FOB vs CIF: Understanding the Difference

Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers in international trade. Two of the most frequently used terms for sea freight are FOB and CIF.

FOB (Free On Board)

Under FOB, the seller is responsible for all costs and risks up to the point the goods are loaded onto the vessel at the port of origin. Once the goods pass the ship's rail, the buyer assumes all risks, transportation costs, insurance, and customs clearance responsibilities at the destination.

Best for: Buyers who want full control over their shipping logistics and costs.

CIF (Cost, Insurance, and Freight)

Under CIF, the seller pays for the costs, marine insurance, and freight necessary to bring the goods to the named port of destination. However, the risk transfers to the buyer as soon as the goods are loaded onto the vessel at the origin.

Best for: Buyers who prefer the seller to handle the main carriage and insurance, despite potentially higher overall costs.

Impact on Customs

Your chosen Incoterm directly affects how customs value is calculated. Customs authorities generally assess duties based on the CIF value of the goods, meaning if you buy FOB, the cost of freight and insurance must be added to the invoice value to determine the dutiable value.