CIF vs FOB in Commodity Trading: What's the Difference?

Under FOB terms, the seller delivers the goods on board the vessel at the named port of loading. Risk and cost transfer from seller to buyer once the goods are loaded. The buyer arranges and pays for ocean freight, insurance, and import clearance. FOB is the most common Incoterm for bulk commodity exports — iron ore FOB Port Hedland, crude oil FOB Ras Tanura, coal FOB Newcastle.

FOB pricing is preferred by buyers who want control over shipping — they can choose the vessel, negotiate freight rates, and select their preferred insurance coverage. It also makes price comparison between origins easier since FOB prices exclude freight, which varies by destination.

Under CIF terms, the seller arranges and pays for freight and insurance to the named port of destination. Risk still transfers to the buyer at loading (same as FOB), but the seller bears the cost of getting goods to the destination. CIF is common for smaller transactions, containerized commodities, and markets where buyers prefer a delivered price.

CIF pricing simplifies purchasing for the buyer — the quoted price includes delivery to their port, so they can compare suppliers directly on a landed-cost basis. However, the buyer has less control over the shipping and insurance arrangements, and the CIF price may include a margin on these services.

Choose FOB when you want control over shipping logistics, have established freight relationships, are buying large volumes where freight negotiation can save significant money, or need to compare prices from multiple origins. Most large commodity buyers and trading houses prefer FOB terms.

Choose CIF when you're a smaller buyer without freight relationships, want simplicity in pricing, or are buying containerized cargo where the seller has better shipping rates. CIF is also appropriate when the seller has logistical advantages at the destination (e.g., a trading house with warehousing at the discharge port).

The difference between FOB and CIF prices is roughly the cost of freight plus insurance. For iron ore shipped from Australia to China, freight might add $8-15 per tonne. For grain from the US Gulf to North Africa, freight could add $25-40 per tonne. For oil shipped from the Middle East to Asia, freight might add $1-3 per barrel.

Always compare prices on the same Incoterm basis. A $100/tonne CIF price is not directly comparable to a $90/tonne FOB price — you need to add freight and insurance to the FOB price to make an apples-to-apples comparison. Freight rates fluctuate significantly, so the relative attractiveness of FOB vs. CIF changes over time.