The Two Incoterms That Matter Most

If you import products by sea, nearly every conversation with suppliers and freight forwarders comes back to two terms: FOB (Free On Board) and CIF (Cost, Insurance, and Freight). Choosing between them affects your costs, your risk exposure, and how much control you have over your supply chain.

What Each Term Means

FOB (Free On Board)

The supplier delivers the goods onto the vessel at the port of origin. From that point, you are responsible for everything: freight, insurance, customs clearance, and delivery.

You control: Choice of shipping line, freight rate, insurance provider, and routing.

CIF (Cost, Insurance, and Freight)

The supplier arranges and pays for freight and insurance to your destination port. They handle shipping; you take over once the goods arrive at your port.

Supplier controls: Shipping line, freight rate, insurance coverage, and routing.

Cost Comparison

Here's the critical point: CIF is not necessarily cheaper just because the supplier handles freight. Many suppliers add a margin on shipping — sometimes 15–30% above what you'd pay directly. On a $3,000 freight charge, that's $450–900 extra.

When to Use FOB

• You ship regularly and have freight forwarder relationships
• You want to compare freight quotes and negotiate rates
• You need comprehensive insurance (not just minimum coverage)
• You import large volumes and can leverage your shipping volume
• You want full control over your supply chain

FOB is generally the better choice for experienced importers. You see every cost line, choose your own providers, and avoid supplier markups on freight.

When to Use CIF

• You're new to importing and the logistics feel overwhelming
• Your order is small and the supplier can get better freight rates
• You're ordering from a region where freight options are limited
• The supplier has a reliable, cost-effective shipping arrangement

CIF works well for beginners or small, infrequent orders. The convenience has value when you're still learning the process.

The Hidden Risk with CIF

With CIF, the supplier typically buys minimum insurance coverage — often just 110% of the invoice value with basic perils coverage. If your goods are damaged, you may find the insurance doesn't cover the full replacement cost or certain types of damage.

With FOB, you choose your own insurance policy. You can get all-risks coverage that protects against a wider range of loss or damage.

Making the Transition from CIF to FOB

Many importers start with CIF and transition to FOB as they gain experience. Here's how:

1. Get freight quotes — contact 3-4 freight forwarders for your route
2. Compare costs — calculate your FOB + freight vs CIF total
3. Arrange insurance — get a quote for all-risks cargo insurance
4. Start with one shipment — try FOB on your next order and compare

Use LandedCost.io to model both scenarios side by side and see which gives you the lower landed cost per unit.

Other Incoterms Worth Knowing

While FOB and CIF cover most sea shipments, a few others come up:

• EXW (Ex Works) — you handle everything from the factory door (more responsibility, more control)
• DDP (Delivered Duty Paid) — the supplier delivers to your warehouse, duties paid (less control, convenient for small orders)
• DAP (Delivered at Place) — supplier delivers to your location, but you handle import clearance and duties

The right choice depends on your experience level, shipment size, and how much control you want. Check the LandedCost.io FAQ for more on how different Incoterms affect your cost calculations.