The biggest difference between CIF and FOB freight is in who is responsible for the goods during delivery.
CIF freight means that freight and insurance are paid by the supplier, who is responsible for delivery to the destination. In the case of FOB, it is the customer who pays for the freight and insurance of the goods.
Both are international transport contracts between a buyer and a seller, used in cases of maritime transport.
|CIF shipping||FOB Shipping|
|Meaning||Cost, Insurance and Freight (cost, insurance and freight)||Free on Board.|
|What is||Type of international transport contract between a buyer and a seller.||It is also a type of transport contract.|
|Who pays the costs||The supplier company.||The clients.|
|Who takes responsibility for the product||The supplier company.||The clients.|
|When it is considered as delivered goods||Only when they are in the buyer’s possession.||When they are placed on the ship for delivery.|
CIF, which in Portuguese means “cost, insurance and freight”, is a commercial term that means that the seller must pay the costs necessary to transport goods to a final destination.
Importers prefer to use CIF because it makes transportation more convenient. They do not have to deal with handling, shipping and other details that can be very complex.
Generally, CIF freight is more expensive for the buyer.
In FOB contracts, which means “free on board”, it is the buyer who assumes the risks and costs of transporting the goods.
This type of transport is more favorable for the sellers, who are free of responsibility when placing the goods on the ship.
How do responsibilities change?
Both contracts specify source and destination information that determines where liability officially begins and ends.
In CIF contracts, the responsibility and costs associated with transit are paid by the seller, until the goods are received by the buyer. Thus, the goods are not considered delivered until they are in the possession of the person who bought them.
The FOB contracts the seller disclaims liability at the time the goods are shipped. Thus, when the goods enter the ship, they are considered as delivered and are under the buyer’s responsibility.