FOB (Free On Board)
FOB (Free On Board) is one of the Incoterms (International Commercial Terms) used in international trade. It is the responsibilities between the buyer and seller in the shipping process.
Seller's Responsibilities:
- Deliver the goods to the port of shipment.
- Clear the goods for export.
- Load the goods onto the ship chosen by the buyer.
Note: Risk transfers to the buyer once the goods are loaded on the ship.
Buyer’s Responsibilities:
Select and pay for the main carriage (freight).
- Pay for insurance, if needed.
- Handle import clearance, duties, and delivery at the destination.
Example Scenario:
If the term is FOB Mumbai Port:
The seller delivers and loads the goods onto the vessel at Mumbai Port.
After that, the buyer is responsible for everything: ocean freight, insurance, unloading at destination port, import duties, etc.
CIF (Cost, Insurance, and Freight)
CIF is an Incoterm used in international trade, specifically for sea or inland waterway transport. It outlines that the seller or exporter pays for the cost, insurance, and freight to bring the goods to the destination port, but the risk transfers to the buyer once the goods are loaded on the ship at the origin port.
Seller’s Responsibilities:
Deliver goods to the port of departure.
Pay for export clearance.
Pay for freight to the destination port.
Arrange and pay for minimum insurance coverage.
Provide the buyer with necessary documents (Bill of Lading, Insurance Certificate, Invoice).
Note: Risk transfers to buyer once goods are on board the vessel, even though the seller pays for freight and insurance.
Buyer’s Responsibilities:
- Take delivery at the destination port
Handle import clearance, duties, and taxes.
Pay for unloading and any inland transportation.
Handle additional insurance if desired (seller’s insurance may be limited)
Example:
CIF Rotterdam
The seller ships goods from India to Rotterdam, pays for freight and insurance.
Once goods are on the ship in India, risk shifts to the buyer.
The buyer clears customs and transports the goods from Rotterdam port to their location.
| Feature | FOB (Free On Board) | CIF (Cost, Insurance & Freight) |
|---|---|---|
| 🔁 Type of Transport | Sea or inland waterway only | Sea or inland waterway only |
| 🚢 Who arranges shipping? | Buyer | Seller |
| 💰 Who pays freight? | Buyer | Seller |
| 🛡️ Who pays insurance? | Buyer | Seller (minimum coverage) |
| ⚠️ When does risk transfer? | When goods are loaded on the ship | When goods are loaded on the ship |
| 🧾 Who handles export customs? | Seller | Seller |
| 🛃 Who handles import customs? | Buyer | Buyer |
| 📍 Delivery location | Seller’s responsibility ends at origin port | Seller’s responsibility ends at destination port (cost-wise) |
| ✅ Best for | Buyers with strong logistics control | Sellers offering full service |