What is the difference between international sea freight FOB and CIF？
The most easily confused aspect between FOB and CIF is that the transfer point of risk and the party bearing the cost are not in the same place. The risks of both are transferred to the buyer during shipment, with the main difference being who pays the freight and who buys the insurance. If we look at these two things separately, the terminology will no longer revolve around them.
FOB is FOB (Free On Board): the seller is responsible for export customs clearance and pre shipment expenses, while the buyer is responsible for chartering and booking the vessel, paying for ocean freight, and insurance. The seller's cost shall be borne by the buyer until the goods cross the ship's rail, and any subsequent freight, insurance, and destination port charges shall be borne by the buyer.
CIF is cost plus insurance plus freight: the seller pays for the freight and insurance to the destination port, but the buyer still bears the risk of the goods occurring after shipment. This is often misunderstood. The seller thinks that it is only considered complete when it is delivered to the destination port, but in fact, the risk has already been transferred. If there is an accident during transportation, the buyer should claim compensation.
The difference in insurance is also here. Under FOB, the buyer needs to insure, and the seller only needs to cover the risks before shipment; Under CIF, the seller usually only purchases insurance based on the lowest risk category and the contract price markup. If the buyer wants more comprehensive protection, additional insurance is required. The "including insurance" in CIF does not mean "full coverage", and the terms should be carefully read.
How to choose depends on bargaining power and risk preference. CIF allows the seller to control the transportation process and provide a more comprehensive quotation, but they have to bear the fluctuation of freight rates; FOB quotation is clean, easy to compare, and suitable for situations where the buyer has a stable logistics channel. However, it is important to be aware that the buyer's designated freight forwarder will charge local fees at the port of departure.
Regardless of which one is chosen, the party responsible for the terminal operation fee, document fee, and destination port fee must be clearly stated in the contract. The terminology only delineates the broad boundaries, and specific cost items still need to be supplemented by the contract. Local cost disputes caused by designated freight forwarders are the most common hidden costs in FOB transactions. Writing the boundaries of these two paragraphs in the contract attachment is more effective than arguing in terms.
Another common disagreement: The freight included in the CIF quotation is the freight to the destination port, excluding terminal handling fees, unpacking fees, and delivery fees at the destination port. When the buyer sees the freight included, they assume it's door-to-door, but when they receive the goods, another fee appears, and disputes often start from here. Clearly stating the arrival and destination on the quotation can save a lot of explanation.