FOB vs CIF: What are the differences and who is responsible for what
Under FOB and CIF Incoterms® 2020, the normal transfer of risk takes place at the same point: when the goods are on board the vessel at the port of shipment. The principal difference concerns who arranges and pays for ocean carriage and insurance. Under CIF, the seller pays freight to the named destination port, while the buyer already bears the risk during the sea voyage.
When planning ocean freight, read the delivery term together with the named port, the edition of the rules and the sales contract. A statement that the supplier has paid for transport does not establish who bears transit risk. Transfer of risk also does not automatically determine transfer of ownership or when the purchase price becomes payable.
The obligations that FOB and CIF allocate
FOB stands for Free On Board; CIF means Cost Insurance and Freight. Both rules are intended for sea and inland waterway transport. They apply to the sales contract and do not replace the carriage agreement, insurance policy or claims procedure. The broader framework is covered in our Incoterms 2020 guide.
Issue | FOB | CIF |
|---|---|---|
Delivery and transfer of risk | Goods on board at the port of shipment | Goods on board at the port of shipment |
Main sea carriage | Arranged and paid for by the buyer | Arranged and paid for by the seller to the named destination port |
Insurance obligation under the rule | Neither party must insure for the other | Seller provides the cover required by CIF |
Export clearance | Seller | Seller |
Import clearance | Buyer | Buyer |
This comparison shows the standard allocation without separately agreed changes. Special risk and additional-cost provisions may apply if the buyer fails to meet its obligations, including notification or vessel-related obligations under FOB.
FOB gives the buyer control over ocean carriage
The buyer nominates the vessel and arranges the main transport. The seller delivers on board at the agreed port and handles export formalities. For Incoterms 2020, the relevant criterion is that the goods are on board; the older expression about goods crossing the ship’s rail should not be used.
The buyer can select the carrier, sailing and freight terms. In return, it needs to communicate vessel details, the loading point and timing to the seller promptly. When arranging port forwarding services, agree terminal operations, documents and the party responsible for receiving the shipment. Unclear arrangements can create extra costs even when the sales contract correctly states FOB.
CIF separates the freight bill from transit risk
Under CIF, the seller contracts for carriage to the named destination port and obtains insurance for the buyer or another party with an insurable interest. The destination port identifies how far the seller pays for carriage. It does not move the normal risk-transfer point to that port.
The default CIF cover corresponds to Institute Cargo Clauses (C) or equivalent terms; broader cover can be agreed. The minimum insured amount is 110% of the contract price in the contract currency. Review exclusions, deductibles, geographical scope and the evidence required for a claim before shipment. Minimum cover does not mean that every possible cause of damage is insured
For cargo insurance, match the policy to the product and the complete route. Marine cover ending at the port does not, by itself, confirm cover for the subsequent road journey into Ukraine.
Comparing two quotations for one transaction
Consider an illustrative sale of steel products shipped as general cargo from Izmir to Constanța and then onward to Ukraine. The supplier offers FOB Izmir at EUR 50,000 or CIF Constanța at EUR 52,800, both under Incoterms 2020.
For the FOB option, the buyer obtains illustrative quotations of EUR 2,400 for freight and EUR 200 for insurance. The combined amount is EUR 52,600. The EUR 200 difference is meaningful only after confirming equivalent transport scope, insurance and included charges. These figures explain the comparison; they are not SPS freight rates. Port operations, clearance and onward transport still need to be assessed separately.
If damage occurs after proper loading on board, the buyer normally bears the risk under either rule. Under CIF, the buyer can use the insurance arranged by the seller, subject to the policy and circumstances. Any separate liability of the carrier or of the seller for its own breach requires its own assessment.
Destination charges and container delivery beyond the port
Do not automatically allocate every destination-port charge to the buyer. Under CIF, discharge costs may already be included in the seller’s carriage contract. Check the freight scope to avoid paying twice for the same operation. Import clearance remains the buyer’s responsibility.
Customs clearance in Ukraine requires its own document set. For container delivery through Gdańsk, port operations and the inland leg also need to be priced and coordinated. The term CIF Gdańsk does not mean delivery to a warehouse in Ukraine.
Where a container is handed to a carrier at a terminal before loading on the vessel, consider FCA or CIP according to who is arranging transport and insurance. Those rules may better reflect the actual handover. Any change should be recorded in the sales contract.
Send Save Pro Solutions the supplier’s quotation, named ports, cargo description and final delivery address. We can help compare the transport components of FOB and CIF and identify the operations that still need to be booked and agreed.
