FOB and CIF are the two most widely used sea freight Incoterms, and they're easy to confuse because risk transfers at exactly the same point for both — the real difference is who pays for freight and insurance.
| FOB — Free on Board | CIF — Cost, Insurance and Freight | |
|---|---|---|
| Transport mode | Sea/inland waterway only | Sea/inland waterway only |
| Risk transfers | On board the vessel at the port of shipment | On board the vessel at the port of shipment |
Both FOB and CIF transfer risk to the buyer once goods are loaded onto the vessel at the origin port. The difference is cost allocation after that point: under FOB, the buyer arranges and pays ocean freight and insurance themselves; under CIF, the seller pays ocean freight and arranges minimum cargo insurance to the destination port, even though the buyer already bears the risk from the loading point onward.
You (or your buyer) have strong existing freight and insurance relationships and want full control over carrier selection and insurance coverage level for the ocean leg.
Your buyer wants a simpler all-in quote that bundles freight and basic insurance, and you have established relationships with ocean carriers that let you offer competitive freight rates as part of the deal.
No — this is the most common CIF misunderstanding. Risk transfers to the buyer at the same point as FOB (once goods are on board), even though the seller pays for freight and insurance to the destination port. The seller pays the cost; the buyer bears the risk.
Often not — CIF only requires the seller to arrange minimum cargo insurance coverage (typically Institute Cargo Clauses C, the most basic level). Buyers with higher-value cargo should negotiate for CIP instead, which requires all-risk insurance, or arrange supplementary insurance themselves.
FOB gives a clean, well-understood risk-transfer point (on board at origin) while letting the buyer control the ocean freight and insurance arrangements — useful for buyers who import regularly and have negotiated better freight rates than individual sellers could offer.
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