Difference Between CIF and FOB

CIF vs. FOB

When taking into account the miles certain goods we use today had to endure from the warehouse to the grocery store to our home, there are many people involved in the chain of command. For the businesses that are receiving merchandise, there will often be various notes on a bill of lading regarding the cost and coverage of any of the merchandise received. “CIF” and “FOB” are two of the notes that could appear on a bill of lading. They are signifiers to the recipient as to whether or not any payment includes shipping charges or whether they still remain to be paid. It is important for the individual handling the merchandise to pay close attention to the notes on the bill of lading in order for the shipping process to flow smoothly.

When the receiver of a shipment sees “CIF” on a bill of lading, this is the abbreviation for “cost, insurance, and freight.” This means that the price that was quoted to the buyer includes the cost of the item that is in transit, the insurance on the items in case something happens, and the freight charges that were accrued. When a shipment is received and it has an “FOB” on the bill of lading, this is the abbreviation for “free on board.” This means that the quoted price that was given to the buyer includes the seller’s responsibility for delivering the goods to the receiver unlike CIF. Typically, CIF is only seen on shipments that were sent by ocean or waterways throughout a country. With this process, the seller has responsibility of the goods until they get past the port where they are shipping from. After that point, the buyer assumes the responsibility of paying for any additional accumulated or necessary costs. Like CIF, FOB is typically only used for goods that are sent across the ocean or through waterways. FOB allows the seller to choose the amount they pay for freight and insurance while allowing the buyer to focus on paying for the product alone and not other services related to its transport. CIF is preferred when there are low volumes of shipping to go out or their business is relatively new. For larger volumes of freight, this is considered an inconvenience to the buyer, and most prefer other methods of shipping. The FOB method of shipping is ideal for those who are shipping large quantities of items or items of high value.
Summary:

1. “CIF” and “FOB” are two terms that are related to the shipping of goods and merchandise from the manufacturer to the buyer. “CIF” stands for “cost, insurance, and freight,” meaning that the buyer assumes responsibility for these items and that it is not in the price quoted. “FOB” stands for “free on board,” meaning that the manufacturer assumes responsibility for the items and it is in the price quoted to the buyer.
2. CIF is ideal for low volumes of shipping and new businesses. FOB is ideal for high volumes and expensive items.

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