FOB and CIF are the two delivery terms most often used in bulk commodity trade by sea. Both come from the Incoterms® rules published by the International Chamber of Commerce, and both are easy to confuse: under each of them, risk passes from seller to buyer at the port of loading. The difference is who arranges and pays for the voyage and the insurance.
FOB: Free On Board
Under FOB, the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment, for example “FOB Santos”. The seller handles export clearance and loading. From the moment the goods are on board, the buyer carries the risk and pays the sea freight, insurance, unloading and import costs.
- Seller: supplies the goods, clears them for export and loads them on board.
- Buyer: books the vessel, pays freight and insurance, and handles everything at destination.
- Risk passes when the goods are on board at the port of shipment.
CIF: Cost, Insurance and Freight
Under CIF, the seller contracts and pays for carriage to the named port of destination, for example “CIF Jebel Ali”, and buys cargo insurance for the buyer’s benefit. Under Incoterms 2020, the minimum cover for CIF is Institute Cargo Clauses (C) for 110% of the contract value, unless the parties agree more. Risk still passes to the buyer when the goods are loaded on board at origin.
- Seller: supplies, clears for export, loads, pays freight and minimum insurance to the destination port.
- Buyer: carries the risk from loading, and pays unloading, import clearance, duties and inland transport.
- CFR (Cost and Freight) is the same as CIF without the insurance.
Key differences at a glance
- Freight: buyer pays under FOB; seller pays under CIF.
- Insurance: buyer’s choice under FOB; seller buys minimum cover under CIF.
- Control of shipping: buyer chooses vessel and schedule under FOB; seller does under CIF.
- Risk: passes on board at the loading port under both.
- Price: a CIF price includes freight and insurance, so it is higher than the FOB price for the same cargo.
Which should an importer choose?
FOB suits buyers who can charter or book vessels at good rates, or who want control over the shipping schedule. CIF suits buyers who prefer a delivered price and less logistics work, but the buyer gives up control of the vessel and may want to add insurance above the minimum. For container cargo, the ICC recommends FCA or CIP rather than FOB or CIF, because the goods are handed over at a terminal before loading.
Points to clarify in the contract
- The exact named port, and the loading or discharge rate and demurrage terms for bulk vessels.
- The insurance cover required, if more than the CIF minimum.
- Which inspection certificate (for example SGS at loading) decides quality and quantity.
- Which version of the Incoterms rules applies, for example Incoterms 2020.
The contract always governs: the Incoterms rule only covers delivery, costs and risk, not price, payment or ownership. Agromer offers commodities on FOB or CIF terms depending on the product; you can state your preferred terms in a quote request. See also our guide to calculating landed cost.