FOB vs CIF for industrial goods from India

The short version

FOB (Free On Board) means the seller clears the goods for export and puts them on board the vessel at the named Indian port. From that point, ocean freight, insurance and destination charges belong to the buyer.

CIF (Cost, Insurance and Freight) means the seller also pays freight and insurance to the named destination port. The goods still travel at the buyer's risk once they are on board in India. That second part is where most misunderstandings start.

Where risk actually changes hands

Under both terms, risk passes when the goods are on board at origin. CIF does not mean the seller carries risk to your warehouse, and it does not mean the seller clears customs at your end.

If the container is lost at sea on a CIF shipment, the claim is yours to make on the policy the seller bought. The seller's obligation was to arrange cover, not to absorb the loss.

What each price includes

An FOB price covers the ex-works cost, inland haulage to the port, export clearance and loading on board.

A CIF price covers all of that plus ocean freight and marine insurance to the destination port.

Neither covers import duty, destination port charges, terminal handling, demurrage, inland delivery or unloading. Those stay with the buyer unless the contract says otherwise. On a small shipment, terminal and clearance charges can be larger than the ocean rate.

CIF insurance is thin by default

Incoterms 2020 asks a CIF seller to buy minimum cover: Institute Cargo Clauses (C). That level excludes many partial losses, including some water damage and handling damage.

If the cargo is valuable or fragile, ask for ICC (A), which is the all-risk set, and accept the higher premium. Put the cover level in the enquiry so it lands inside the quote instead of surprising you after the loss.

Which term to choose

Take FOB, or FCA for containers, when you already have a freight forwarder and enough volume to negotiate rates. You keep control of routing and insurance, and you can see what freight actually costs.

Take CIF when you want one number to a port, have no freight desk of your own, and the shipment is small. Accept that you are paying a margin on freight you cannot see.

For containerised cargo, the ICC recommends FCA rather than FOB. Containers are handed to the carrier at a terminal before they are loaded, and FOB was written for conventional cargo lifted over the ship's rail.

Mistakes that cost money

These come up often enough to check before you send a purchase order:

• Comparing an FOB price with a CIF price and calling one cheaper.
• Treating CIF as a landed cost. Duty, VAT and inland trucking are still yours.
• Forgetting destination terminal handling and demurrage.
• Leaving the HS code to the last week. Classification decides duty, and the wrong code stops clearance.
• Buying CIF cover and assuming it is all-risk.

What to write in the enquiry

Name the port, not the country. 'CIF Jebel Ali' and 'CIF UAE' are different quotes. Give the Incoterm, the volume, the packing and the date the cargo will be ready.

Ask how long the freight rate is valid. Ocean rates move, and a CIF quote that expires in seven days is not the same offer as one held for thirty.

If you would rather not run the comparison yourself, send the brief to the office and we will price both ways.