: where cost and risk change hands on one shipment

Walk one shipment from the factory floor to your door and watch where cost and risk actually change hands.

CIF: the seller carries main freight, the buyer import duty and the buyer voyage risk. FOB: the buyer carries main freight, the buyer import duty and the buyer voyage risk.

Choose a rule

First termSecond term

The journey

Both terms are shown on the same voyage. The marked incident stays at main carriage while the cost and risk boundaries follow the chosen terms.

What matches and what changes between CIF and FOB

Risk: Both place the risk marker at the checkpoint labelled On board the main carriage.
Cost: CIF keeps the seller paying 1 stage farther. Its marker uses the checkpoint labelled Arrived at the destination terminal; FOB uses On board the main carriage.
Insurance: CIF shows minimum seller arranged insurance. FOB shows no seller arranged insurance.

The two costs in this shipment

Measure	CIF	FOB
Main freight	Seller · USD 4,000	Buyer · USD 4,000
Import duty	Buyer · USD 6,000	Buyer · USD 6,000
Risk of loss after loading	Buyer	Buyer
Seller's two cost items	USD 4,000	USD 0
Buyer's two cost items	USD 6,000	USD 10,000

One shipment, two terms

The fixed example is a container travelling by sea from an Asian origin port to the destination terminal at Jebel Ali. Goods value is USD 100,000, main freight is USD 4,000 and import duty is USD 6,000. The incident is loss after loading, during main carriage. The two costs are illustrative amounts, not rates or charges set by a rule.

The three letters name a rule and no place. The rule decides what each side does, and the place and the point decide where they do it. Two quotes carrying the same three letters can be two different deals until both of those are written down.

The drawing on this page follows the 2020 rules. Where your contract names an older edition, that edition governs and some of these markers sit elsewhere in it.

Under CIF, risk passes to you once the goods are loaded on board at the origin port while the seller's cost obligation runs on to the destination terminal, insurance included, leaving the goods at your risk and on the seller's freight bill for 1 stage. The insurance the seller buys under this rule is minimum cover, not full cover.

Under FOB, cost and risk transfer together once the goods are loaded on board, with no gap between them; what changes is how much of the trip the seller has paid for.

The same checkpoints under both terms

The leading finding uses the fixed loss after loading. These three written checkpoints show how the same two chosen terms apply along that journey. Both cost and risk are shown immediately.

Origin terminal

Damage before loading. The container is damaged after it reaches the origin terminal but before it is loaded on board.

Measure	CIF	FOB
Risk	the seller	the seller
Cost	the seller	the seller

The seller still carries both the risk and the cost obligation at this checkpoint.

FOB places both lanes with the same parties as CIF at this checkpoint.

Main carriage

Loss after loading. The cargo is lost after loading while the main carriage is under way.

Measure	CIF	FOB
Risk	the buyer	the buyer
Cost	the seller	the buyer

The buyer carries the risk while the seller's cost obligation still runs. That split is the point the two markers expose.

The rules split on cost here. CIF places it with the seller, while FOB places it with the buyer. Their risk reading is the same.

Destination terminal

Damage found on arrival. Damage is found after arrival at the destination terminal but before import clearance.

Measure	CIF	FOB
Risk	the buyer	the buyer
Cost	the buyer	the buyer

The buyer carries both the risk and the cost from this checkpoint in the page model.

FOB places both lanes with the same parties as CIF at this checkpoint.

This describes the simplified route on this page. The named place and the contract wording can change the real position.

Where this goes wrong

CIF / FOB watchpoints

The insurance gap under CIF and CFRRelevant

Under CFR the seller pays the freight to the destination port but buys no insurance at all, and under CIF the seller buys the minimum level. Buyers read "the seller arranged insurance" and assume they are covered for the value of the goods plus a margin; the minimum level is a floor written for commodity trades, not a promise that a damaged consignment leaves you whole.

The gap is not in who pays. It is that the party carrying the risk from the moment the goods are loaded, which is you, is not the party choosing the cover. If the cargo matters, buy your own policy or agree the cover level in writing before the order, not after a claim.

Concerns stages 4 to 5 of the journey above.

FCA and FOB are not interchangeable for containersRelevant

FOB, FAS, CFR and CIF were written for cargo that is loaded over a ship's rail. A container is not. It is handed to the carrier at an inland depot or a terminal days before it is loaded, and from that moment it is out of the seller's control and sitting in a stack the seller cannot inspect.

Naming FOB for a container leaves the risk with the seller through a period when neither party is actually holding the goods, and it leaves both sides arguing about when the transfer happened if something is damaged in the stack. FCA at the named terminal moves the transfer to the handover that actually occurs. This is the most common and most expensive naming error in container trade, and it is usually copied forward from a template nobody has re-read in ten years.

Concerns stages 2 to 4 of the journey above.

