FOB means delivery on board the vessel at the loading port. CIF means the seller also pays ocean freight and insurance to the destination. Here is the difference.
Incoterms are the standard terms that state up to which point the seller carries the goods and their costs. Of the eleven terms, the two Indonesian exporters use most are FOB and CIF.
FOB (Free On Board) means the seller's obligation ends once the goods are loaded on board the vessel at the loading port. CIF (Cost, Insurance and Freight) means the seller also pays ocean freight and insurance to the destination port. Both are Incoterms 2020 rules for sea and inland waterway transport only.
FOB: responsibility ends at the loading port
Under FOB the seller carries the costs until the goods are on board at the loading port. After that, ocean freight, insurance, and every risk of the voyage belong to the buyer.
This is the safest choice for a new exporter. You deal only with parties inside the country, and the quotation is easier to build because it carries no ocean freight, which moves around.
CIF: costs covered to the destination port
Under CIF the seller carries freight and insurance to the destination port. Buyers like it because they receive a single number and arrange no shipping.
One point is often missed: under CIF the risk still passes to the buyer once the goods are on board at the loading port, exactly as under FOB. What grows is the cost you pay, not the risk you carry during the voyage.
The consequence: you need to know the freight to that port and buy the insurance. If ocean rates rise between quotation and loading, the difference is yours.
The same transaction, side by side
- The goods price at the warehouse is identical under both terms.
- Under FOB you add inland transport, duties, and loading costs.
- Under CIF all of that plus ocean freight and the insurance premium.
- The CIF number is always larger, which does not mean the profit is.
A frequent mistake is comparing one supplier's FOB quotation against another's CIF. The two numbers are not equivalent and cannot be compared directly.
Advice for a first shipment
Start with FOB. Your responsibility clearly ends at the loading port, and you learn the process without carrying voyage risk.
After a few shipments, once you know the freight pattern to a given destination, CIF becomes a way to give the buyer extra value.
On every quotation we draw up, the delivery term sits on the top line. That is what makes quotations from different parties comparable at all.