FOB or CIF: which one should be on your contract

These two terms cover most ocean trade between buyers and sellers who do not know each other well, and the difference between them is smaller than most people assume.

The actual difference

Under FOB, the seller delivers the goods on board the vessel at the origin port and stops there. The buyer arranges and pays for the ocean freight and everything after.

Under CIF, the seller arranges and pays for the ocean freight and a minimum insurance policy to the destination port. Everything after that is the buyer's.

The trap

Under both terms, risk of loss passes when the goods are on board at the origin port. Under CIF the seller pays for the freight and insurance on cargo that is already at the buyer's risk. People read CIF as "the seller is responsible until it arrives" and that is simply not what it says.

The practical consequence appears during a claim. If the vessel sinks on a CIF shipment, it is the buyer who claims on the policy, and the buyer who discovers what minimum cover actually means.

Which to choose

Buy FOB if you have decent freight rates and want control of the routing, the carrier and the free time terms. Those free time terms matter: under CIF your supplier negotiates them and you inherit whatever they accepted.

Buy CIF if you have no forwarding relationship and value simplicity over control. Just arrange your own insurance rather than relying on the minimum policy that comes with it.