Two quotations arrive for the same product. One is on FOB terms and one is on CIF terms, and the CIF number is higher. The instinctive reading is that CIF is the more expensive supplier. That reading is wrong roughly as often as it is right, because the two numbers describe different scopes of obligation, and until they are brought onto the same basis they are not comparable at all.
This guide sets out what each term actually allocates, where the two most commonly mislead, and how to normalise them. It also explains why, for the majority of shipments in this trade, neither term is the correct one.
The short version
| Aspect | FOB | CIF |
|---|---|---|
| Full name | Free On Board | Cost, Insurance and Freight |
| Mode | Sea and inland waterway only | Sea and inland waterway only |
| Risk passes | When goods are on board the vessel at the named port of shipment | When goods are on board the vessel at the named port of shipment |
| Seller pays main carriage | No | Yes, to the named destination port |
| Seller arranges insurance | No | Yes, minimum cover |
| Export clearance | Seller | Seller |
| Import clearance and duty | Buyer | Buyer |
| Unloading at destination | Buyer | Buyer, unless the contract of carriage includes it |
The row that surprises people is the risk row. Risk passes at the same point under both terms. CIF does not extend the seller’s risk to the destination port; it extends the seller’s cost and its obligation to procure insurance. That divergence between where cost transfers and where risk transfers is the defining feature of CIF and the source of most of the trouble it causes.
What FOB means in practice
Under FOB the seller delivers when the goods are placed on board the vessel nominated by the buyer at the named port of shipment. The seller clears the goods for export and bears cost and risk up to that point. From that point the buyer bears everything: freight, insurance if it wants any, discharge, import clearance, duty and onward carriage.
The buyer nominates the carrier, which is the practical attraction. A buyer with a freight contract, a preferred freight forwarder and visibility of the schedule can usually buy carriage better than a seller doing it as an accommodation, and retains control over routing, transhipment and equipment.
The recurring FOB problem is the gap between the seller’s gate and the ship’s rail. Terminal handling, port dues, documentation charges and demurrage at load port are allocated by the contract and by port custom, and quotations differ in what they include. Ask explicitly whether terminal handling charges at origin are in the price.
What CIF means in practice
Under CIF the seller does everything it does under FOB, and in addition contracts and pays for carriage to the named destination port and procures cargo insurance for the buyer’s benefit. Risk still passes on board at the origin port.
The insurance point is the one to read carefully. CIF obliges the seller to obtain only minimum cover, corresponding to Institute Cargo Clauses (C) or similar, unless the parties agree otherwise. That is a restricted named-perils cover. It is not the all-risks style cover most buyers assume they have. Incoterms 2020 raised the required level for CIP to Institute Cargo Clauses (A), but deliberately left CIF at the minimum, on the reasoning that CIF is used for bulk commodity trades where the minimum is conventional. If you buy CIF and want broad cover, you have to say so in the contract and expect to pay for it.
The second CIF trap is destination charges. The seller’s freight contract runs to the destination port, but what happens at that port, terminal handling, documentation, container release, storage, depends on how the carriage was contracted. A CIF price that leaves the buyer facing a substantial destination terminal handling charge is not the delivered number the buyer thought it was.
The third is that the buyer has risk without control. Between load port and discharge, the buyer bears the risk of loss but the seller chose the carrier, the vessel and the route. If a claim arises, the buyer is pursuing it under a contract of carriage it did not negotiate.
Neither term suits a container or a truck
This is the most important practical point in the comparison. Under Incoterms 2020, FOB, CFR and CIF are classified as rules for sea and inland waterway transport, and their delivery point is the goods on board the vessel. For containerised cargo the goods are handed to the carrier at a terminal or a container yard days before loading, and the seller loses control long before the on-board moment. Using FOB or CIF for a container leaves a gap in which nobody is clearly at risk.
The Incoterms rules address this directly. For containerised cargo the equivalent terms are FCA in place of FOB, CPT in place of CFR and CIP in place of CIF, all of which deliver at the point of handover to the carrier. For road movements from Ukraine into the Union, which is how most frozen and dried consignments in this trade actually move, the appropriate terms are FCA, CPT, CIP or one of the D terms, and the general Incoterms framework rather than the maritime subset.
In short: use FOB and CIF where there is a vessel and the goods are genuinely loaded on board, typically bulk cargo. For everything else, insisting on FOB or CIF out of habit creates a risk gap and an insurance argument.
Making the two numbers comparable
Normalise both quotations to a single point, ideally your own warehouse gate, and build the bridge explicitly.
- Start from the quoted price and the quoted term, with the named place spelled out in full.
- Add or remove origin terminal handling, documentation and export formalities according to the term.
- Add main carriage where the buyer pays it, using a real rate rather than a memory.
- Add insurance at the cover level you actually want, not the level the term requires.
- Add destination terminal handling, container release and any demurrage or detention exposure.
- Add import clearance, duty and any inspection or testing at entry.
- Add inland carriage to your gate.
- Compare the two totals, and record the assumptions next to them.
Two numbers that differ by less than the uncertainty in steps three and five are, for decision purposes, the same number. At that point the choice is made on control, on payment terms and on who is better placed to manage the leg, not on price.
Payment and documents
The term also shapes the documentary position. CIF is the classic term for documentary credit trade because the seller can present a full set of documents, invoice, bill of lading and insurance policy, that transfer the goods and the cover together. Under a letter of credit that document set is what triggers payment.
Under FOB there is no insurance document from the seller, and the credit has to be structured accordingly. If your bank or your credit terms assume a CIF document set, switching to FOB is not only a logistics change.
Whichever term is used, the underlying certificate of origin, health certificate and phytosanitary certificate obligations are set by the product and the destination, not by the Incoterm, and they should be allocated separately in the contract.
Where the comparison is usually got wrong
Treating CIF as delivered is the first error. CIF is not a delivered term. The buyer bears the risk from the load port and the cost from the discharge port.
Assuming CIF insurance is broad is the second. It is minimum cover unless the contract says otherwise.
Using the terms on containers and trucks is the third, and it is the one that produces genuine uninsured losses rather than merely a bad comparison.
Omitting the named place is the fourth. FOB without a named port of shipment, or CIF without a named destination port, is an incomplete term, and the Incoterms rules require the place to be named as precisely as possible.
The broader question of how a quoted number is constructed in the first place, and which cost drivers move it, is covered in the pricing models guide.
Vorezan’s position
Vorezan is an information platform. We are not a seller, a broker, a freight forwarder or an insurance intermediary, and nothing here is legal or contractual advice. The Incoterms rules are published by the International Chamber of Commerce and their text governs; this summary is not a substitute for it. Confirm the current edition, name the place precisely, and take your own advice on insurance cover and on the allocation of charges before contracting.
