Terms · 7 min read · reviewed 2026-10-01
FOB — Free On Board — means the seller clears the goods for export, hauls them to the port, pays origin terminal handling, loads them, and stops. Risk passes when the goods are on board. Everything after that, including the ocean freight, is the buyer's problem and the buyer's cost.
CIF — Cost, Insurance and Freight — moves the seller's cost obligation to the destination port: they buy the ocean freight and a marine policy, and they are responsible for getting the cargo there in a cost sense. Risk, however, still passes at the origin port. That split — seller pays, buyer owns the risk from the moment of loading — is the part of CIF that causes the most arguments, because it is counter-intuitive.
So the arithmetic looks like a subtraction problem. It is not quite one.
Insurance is charged on 110% of the CIF value. The CIF value includes the insurance premium. Solve that loop and you get:
CIF = (FOB + freight) ÷ (1 − 1.1 × rate)
Run it on $42,000 of goods and $3,850 of freight. A naive "FOB + freight" gives $45,850. At a 0.3% premium rate the true CIF is $46,002, which is $151.81 higher — an insurance premium of $151.81 charged on a value that includes itself. At a 1% rate the same shipment comes to $46,360, $509.96 above the naive sum.
| Component | FOB quote | CIF @ 0.3% | CIF @ 1% |
|---|---|---|---|
| Goods (FOB value) | $42,000 | $42,000 | $42,000 |
| Ocean freight | — | $3,850 | $3,850 |
| Insurance on 110% CIF | — | $151.81 | $509.96 |
| Quoted price | $42,000 | $46,002 | $46,360 |
The percentage is small. The pattern is not: the gap scales with the premium rate and the shipment value, and it is systematically missing from every quote comparison built by subtracting freight.
This is the direction that actually gets used. A supplier quotes CIF, you want to know what the factory price really is so you can compare it with another supplier quoting FOB.
Subtracting the freight gives $42,000.00 instead of $42,000. That is an overstatement of $151.81 — the premium that is buried in the CIF number and never appears on any invoice you will be shown. The correct inversion is:
FOB = CIF × (1 − 1.1 × rate) − freight
At a 1% premium rate the same error is $509.96, which on a single container looks like rounding and on forty containers a year looks like a shipment.
Quote FOB if you can buy freight well. You see the ocean rate, you choose the carrier, you control the routing and the transit time, and you know what the shipping line charged you when a claim arises. For a buyer moving more than a couple of containers a year, FOB almost always wins on both cost and control.
Accept CIF if you cannot. A first-time importer with no forwarder relationship is not going to beat a Chinese factory's negotiated rate, and the factory's CIF price bundles the freight at a rate you could not obtain. CIF is also the sensible default when the supplier is consolidating several buyers' cargo into one container.
Never compare a CIF quote against an FOB quote directly. Convert both to the same basis first — that is what the FOB / CIF calculator does in either direction — and only then compare. Otherwise you are comparing a price that includes freight with a price that does not, and the "cheaper" supplier will be the one who quoted less.
Incoterms 2020 recommends FCA rather than FOB for containerised cargo, and the reason is mechanical: FOB requires the goods to be on board the vessel before risk passes, but a container is handed to the carrier at a container freight station inland, sealed, weeks before it is loaded. The seller has no control over the container between those two moments.
In practice the market still quotes FOB for containers, so the commercial document says FOB while the physical handover happened somewhere else entirely. That is fine as long as both sides know it. It stops being fine when a container is damaged at the terminal and the contract says risk passed on loading — a fact neither party can establish.
If you are drafting the contract rather than accepting one, FCA with a named inland place is the honest term for a container. If you are accepting a quotation, at least know which risk point you actually bought.
Each one runs the arithmetic above on your own numbers. The guide explains why the figure is what it is; the tool produces it.
FOB vs CIF Calculator — the same engine that produced every figure on this page, with your carton, your route and your duty rate.
The total cost to your door is normally close, because you pay for the freight either way. FOB tends to be cheaper when you can buy ocean freight at better rates than your supplier; CIF tends to be cheaper when you cannot, or when the supplier is consolidating cargo.
The buyer. CIF ends when the goods arrive at the destination port, before discharge costs, terminal handling at destination, duty and delivery. Those sit with the buyer unless the contract says otherwise.
No. Only DDP includes duty and import clearance. A CIF price is goods plus freight plus insurance, nothing more.
Because insurance is charged on 110% of the CIF value, which includes the premium. The difference is small — a few tenths of a percent at typical premium rates — and it is a real part of the price.
The guides that answer the question this one usually leads to.
Every Incoterms 2020 rule with its cost and risk split, the four that dominate China export, and how the 110% CIF insurance formula works.
Read next → CostingThe five-line landed cost method, one 40HQ to the US worked line by line, and the four charges most costing sheets leave out.
Read next → PricingWhy the deeper tier is not always cheaper per unit once setup costs, freight and carrying cost are counted, and how to find the true break-even quantity.
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