FOB vs CIF: which should a buyer choose?

FOB and CIF are the two Incoterms that sea-freight buyers meet most often. A supplier quotes one, a competitor quotes the other, and the prices cannot be compared until you understand what each includes.

This guide compares the two from the buyer's side. For the full set of rules, see our guide to Incoterms 2020. This is general guidance, not legal advice; the wording of your contract and the ICC's official text are what count.

The short version

• FOB (Free On Board): the seller delivers the goods on board the vessel at the port of loading and clears them for export. The buyer books and pays for sea freight and decides on insurance.
• CIF (Cost, Insurance and Freight): the seller does the same, and also pays for sea freight to the named destination port and buys cargo insurance for the buyer's benefit.

Both rules are intended for sea and inland waterway transport only.

The point most buyers miss: risk

Under both FOB and CIF, risk passes to the buyer when the goods are on board the vessel at the port of loading.

CIF does not mean the seller is responsible until the destination port. The seller pays for the voyage, but if the cargo is damaged at sea, the loss is the buyer's, and the buyer claims on the insurance policy the seller arranged.

Side-by-side comparison

Destination terminal handling and unloading costs are a frequent source of dispute under CIF. They fall to the buyer unless the seller's freight contract includes them, so ask what the freight covers.

What FOB means in practice

With FOB you choose the shipping line or freight forwarder, the routing and the transit time. You pay freight directly and see the real cost.

Advantages

• Control over carrier, schedule and transit time.
• Transparent freight cost, which you can negotiate yourself.
• Your own forwarder handles the shipment at both ends, which simplifies arrival.
• You choose your own insurer and level of cover.

Drawbacks

• You need a freight forwarder who can act at the port of origin.
• More coordination between the supplier and your forwarder on cargo-ready dates.
• You must remember to insure the cargo. Under FOB nobody is obliged to do it for you.

What CIF means in practice

With CIF the seller books the vessel and presents you with a price that includes the voyage and insurance.

Advantages

• One price to the destination port and less to organise.
• Useful when the seller has strong freight contracts on that route.
• Convenient for buyers without a forwarder at origin.

Drawbacks

• Less control over the carrier, routing and sailing date.
• The freight element is not visible, so you cannot easily tell whether it is competitive.
• The insurance is minimum cover unless you agree otherwise.
• Charges at the destination port are set by the seller's carrier or agent, not one you chose.

The insurance under CIF

Under Incoterms 2020, the CIF seller must provide at least the minimum level of cover, in line with Institute Cargo Clauses (C) or similar, for at least 110 percent of the contract value. Clauses (C) cover a limited list of major events. They do not cover many of the losses buyers worry about, such as theft or water damage in ordinary transit.

If your goods need broader protection, you have two options:

1. Agree in the contract that the seller will provide wider cover, for example Institute Cargo Clauses (A), and ask for the policy or certificate.
2. Buy on FOB or CFR terms and arrange your own insurance.

Our cargo insurance basics guide explains the clauses in more detail. Your insurer or broker can advise on the right cover for your product.

How to compare an FOB quote with a CIF quote

1. Ask your freight forwarder for a freight quote from the same port of loading to the same destination port, for the same container type and period.
2. Add your own insurance premium.
3. Add these to the FOB price and compare the total with the CIF price.
4. Compare destination charges under both options. Ask your forwarder what local charges to expect from the seller's carrier under CIF.
5. Check transit time and sailing frequency, not only cost.

When each one tends to fit

FOB tends to suit you if you import regularly, already work with a forwarder, want control over timing, or ship from several suppliers and wish to consolidate.

CIF tends to suit you if you are new to importing, order occasionally, have no forwarder at origin, or the seller clearly obtains better freight rates on the route than you can.

Points to check before you decide

• Containers. The ICC recommends FCA, CPT or CIP for containerised cargo, because the seller normally hands the container over at a terminal before it is loaded on board. FOB and CIF are still widely used for containers in practice. If you use them, be aware that responsibility between the terminal gate and the ship's rail can be unclear.
• Customs valuation. Countries differ in how they calculate the customs value. Many use a value that includes freight and insurance to the border; some use a value closer to FOB. Confirm with your customs broker how duty is calculated in your country.

Request a quote on the basis that suits you

If you are unsure which rule fits your shipment, request a quote and ask for both FOB and CIF. Tell us the product, quantity and destination port, and we will set out the options.