DDP makes the seller the importer

Under DDP the seller carries the goods all the way to the named place and settles import duties and taxes. That sounds like the buyer's best possible outcome, and it is why sellers are asked for it.

What it commits the seller to is being the in a country they may have no presence in: registration, a local tax identity, correct classification, and liability for anything the authority later reassesses. Many jurisdictions do not allow a non-resident to act in that role at all. Sellers accept DDP on a quote, then discover the obligation at the border, and the shipment sits.

Under DAP the seller stops short of that line: goods arrive, and import formalities remain the buyer's. That is usually the term people actually meant.

Concerns stages 6 to 7 of the journey above.

EXW leaves you exporting from someone else's country

Under EXW the seller's obligation ends when the goods are available at their premises. Export clearance in the seller's own country becomes yours, and in many countries a foreign buyer cannot file it, because the paperwork needs a resident exporter, and the seller is the only candidate.

In practice the seller does it anyway, informally, without it being written down. It works until there is an export licence question, a customs audit, or a claim for the export refund the seller quietly kept. FCA at the seller's premises describes the same physical handover with the export obligation placed where it can actually be performed.

Concerns stages 0 to 2 of the journey above.

What the rule does not decide

CIF / FOB · outside the three letters

The three letters allocate obligations between a seller and a buyer. They do not set a tax rate, they do not decide a classification, and they do not know whether you can reclaim anything, because none of those is a matter between the two of you.

Who performs import clearance: CIF: The buyer, under this rule. FOB: The buyer, under this rule.
What duty and import tax come to: Not set by the rule. Classification, origin, valuation and the rate in force decide it.
Whether you get the tax back: Not set by the rule. Your registration and your status in the importing country decide it.

How this page was built

Model version: 1.0

The model, in words

The comparison applies this page's existing 2020 stage markers. Main freight follows the cost lane at stage 4. Import duty follows the separately stated import obligation: seller for DDP, buyer for every other term shown. It does not calculate insurance proceeds or other journey costs.

This page draws one journey with eight stages and places two markers on it: the point where cost stops being the seller's, and the point where risk stops being the seller's. Those are the only two facts it holds per rule. Everything else on the page (the wording, the hazard notes, the stage names) is written here.

The eight stages are this page's own simplification of a shipment, not anyone's official structure. A real movement has more steps, and the named place written into your contract is what decides where a marker actually sits. Two of the placements are readings rather than mechanical facts, and they are stated as such: CPT and CIP put risk at the first carrier, which this page shows at the export-cleared stage; DAP shows arrival at the named place with import formalities still ahead.

The incident walkthrough compares its checkpoint with each marker. Before a marker, the seller remains on that lane. At the marker and after it, the page shows the buyer. When a second rule is shown, the same checkpoint is tested against both rule pairs so any difference comes from marker position, not from a changed incident. That comparison teaches the drawing; it does not decide a contractual position.

A worked example

Take CIF on a container from an Asian port. Risk reaches you at stage 4, on board. Cost stays with the seller through stage 5, the destination terminal. Between those two stages the container is on a vessel you did not book, insured to a level you did not choose, at your risk. If it is lost on that leg, you are claiming on a policy written to a minimum standard, while paying for goods you never received.

A comparison example

Take FOB and CIF. Both risk markers sit at stage 4, so the risk difference is zero. Their cost markers sit at stages 4 and 5, so the cost difference is one stage. At the main carriage checkpoint, stage 4 is at or beyond both risk markers. Risk therefore sits with the buyer under both rules. The same checkpoint is at the FOB cost marker but before the CIF cost marker, so cost sits with the buyer under FOB and with the seller under CIF. The comparison readout uses these marker checks and changes no placement.

Written comparison notes

Container handover. The risk point moves by two stages. FCA uses the carrier handover shown here, while FOB waits until loading on board.

Risk against freight. Both place risk on board. CIF keeps the seller paying to the destination terminal and adds minimum insurance.

Insurance. The cost and risk markers match. CIF adds minimum seller arranged insurance, while CFR adds none.

Export formalities. The collection can look similar, but FCA keeps export clearance on the seller's side before the handover shown here.

Broader insurance. The cost and risk markers match. CIP adds broader seller arranged insurance, while CPT adds none.

Import formalities. Both reach the destination side of the route. DDP also puts import clearance and duty with the seller.

What this does not model

Named places and named ports, which are the operative words in a real contract. Carriage contracts, letters of credit, security filings, terminal handling charges and who is billed for them, delivery windows, and every national variation in how import formalities can be performed. It also does not model the version of the rules your contract actually cites, which may not be the current one.

Incoterms® is a registered trademark of the International Chamber of Commerce. This page does not reproduce, quote or substitute for the official rules, and the ICC text governs. What your contract says, which version of the rules it names, and which place it names alongside the three letters are what decide your obligations. This drawing does not.