The Difference Between Cost, Insurance, and Freight (CIF) vs Free on Board (FOB) (2024)

FAQs

The Difference Between Cost, Insurance, and Freight (CIF) vs Free on Board (FOB)? ›

CIF requires the seller to cover the total cost of the goods, freight and insurance. Whereas FOB only requires the seller to cover the cost of loading the goods onto the vessel; the buyer then pays to transport and insure the goods (as well as any other charges incurred once the goods are on board).

With CIF, the seller does most of the legwork, taking responsibility for the goods all the way to the buyer's port. Alternatively, with FOB, the buyer assumes full liability for all costs and risks as soon as the cargo is loaded onto the ship. International Trade Administration.

However, the buyer assumes responsibility for the goods once the cargo has reached the buyer's port. CIF is different from cost and freight (CFR), which is when the seller is responsible for the shipping and freight costs, but under CFR, the seller is not responsible for obtaining marine insurance.

Freight on Board (FOB), also referred to as Free on Board, is an international commercial law term published by the International Chamber of Commerce (ICC). It indicates the point at which the costs and risks of shipped goods shift from the seller to the buyer.

Buyers generally consider FOB agreements to be cheaper and more cost-effective. That's because they have more control over choosing shippers and insurance limits. CIF contracts, on the other hand, can be more expensive. Since the seller has more control, they may opt for a preferred shipper who may be more costly.

As a buyer, CIF gives you less flexibility than FOB. With CIF the seller arranges transportation so the buyer has little to no involvement. Yet with FOB, the buyer has much more flexibility and control to choose the carrier and negotiate shipping rates, which can help reduce costs.

But what exactly does it denote? CIF stands for Cost, Insurance, and Freight. The seller covers all transport costs to the buyer's destination port, insurance for the shipment through its final delivery.

CIF full form in export is Cost, Insurance, and Freight (CIF). It is an international shipping contract between a seller and a buyer, wherein the seller will be held responsible for the freight charges and obtaining the insurance cover to secure the cargo being transported to the buyer's destination port.

THC is paid on the terms of delivery agreed between buyer and seller in their export contract. If contract of terms of delivery is on FOB, CFR, CIF, CPT, DAP, DDU, DDP etc., the THC is paid by the shipper at load port. However the destination port THC need to be paid by the buyer under these types of delivery terms.

CIF agreements offer several advantages for buyers, such as reduced risk, lower costs, and ease of shipping. However, there are also some disadvantages to consider, such as lack of control over the shipping process, potential for hidden costs, and the need to be familiar with customs procedures.

What is free on board cost and freight? ›

Key Takeaways. Free on Board means the seller is responsible for the product only until it is loaded on board a shipping a vessel, at which point the buyer is responsible. With CFR, the seller must arrange and pay all costs to ship the product to a destination port, at which point the buyer becomes responsible.

Under free on board in marine insurance, the term “free” indicates that the seller is responsible for delivering goods to a designated place for transfer to the carrier. Once goods are loaded onto the vessel, the buyer holds all the responsibility for the goods.

CIF stands for Cost, Insurance, and Freight. These are the fees a seller pays to cover the costs, Cost And Freight. : Cost refers to the cost of goods and freight refers to all other costs relating to all the means o.

Cons for Buyers

The cost markup associated with CIF arises from the added expenses sellers incur for shipping and insurance. This can lead to higher costs for buyers when compared to Incoterms, where buyers exert greater control over these aspects.

The buyer is responsible for the import process and the costs associated with bringing the shipment through customs and delivering the products to their final destination. CIF only applies to sea or waterway shipments, and no other forms of shipping.

Key Takeaways. Free on Board means the seller is responsible for the product only until it is loaded on board a shipping a vessel, at which point the buyer is responsible. With CFR, the seller must arrange and pay all costs to ship the product to a destination port, at which point the buyer becomes responsible.

Cost, Insurance, and Freight (CIF) is one of the 11 Incoterms® rules set by the International Chamber of Commerce. It's an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer's order while the cargo is in transit.

Under FOB, the seller is responsible for loading the cargo onto the vessel, but with FCA, it is the buyer's responsibility. FCA transfer risk takes place at an agreed-upon point, whereas with FOB, the buyer assumes the risk on the vessel.