In international commodity trade, Incoterms (International Commercial Terms) define exactly where responsibility — and cost — transfers from seller to buyer. FOB and CIF are the two terms you will encounter in almost every petroleum, metals, or bulk commodity contract.
FOB — Free On Board
Under FOB, the seller's obligation ends when the goods are loaded onto the vessel at the named port of loading. Everything after that — ocean freight, insurance, import duties, unloading — is the buyer's responsibility.
- Seller pays: product cost, export clearance, loading at origin port
- Buyer pays: ocean freight, marine insurance, unloading, import duties
- Risk transfers: when goods cross the ship's rail at loading port
CIF — Cost, Insurance and Freight
Under CIF, the seller delivers the goods to the named destination port and pays for freight and insurance. However, risk transfers to the buyer as soon as the goods are loaded on the vessel — even though the seller has paid for the voyage.
- Seller pays: product cost, export clearance, ocean freight, marine insurance
- Buyer pays: unloading at destination, import duties, onward transport
- Risk transfers: when goods are loaded at origin port (same as FOB)
Side-by-Side Comparison
| Feature | FOB | CIF |
|---|---|---|
| Who arranges freight? | Buyer | Seller |
| Who pays freight? | Buyer | Seller |
| Who pays insurance? | Buyer | Seller |
| Risk transfer point | Loading port | Loading port |
| Price typically lower? | Yes (seller less cost) | No (seller includes freight) |
| Best for buyers who… | Control their own logistics | Want simplicity |
Common Price Benchmarks
- FOB Rotterdam — standard for European petroleum product exports (EN590, Jet A-1, Fuel Oil)
- FOB Fujairah — standard for Middle East petroleum and bunker fuel exports
- CIF Singapore — standard benchmark for Asian petroleum imports
- FOB Houston — US Gulf Coast crude and refined products
Which Term Should You Choose?
Frequently Asked Questions
- What does FOB mean in commodity trade?
FOB (Free On Board) means the seller delivers the goods to the named port and clears them for export. From that point, the buyer takes responsibility for freight, insurance, and all subsequent costs.
- What does CIF mean?
CIF (Cost, Insurance and Freight) means the seller pays for freight and insurance to deliver the goods to the named destination port. Risk transfers to the buyer once the goods are loaded on the vessel.
- Which is better for the buyer — FOB or CIF?
FOB is generally better for large-volume buyers who can negotiate their own freight rates. CIF is simpler and often preferred by smaller buyers or those without established shipping relationships.
- What is FOB Rotterdam?
FOB Rotterdam is one of the most-referenced price benchmarks in European petroleum trade. It means the seller loads the product at Rotterdam port and the buyer arranges and pays for the onward voyage.