The short answer
With FOB (free on board), the seller delivers the goods onto the ship at the port of loading, and you pay the sea freight and insurance from there. With CIF (cost, insurance and freight), the seller pays freight and minimum insurance to your destination port. In both, risk passes to you once the goods are on board.
FOB vs CIF at a glance
| FOB (free on board) | CIF (cost, insurance and freight) | |
|---|---|---|
| Seller delivers goods | Onto the ship at the named port of loading | Onto the ship at the port of loading |
| Who pays the main sea freight | Buyer | Seller, to the named destination port |
| Who pays insurance | Buyer, if they choose to insure | Seller, for minimum cover |
| When risk passes to the buyer | When goods are on board at the loading port | When goods are on board at the loading port |
| Export clearance | Seller | Seller |
| Import clearance, duties, and delivery after the port | Buyer | Buyer |
| Price you see in the quote | Lower. It does not include sea freight. | Higher. It includes sea freight and insurance. |
Both terms are Incoterms, standard trade terms published by the International Chamber of Commerce. The current edition is Incoterms 2020.
What is FOB?
FOB stands for free on board. The seller is responsible for the goods until they are loaded onto the ship at the named port, for example FOB Karachi. The seller handles export clearance. From the moment the goods are on board, you carry the risk and pay the freight, insurance and import costs.
FOB lets you choose your own freight forwarder and shipping line, and see the freight cost separately. That control is why many experienced importers prefer it.
What is CIF?
CIF stands for cost, insurance and freight. The seller books the shipping, pays the sea freight to your destination port and buys minimum insurance cover for the goods. The seller still delivers the goods onto the ship at the loading port, which is where the risk passes to you.
CIF is convenient, because the seller organises the shipment. The trade-off is less control over the carrier and the insurance. The minimum cover the seller must buy is limited, and the policy is for your benefit, so check it is enough.
FOB or CIF: which should you choose?
- Choose FOB when you have a freight forwarder, want to compare freight rates, or want control over the shipping line and insurance.
- Choose CIF when you are new to importing, want a simple price to your port, or prefer the supplier to arrange the shipment.
- Compare on landed cost. An FOB quote plus your own freight and insurance may be cheaper or dearer than a CIF quote. Compare the full cost to your door, including duties and taxes.
Other Incoterms you will see
| Term | Meaning in short |
|---|---|
| EXW (ex works) | You collect from the seller's premises and take on almost all cost and risk. |
| FCA (free carrier) | The seller hands the goods to your carrier at a named place. Common for containers. |
| CFR (cost and freight) | Like CIF, without insurance. |
| CIP (carriage and insurance paid to) | Like CIF, but for any transport mode, including containers and air. |
| DAP / DDP | The seller delivers to your door. In DDP the seller also pays import duties and taxes. |
FOB and CIF are meant for sea and inland waterway transport. For containers and air freight, FCA and CIP are often a better fit. Ask your freight forwarder which term suits your shipment.
Common mistakes
- Not naming the place. Write the Incoterm with the exact place, for example FOB Karachi, not only FOB.
- Comparing FOB and CIF prices directly. Add freight and insurance to the FOB quote before comparing.
- Assuming CIF means you are covered all the way. Risk still passes at the loading port. Check the insurance and the claim process.
- Forgetting import costs. Duties, taxes, port fees and delivery from the port are the buyer's cost in both terms.
This is general information, not legal advice. Confirm the terms with your supplier, your freight forwarder and, for a large order, a trade professional.
Frequently asked questions
What is the difference between FOB and CIF?
With FOB, the buyer pays the sea freight and insurance after the goods are loaded onto the ship. With CIF, the seller pays freight and minimum insurance to the destination port. Risk passes to the buyer at the loading port in both.
What does FOB mean?
FOB means free on board. The seller delivers the goods onto the ship at the named port of loading and handles export clearance. The buyer is responsible for the goods and the cost of transport from that point.
What does CIF mean?
CIF means cost, insurance and freight. The seller pays the sea freight and minimum insurance to the named destination port, while risk passes to the buyer at the loading port.
Is FOB or CIF cheaper?
The FOB quote looks lower because it excludes freight and insurance. The better choice depends on the total landed cost, so add your own freight and insurance to the FOB quote before comparing it with CIF.
Who is responsible for the goods at sea under CIF?
The buyer. In CIF, risk passes to the buyer when the goods are on board at the loading port, even though the seller pays for the freight and insurance. The insurance is there to cover that risk.
Which is better for a first-time importer?
Many first-time importers find CIF simpler because the seller arranges shipping to the destination port. Others prefer FOB to use their own forwarder. Compare the total cost and ask your freight forwarder for advice.
Are FOB and CIF used for air freight or containers?
They are written for sea and inland waterway transport. For air freight and containerised cargo, FCA and CIP are usually a better fit, and your forwarder can advise which to use.
Does FOB include import duties?
No. Under both FOB and CIF, import duties, taxes, port fees and delivery after the port are the buyer's cost.