FOB vs CIF: Understanding Common International Trade Terms
Published by Assurex International Traders3 min read
The short answer
Under FOB (Free On Board), the seller delivers the goods on board the vessel at the port of shipment and the buyer arranges and pays for sea freight and insurance. Under CIF (Cost, Insurance and Freight), the seller pays freight and minimum insurance to the destination port. In both terms, risk passes to the buyer when the goods are on board at the port of shipment.
Incoterms in brief
Incoterms® rules, published by the International Chamber of Commerce, define who does what in delivering goods: who arranges transport, who pays which costs, and where risk passes from seller to buyer. The current edition is Incoterms® 2020. Incoterms do not cover price, payment terms or transfer of ownership — those belong in the contract.
FOB — Free On Board
Under FOB (named port of shipment):
- the seller clears the goods for export and delivers them on board the vessel nominated by the buyer
- risk passes to the buyer once the goods are on board
- the buyer arranges and pays for sea freight, insurance and everything after loading
FOB suits buyers who have their own freight arrangements or forwarder and want control over shipping.
CIF — Cost, Insurance and Freight
Under CIF (named port of destination):
- the seller clears the goods for export, contracts and pays for carriage to the destination port, and buys insurance for the buyer's benefit
- the required insurance is minimum cover — buyers needing broader cover should agree it in the contract
- risk still passes to the buyer when the goods are on board at the port of shipment, even though the seller has paid freight
CIF suits buyers who prefer a delivered-to-port price and less involvement in arranging freight.
The key point most buyers miss
With CIF, the seller pays freight to the destination, but the risk transfers at the port of shipment, just as with FOB. If goods are damaged at sea, the buyer claims under the insurance policy rather than from the seller.
A note on containers
The ICC notes that FOB and CIF are designed for sea and inland waterway transport where goods are loaded on board a vessel. For containerised cargo handed over at a terminal before loading, FCA and CIP are often recommended alternatives. Discuss which term best fits your shipment.
Comparing quotations fairly
| FOB | CIF | |
|---|---|---|
| Export clearance | Seller | Seller |
| Main carriage | Buyer | Seller |
| Insurance | Buyer (optional) | Seller (minimum cover) |
| Risk transfer | On board at origin port | On board at origin port |
| Price includes | Goods to vessel | Goods, freight and insurance to destination port |
To compare an FOB quotation with a CIF one, add your expected freight and insurance cost to the FOB price.
Next steps
Tell us your preferred term in your quote request. This article is general information, not legal advice; the term used for each order is agreed in the contract.
Frequently Asked Questions
Is CFR the same as CIF?
CFR (Cost and Freight) is like CIF without the insurance obligation: the seller pays freight to the destination port, but the buyer arranges insurance.
Does CIF mean the seller is responsible until the goods arrive?
No. Under CIF the seller pays freight and minimum insurance, but risk passes to the buyer when the goods are on board at the port of shipment.
Sources and Further Reading
This article is general information for commercial buyers. It is not legal, customs, tax or financial advice. Regulations change — confirm current requirements with the relevant authority.
