FOB (Free on Board) and CIF (Cost, Insurance and Freight) are the two most common Incoterms in international trade, especially for Vietnamese businesses. Each term has its own advantages and disadvantages, making it suitable for different types of businesses.
What are the basic differences between FOB and CIF?
FOB: the buyer books the vessel, pays freight, and purchases insurance. CIF: the seller books the vessel, pays freight and insurance to the destination port.
Should you choose FOB or CIF for imports?
Choose FOB if you have a good relationship with the shipping line and want to control the schedule. Choose CIF if the shipment is small and you want to keep things simple.
What are the risks of choosing FOB?
The seller may deliver late, and quality is difficult to control before loading on board.
What are the risks of choosing CIF?
The seller often chooses the cheapest shipping line and declares a low cargo value to reduce insurance premiums.
How does risk allocation differ between FOB and CIF?
Both transfer risk at the same point (when the cargo is delivered on board the vessel at the agreed port of shipment). The main difference is who pays the freight.
For FCL cargo, VTM Logistics we usually recommend that customers choose FOB to proactively control domestic transport costs. For LCL cargo, CIF is sometimes more convenient because the seller handles the entire sea freight.
View more articles Incoterms 2020 for an overview of other terms.
Under FOB, the seller delivers the goods on board at the port of departure, and the buyer bears all costs and risks from the time the cargo is delivered on board the vessel at the agreed port of shipment. The buyer arranges the vessel, pays freight, buys insurance, and is responsible for import customs clearance at the destination port.
Advantages: The buyer proactively selects the shipping line, negotiates better freight rates, controls the schedule, and can consolidate multiple shipments to save costs. This is especially beneficial when the shipping market is volatile.
Disadvantages: The buyer needs to understand the ocean freight market, manage relationships with shipping lines and forwarders, and faces risks when freight rates surge.
Under CIF, the seller is responsible for arranging the vessel and paying freight to the destination port, and must also insure the goods for at least 110% of the cargo value. Risk still transfers when the goods are loaded on board at the port of departure.
Advantages: Simple for the buyer — just wait for the cargo to arrive at the port; the seller's forwarder handles all transport. Suitable for companies new to import-export.
Disadvantages: CIF cargo prices are usually higher because freight and insurance are included; the seller has no incentive to find the cheapest freight, and the buyer cannot control the shipping schedule or carrier.
| Criteria | FOB | CIF |
|---|---|---|
| Control of ocean freight | Proactive | Passive |
| Freight Rate Currency Risk | Buyer Bears Risk | Seller Bears Risk |
| Complexity | High — requires logistics management | Low — seller handles |
| Goods Price | Usually lower | Includes freight + insurance |
| Insurance | Buy as needed | Minimum (Cover C) |
Many new businesses choose FOB because they think it is cheaper, but they fail to anticipate shipping risks and additional costs. VTM Logistics advises on choosing the appropriate Incoterms for each specific shipment.
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These sources explain the rules discussed above. Check the current requirements for your shipment; examples on this page do not replace the applicable regulations or contract terms.
