What is the Difference Between CIF and FOB?

Double exposure financial indices and stock market in accounting market economy analysis with graph business concept background

When you’re figuring out your business’s logistics, it can be hard to parse the meanings of different shipping terms. You may have come across terms like CIF and FOB? What do these mean, and what are the advantages of each? CIF stands for Cost Insurance and Freight. FOB stands for Free On Board. Here’s how each can potentially benefit you:

Cost Insurance and Freight (CIF)

Under CIF, a seller pays the costs to ship to the destination port. Freight includes insurance. However, risk transfers to the buyer when goods are loaded on the cargo vessel.

CIF is simple and convenient, but the costs can be slightly higher. This is often acceptable when transporting small amounts of goods, but that extra cost can rack up once you start transporting more. On the other hand, there’s less for a business to worry about in terms of details – that extra cost is factored into many of these details being handled for you.

Communication may be troublesome because the logistics company transporting the cargo is answerable to the seller, not to you.

Free On Board (FOB)

FOB means that the buyer names the ship and the seller is responsible for getting the goods loaded on board. Cost and risk are divided. Responsibility for clearing export falls to the seller. This cannot be used in multimodal sea transport with containers.

Here, you control the freight cost more directly. Rates can be more favorable and the logistics company with whom you work is responsible to you.

Mix-and-Match

A good rule of thumb to follow is to buy FOB and sell CIF. Buying via FOB can help you save on costs, while selling via CIF can help you increase your profit.

There are a number of other elements to factor in for both approaches, particularly when it comes to invoicing and reporting to customs properly. It’s worth it to engage a logistics company that can handle many of these details for you.

A logistics company can take a significant burden off many companies. There is an associated expense, but a company’s expertise can also save you a tremendous amount of money. Identifying the right approaches for buying and selling can change the outlook of your business in ways few other things can.