carriage to the named destination port, and buys cargo insurance for the buyer's benefit. Risk still passes to the buyer when the goods are on board at the loading port; the seller simply pays for the voyage and the cover.
Who does what
| Item | FOB | CIF |
|---|---|---|
| Export packing, licences, export clearance | Seller | Seller |
| Loading on board at origin | Seller | Seller |
| Vessel nomination and freight contract | Buyer | Seller |
| Ocean freight | Buyer | Seller |
| Cargo insurance during the voyage | Buyer (optional, for its own account) | Seller (minimum cover, for the buyer) |
| Risk of loss or damage after loading | Buyer | Buyer |
| Discharge at destination | Buyer (unless the freight contract says otherwise) | Buyer (unless the freight contract says otherwise) |
| Import clearance, duties, taxes | Buyer | Buyer |
The insurance detail people miss
CIF obliges the seller to buy only minimum cover, Institute Cargo Clauses (C) or equivalent, for at least 110% of the contract value, in the contract currency. Clauses (C) cover major casualties (fire, sinking, collision, general average) but not many ordinary transit losses. A buyer who wants Clauses (A) "all risks" cover must either negotiate it into the contract or buy additional insurance itself. Under FOB the buyer arranges whatever cover it wants from the outset.
Price relationship
For the same cargo, the CIF price equals the FOB price plus ocean freight plus the insurance premium, plus the seller's margin for arranging them. That is why our product terms quote both. If a CIF offer is only marginally above FOB on a long route, either the freight assumption is unrealistic or the offer is not serious.
Which term to choose
Choose FOB when
- You are a buyer with your own chartering desk or freight contracts and you want control over vessel, routing and cost.
- You want to insure the cargo on your own terms with your own underwriter.
- You buy from a producer who prefers to hand over at its loading terminal.
Choose CIF when
- You are a buyer without shipping infrastructure and want a single landed price to compare offers.
- The seller has better freight rates on that route than you can obtain.
- Your letter of credit or import regulations require an insurance document from the seller.
Notes for specific cargoes
- Tankers (fuels, crude, LNG, LPG): FOB at the loading terminal and CIF to the discharge port are both common. Quantity is determined by independent inspection at loading; "ASWP" (any safe world port) in an offer needs to be narrowed to a real port before a freight rate means anything.
- Dry bulk (grain, sugar, urea, sulphur): FOB from the load port is standard for large buyers; CIF or CFR for buyers who prefer a delivered price.
- Containers (proteins, beverages, foods): FOB and CIF are technically meant for goods loaded over the ship's rail, so the ICC recommends FCA and CIP for containerised cargo. In practice many contracts still say FOB or CIF; make sure the contract states clearly where delivery and risk transfer happen.
Related terms you will see
- CFR (Cost and Freight): CIF without the seller's insurance obligation.
- FCA (Free Carrier): delivery to a carrier at a named place, the container equivalent of FOB.
- CIP (Carriage and Insurance Paid To): the multimodal equivalent of CIF, with Clauses (A) cover by default.
- DAP / DDP: seller delivers at destination; DDP includes import duties.
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