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What do CIF and FOB mean in shipping terms?

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Answer

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Wiki User
06/09/2016

These are global shipping terms which are used in international trade:

  • CIF means Cost Insurance and Freight. That means the shipper/trader has to pay the cost of shipment up to the ship, insurance cost for the cargo, and freight cost up to destination port.
  • FOB stands for Free On Board which means the shipper/trader pays only costs up to the ship and the insurance cost, but freight charges are paid by the Buyer/Consignee.

(Colloquially, FOB is often stated to mean "freight on board." However this can actually be confusing and should be avoided as it is not conforming with specified terminology of the UCC.)

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CIF and FOB are governed by the International Chamber of Commerce governing how shipments are billed. The terms are complicated by the fact that the terms are applied differently in different regions.

Previously, in North America, under the Uniform Commercial Code (UCC), both "FOB origin" and "FOB destination" left the seller responsible for paying costs of loading goods on board the carrier; hence "free on board." When the buyer was responsible for loading costs as well, the UCC term was "FAS," "free alongside."

Currently, the UCC has removed FOB and FAS, leaving the definition of these terms up to the interpretation of the parties or the applicable state's law. Many states have wholly or in part adopted the UCC terms without realizing that the UCC has abandoned the definitions.

A related but separate term "CAP" ("customer-arranged pickup") is used to denote that the buyer will arrange a carrier of their choice to pick the goods up at the seller's premises, and the liability for any damage or loss belongs to the buyer.