FOB vs CIP – who pays for what?
FOB is Free On Board and CIP is Carriage and Insurance Paid To. We compare who pays for transport, customs clearance and duty, and where risk passes to the buyer.
Key differences
Under CIP, the seller also covers the main freight and insurance. Under FOB, the buyer pays for this instead – except for insurance, which is not compulsory under FOB. The two rules also differ in the point at which risk passes to the buyer and in the mode of transport. FOB applies only to sea and inland waterway transport.
- Main carriage (freight)
- FOBBuyerCIPSeller
- Insurance
- FOBNo obligationCIPSeller
- Risk passes
- FOBOn board the vessel at the port of loadingCIPOn handover to the carrier in the country of dispatch
- Mode of transport
- FOBSea onlyCIPAny
Full cost breakdown
| Cost | FOB | CIP |
|---|---|---|
| Export clearance | Seller | Seller |
| Transport to the port or terminal | Seller | Seller |
| Loading for main carriage | Seller | Seller |
| Main carriage (freight) | Buyer | Seller |
| Insurance | No obligation | Seller |
| Unloading at destination | Buyer | Buyer |
| Import clearance | Buyer | Buyer |
| Import duty and VAT | Buyer | Buyer |
| Risk passes | At the port of loading, when the goods are on board the vessel. | When the seller hands the goods over to the first carrier – even though the seller pays for transport and insurance. |
| Mode of transport | Sea and inland waterway transport only | Any mode of transport (sea, rail, air, road) |
Notes
- Unloading at destination: if unloading costs are included in the contract of carriage concluded by the seller, the seller pays them and cannot charge them to the buyer afterwards.
- Insurance: only the seller is obliged to insure, and only under CIF (at least Institute Cargo Clauses (C), 110% of the value) and CIP (Institute Cargo Clauses (A), 110% of the value). Under the other rules, nobody has to insure the goods – but once risk has passed, any loss is borne by the buyer.
What to watch for when importing from China
FOB Free On Board
A common mistake: FOB for rail or air freight. FOB applies only to sea and inland waterway transport. For rail freight from China, the right rule is FCA with the name of the terminal (e.g. “FCA Xi’an, rail terminal”), and for air freight, FCA with the name of the airport. Under FOB, the supplier pays for export clearance and the charges at the port of loading – check that they are not added to the invoice separately.
More about FOB →CIP Carriage and Insurance Paid To
In Incoterms 2020, CIP requires broader insurance than CIF: Institute Cargo Clauses (A) – “all risks” – at 110% of the value of the goods. Even so, the risk passes to you in China, when the goods are handed over to the carrier. The policy protects you, but the supplier takes it out – ask for a copy before shipment.
More about CIP →When to use FOB and when to use CIP?
- FOB – for sea freight, when the supplier delivers the goods to a port in China and handles export clearance, while your freight forwarder arranges the freight to Europe.
- CIP – for any mode of transport, when the supplier arranges carriage and broad insurance cover (Clauses (A)), while you handle customs clearance in Poland.
Buying on FOB terms? You choose the forwarder
We organise transport from China – by rail, sea or air – together with customs clearance in Poland and cargo insurance. Send us your cargo details and we will prepare a quote tailored to your shipment.
Request a quoteFAQ
What is the main difference between FOB and CIP?
Under CIP, the seller also covers the main freight and insurance. Under FOB, the buyer pays for this instead – except for insurance, which is not compulsory under FOB. The two rules also differ in the point at which risk passes to the buyer and in the mode of transport. FOB applies only to sea and inland waterway transport.
Where does risk pass to the buyer under FOB?
At the port of loading, when the goods are on board the vessel.
Where does risk pass to the buyer under CIP?
When the seller hands the goods over to the first carrier – even though the seller pays for transport and insurance.
Can FOB and CIP be used for rail freight from China?
Only CIP. CIP works with any mode of transport, while FOB applies only to sea and inland waterway transport. That is why FOB is not used for rail freight from China.
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Incoterms® is a registered trademark of the International Chamber of Commerce (ICC). This page is an independent, simplified summary of how costs and risks are divided – it is not affiliated with or approved by the ICC. When drafting contracts, use the official text of the Incoterms® 2020 rules published by the ICC.