FOB and CIF are the two most familiar Incoterms in sea freight. Buyers ask for both, and many exporters use them without being entirely clear on the difference. The difference matters: it changes your costs, your responsibilities, and your exposure if something goes wrong.
FOB: Free on Board
Under FOB [named port of shipment] — for example FOB Karachi — the seller:
- Prepares and packs the goods
- Transports them to the port of shipment
- Clears them for export
- 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 the sea freight, insurance, import clearance, and delivery at destination.
CIF: Cost, Insurance and Freight
Under CIF [named port of destination] — for example CIF Hamburg — the seller does everything under FOB, plus:
- Books and pays for sea freight to the destination port
- Buys cargo insurance for the buyer's benefit, at least at minimum cover (Institute Cargo Clauses C) unless otherwise agreed
Risk still passes to the buyer once the goods are on board at the port of shipment — exactly as with FOB. The seller pays for freight and insurance, but the buyer carries the risk during the voyage, protected by the insurance the seller bought.
The Key Difference
| FOB Karachi | CIF Hamburg | |
|---|---|---|
| Who books sea freight | Buyer | Seller |
| Who pays sea freight | Buyer | Seller (built into price) |
| Who buys insurance | Buyer (if they want it) | Seller (minimum cover) |
| Where risk passes | On board at Karachi | On board at Karachi |
| Named place | Port of shipment | Port of destination |
The major difference is who arranges and pays for freight and insurance — not who carries the risk at sea.
Example
Suppose your goods cost USD 20,000 delivered on board at Karachi, freight to Hamburg costs USD 1,800, and insurance costs USD 60.
- FOB Karachi: you quote USD 20,000 (plus your margin). The buyer pays USD 1,800 freight and arranges insurance.
- CIF Hamburg: you quote USD 21,860 (plus your margin). You pay the freight and insurance.
If freight rates rise between your quotation and booking, under CIF the increase comes out of your margin.
Advantages of Quoting FOB
- Simpler — you handle the costs you know well
- No exposure to freight rate changes
- The buyer uses their preferred forwarder, which some buyers insist on
- Easier costing and fewer moving parts for new exporters
Advantages of Quoting CIF
- Easier for buyers who want a landed-port price
- You control the shipment booking and timing
- You may earn a margin on freight if you have good rates
- Some buyers, especially smaller ones, lack forwarder relationships and prefer it
💡 Quote both when unsure
If a buyer does not specify, quote FOB and offer CIF as an option with a short validity. It shows flexibility and lets the buyer compare against their own freight costs.
Risks of CIF for Exporters
- Freight rates can change quickly; always use short validity on CIF quotes
- Minimum insurance (ICC C) covers limited risks — the buyer may expect more
- You are responsible for booking suitable vessels and meeting LC shipment dates
FOB and CIF With Containers
FOB and CIF are designed for goods loaded on board a vessel. With container shipments, goods are usually handed to the carrier at a container terminal or depot before loading. The ICC suggests using FCA instead of FOB, and CIP or CPT instead of CIF, for containerised cargo. In practice, FOB and CIF remain very widely used for containers — just be aware that risk technically transfers when goods are on board, not when you hand them over at the terminal. See EXW vs FCA.
Which Should You Choose?
For most new exporters, FOB is the safer starting point. As you gain experience with freight and insurance — and build relationships with forwarders — offering CIF can make you more competitive with buyers who want delivered-to-port prices.
Frequently Asked Questions
Is CIF more expensive than FOB?
The CIF price is higher because it includes sea freight and insurance, but the buyer would pay those costs separately under FOB. The total landed cost may be similar.
Who pays insurance under FOB?
Under FOB, the seller has no obligation to insure. The buyer usually arranges insurance for the voyage, since they carry the risk once goods are on board.
Does risk pass at destination under CIF?
No. Under CIF, risk passes when the goods are on board the vessel at the port of shipment, even though the seller pays freight and insurance to the destination.
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