CIF vs FOB: Shipping Terms Compared

CIF (Cost, Insurance, and Freight) and FOB (Free on Board) are the two most commonly used Incoterms for international piping material shipments. Both are sea-transport terms under Incoterms 2020. The core difference: under FOB, the buyer arranges freight and insurance; under CIF, the seller includes both in the quoted price.

Risk transfer, however, occurs at the same point for both terms—when the goods are loaded on the vessel at the origin port. This is a critical distinction that many procurement professionals overlook.

Side-by-Side Comparison

Aspect	FOB	CIF
Full name	Free on Board	Cost, Insurance, and Freight
Risk transfer	On board vessel at origin port	On board vessel at origin port
Freight paid by	Buyer	Seller
Insurance paid by	Buyer	Seller (minimum ICC “C” coverage)
Price includes	Goods + loading on vessel	Goods + loading + freight + insurance
Buyer controls freight	Yes	No
Buyer controls insurance	Yes	No
Transport mode	Sea/inland waterway only	Sea/inland waterway only
Common for	Bulk pipes, structural steel	Fittings, flanges, valves, mixed cargoes
Best for buyer when	Buyer has freight contracts/expertise	Buyer wants simpler logistics

Cost Comparison Example

A shipment of 200 tons of ASTM A106 Gr. B seamless pipes from Mumbai to Jubail:

Cost Element	FOB Mumbai	CIF Jubail
Mill price + inland transport + port handling	$1,880/ton	$1,880/ton
Sea freight	Buyer: $110/ton	Included in price
Marine insurance	Buyer: $12/ton	Included in price
Quoted price	$1,880/ton	$2,020/ton
Actual total cost to buyer	$2,002/ton	$2,020/ton

The $18/ton difference reflects the seller’s freight and insurance markup. Buyers with volume freight contracts often achieve lower rates than the seller, making FOB cheaper. Smaller buyers without freight expertise may find CIF more economical when transaction costs are factored in.

Risk: The Hidden Issue

Under both FOB and CIF, risk transfers to the buyer at the origin port. This means:

• If a CIF shipment of pipes sinks mid-ocean, the buyer bears the loss, not the seller.
• The seller’s obligation under CIF is to procure insurance, not to guarantee delivery.
• CIF insurance is minimum coverage (ICC “C” clause): total loss, fire, explosion, stranding. It excludes theft, pilferage, and water damage unless upgraded.

Insurance Coverage	ICC “C” (CIF minimum)	ICC “A” (all risks)
Total loss	Covered	Covered
Fire/explosion	Covered	Covered
Stranding/grounding	Covered	Covered
Theft/pilferage	Not covered	Covered
Water damage	Not covered	Covered
Handling damage	Not covered	Covered

Common Mistake

Assuming CIF means the seller bears risk until the destination port. It does not. CIF only means the seller pays for freight and insurance. Risk transfers at the origin port, identical to FOB. If goods are damaged in transit under CIF, the buyer must file the insurance claim—not the seller.

When to Choose Each Term

Choose FOB when:

• Your company has negotiated freight rates with shipping lines
• You need to control the carrier selection and routing
• You want full control over insurance coverage (ICC “A” all-risks)
• You are an experienced importer with customs expertise
• Shipment volumes justify dedicated logistics management

Choose CIF when:

• You want a single delivered price with fewer logistics variables
• Your organization lacks freight management infrastructure
• The order is smaller and does not justify separate freight negotiation
• The seller has better freight rates to your destination

For complete Incoterms 2020 definitions and risk allocation, see the detailed reference. Always specify the Incoterm and named place (e.g., “CIF Jubail” or “FOB Shanghai”) in procurement documents and confirm the required shipping documents in the purchase order.

Read the full guide to pipe classes and specifications