FOB — Free On Board
Under FOB the seller's responsibility ends when the cargo is loaded on board the vessel nominated by the buyer at the agreed load port. From that point the buyer arranges and pays for ocean freight and marine insurance and bears the risk of loss or damage in transit.
CIF — Cost, Insurance and Freight
Under CIF the seller contracts and pays for carriage to the named destination port and takes out marine insurance for the voyage. A point often misunderstood: even though the seller pays to the destination, risk still transfers to the buyer at the load port once the goods are on board, so the insurance the seller buys protects the buyer's interest in transit.
What changes between them
| Freight paid by | FOB: buyer · CIF: seller |
|---|---|
| Marine insurance arranged by | FOB: buyer · CIF: seller |
| Risk passes | Both: at load port, once on board |
| Headline price includes freight | FOB: no · CIF: yes |
Based on Incoterms 2020. The chosen Incoterm, named port and contract terms govern each deal.
Which to use
The choice depends on who can arrange shipping and insurance most efficiently and on how the parties want to compare offers. A CIF price looks higher than an FOB price for the same cargo because it bundles freight and insurance. 3FB Energy & Trade trades on both FOB and CIF terms; financing a cargo is covered under trade finance.
Sources & references
This article paraphrases widely established facts from the organisations below. It does not reproduce their text. Always confirm current figures against the primary source.
- International Chamber of Commerce (ICC) — Incoterms 2020 rules