CIF vs FOB: Which Is Better When Importing from China?

Many Chinese suppliers will quote you either FOB or CIF, and CIF often looks attractive because freight and insurance are already included. The two terms are closer than they seem: the risk transfer point is the same, and the real differences are who controls the shipment and what the insurance actually covers.

This guide compares the two under Incoterms 2020, the current edition published by the International Chamber of Commerce (ICC), and explains when each one makes sense.

CIF vs FOB at a glance#

Both are sea and inland waterway rules, and under both the goods are delivered, and risk passes, once they are on board the vessel at the port of shipment in China.

If you are also weighing EXW or DDP, see EXW vs FOB vs DDP.

Who books the freight#

Under FOB you appoint the freight forwarder, negotiate the ocean rate and decide the routing and transit time. Under CIF the supplier contracts the carriage to your named destination port and builds the cost into the price.

That difference in control matters more than the price line suggests:

• With FOB you can compare forwarders, consolidate orders from several suppliers, and track the shipment through a company that works for you.
• With CIF the supplier's forwarder works for the supplier. You usually learn the vessel, the booking details and the destination agent only once the goods have sailed.

Where risk transfers, and why it catches people out#

Under CIF, the seller pays for freight to your port, but the risk has already passed to you in China. The ICC stresses this split: under the "C" rules the seller pays for carriage to destination, but delivery and risk transfer happen at the port of shipment.

In practice, if the container is damaged at sea on a CIF shipment, it is your loss, not the supplier's. You recover it from the insurance policy the supplier bought, which is why the quality of that policy matters.

What CIF insurance actually covers#

Under CIF Incoterms 2020 the seller must insure the goods from the port of shipment to at least the port of destination, but only to a minimum level. The ICC confirms that CIF keeps Institute Cargo Clauses (C) as the default, while CIP was raised to the broader Clauses (A) in the 2020 edition. The insured amount must be at least the contract price plus 10% (110%), in the currency of the contract, and you must be able to claim directly from the insurer.

Clauses (C) is named-perils cover. According to the policy wording, it covers loss or damage reasonably attributable to events such as:

1. Fire or explosion.
2. The vessel being stranded, grounded, sunk or capsized.
3. Overturning or derailment of land transport.
4. Collision or contact of the vessel or conveyance with an external object.
5. Discharge of cargo at a port of distress.
6. General average sacrifice and jettison.

What it does not list is just as important: theft, non-delivery of individual packages, rough handling, and most water damage are not named perils under (C). For manufactured consumer goods, those everyday risks are often the ones that actually happen.

Why CIF can cost more at destination#

A CIF price includes freight to your port, but it does not include what happens after the ship arrives. Import duty, taxes, customs brokerage and delivery to your warehouse are always the buyer's. Unloading and terminal handling at the destination port are also yours unless the seller's contract of carriage says otherwise, according to the ICC.

This is where CIF can become expensive. Because the supplier's forwarder chooses the destination agent, you have no rate agreed with that agent in advance. The destination invoice can include terminal handling, documentation, delivery order and other local fees, all at the agent's rates rather than rates you negotiated. Nothing stops a very cheap CIF freight rate from being offset by high destination charges, and you have to pay them to release the cargo. Before accepting CIF, ask for the name of the destination agent and a written list of its charges.

Two further cost points to know:

• Customs value may already include freight. In the EU, the customs value on which duty and import VAT are calculated includes transport and insurance costs up to the point of entry into the EU, so the freight is taxed whether you buy CIF or FOB. Other countries, including the United States, value imports differently, so check your own rules. See landed cost calculation.
• Hidden freight margin. The supplier may add a margin to the freight and insurance it includes in the CIF price. You cannot see it unless you get your own FOB-based quote to compare.

When CIF makes sense#

CIF is not wrong; it is a trade-off of control for convenience. It can be reasonable when:

1. You ship rarely and in small volumes, and you do not have a forwarder relationship yet.
2. The supplier has strong freight rates on your lane and is transparent about the destination agent and its charges.
3. Your bank or buyer requires it, for example in some letter of credit deals where the seller must present an insurance document.
4. You have confirmed destination charges in writing with the named destination agent before shipment.

FOB is usually the better choice when you import regularly, consolidate goods from several suppliers, ship FBA or retail orders with strict delivery windows, or want the claims process handled by a forwarder and insurer who work for you. For more on how shipping mode affects this choice, see sea vs air vs rail vs express.

Write the term correctly#

Whichever term you choose, name the place and the edition in the purchase order: for example FOB Shenzhen Incoterms 2020 or CIF Felixstowe Incoterms 2020. Note that the named place differs: FOB names the port of loading in China, CIF names the destination port. For CIF, also state the insurance clauses you expect and the insured value.