The short answer
What you need to know
Under both FOB and CIF, delivery and risk transfer take place when the goods are on board the vessel at the port of shipment. CIF additionally requires the seller to arrange and pay for carriage and insurance to the named destination port.
- The party paying freight is not necessarily the party carrying cargo risk during the voyage.
- Write the named port and “Incoterms 2020” alongside the chosen rule.
- Agree quality, payment, title and any additional operational terms expressly in the contract.
Understand costs and risk separately
FOB means Free On Board. CIF means Cost, Insurance and Freight. ICC groups these with the rules intended for sea and inland waterway transport. They are often relevant to bulk cargo loaded directly on a vessel.
Under CIF, the seller’s obligation to pay carriage to the destination does not move the risk-transfer point to arrival. ICC’s explanation places risk transfer on board at the shipment port. That distinction is central to understanding what the insurance is there to cover.
| Responsibility | FOB | CIF |
|---|---|---|
| Delivery / risk transfer | On board at shipment port | On board at shipment port |
| Main carriage | Buyer arranges | Seller arranges and pays |
| Cargo insurance under the rule | No seller obligation | Seller arranges required cover |
| Named port in the rule | Port of shipment | Port of destination |
Sources: ICC: Incoterms 2020 rules · ICC Academy: Incoterms 2020: CIP or CIF? · ICC: Incoterms 2020 checklist — 2024 update (PDF)
CIF insurance is not unlimited protection
ICC’s checklist identifies the CIF default as the minimum cover represented by Institute Cargo Clauses (C), or similar clauses. Do not assume that a CIF offer automatically gives the wider cover a buyer may want.
Ask for the insurance policy or certificate terms. Check that the cover suits the cargo and voyage, and include any additional cover in the contract. Confirm the covered events, exclusions and claims process; the word “insurance” in a quote is not enough.
Sources: ICC: Incoterms 2020 checklist — 2024 update (PDF) · ICC Academy: Incoterms 2020: CIP or CIF?
Compare two offers on the same basis
Consider an illustrative calculation, with invented figures rather than market prices: an FOB offer is USD 600 per tonne, estimated freight is USD 30 per tonne and estimated insurance is USD 2 per tonne. Adding those three components gives USD 632 per tonne for comparison with a CIF offer on matching assumptions.
That arithmetic does not turn the FOB contract into CIF, and it does not establish a complete landed cost. Destination handling, taxes, inspection, financing or other charges may still need to be considered. Confirm inclusions and exclusions on both offers instead of treating the three-letter term as a total-cost guarantee.
Compare offers using the same product specification, quantity tolerance, shipment dates and destination. List unconfirmed costs separately so you can see what still needs checking.
| Component | Assumed amount |
|---|---|
| FOB cargo price | 600 |
| Main freight | 30 |
| Insurance | 2 |
| Sum of these components only | 632 |
Sources: ICC: Incoterms 2020 rules · ICC: Incoterms 2020 questions and answers
Match the rule to the delivery arrangement
ICC’s checklist points towards FOB for bulk goods delivered directly on board and towards FCA where delivery occurs at a container terminal or in a multimodal chain. The physical handover matters more than habit.
Record the precise named port or place and the edition of the rules. Then make the rest of the contract explicit: payment and title arrangements, specification acceptance, documentary requirements and any agreed laytime or demurrage provisions. These commercial checklist items should not be assumed to follow automatically from FOB or CIF.
Incoterms rules concern the sale relationship. ICC also cautions that they do not themselves bind banks, insurers or carriers. Check that the related transport, payment and insurance arrangements work with the sale contract.
Sources: ICC: Incoterms 2020 checklist — 2024 update (PDF) · ICC: Incoterms 2020 questions and answers
Put it into practice
Your buyer checklist
Use these questions when speaking with your supplier and technical advisers.
- Use the rule appropriate to the actual mode and point of delivery.
- Write the precise named port or place and “Incoterms 2020”.
- Identify the point of risk transfer separately from freight payment.
- Have the insurance scope checked and specify any extra cover.
- Compare matched specifications, timing, quantities and cost inclusions.
Sources & scope
Educational summary of selected Incoterms 2020 concepts. Incoterms is an ICC trademark. This guide does not reproduce the full rules or provide contract-specific legal advice. The worked example uses invented numbers and is not an offer or current freight estimate.
Source check: . Written with AI assistance using the sources below. This guide has not had an independent technical or legal review. The buyer checklist contains practical suggestions, not additional regulatory requirements.
