Key points
- Risk passes at the same point under FOB and CIF: on board at the Chinese port of loading.
- CIF adds sea freight and minimum ICC (C) insurance to the supplier's price; FOB leaves both to you.
- UAE customs charges duty on the CIF value, so buying FOB does not lower your duty.
- Very low CIF freight often comes back as high destination charges at the Gulf port.
- Both are sea-only rules; for containers ICC prefers FCA and CIP.
FOB vs CIF in one minute
- Seller delivers on board the vessel you nominate at the named Chinese port
- Seller pays export clearance and origin terminal and loading charges
- You book and pay sea freight, usually through your forwarder
- No insurance obligation: you insure the voyage yourself
- You choose the carrier, routing and transit time
- Example wording: FOB Ningbo Port (Beilun terminal), Incoterms 2020
- Seller delivers on board at the Chinese port, exactly as under FOB
- Seller also pays sea freight to the named destination port
- Seller must insure: at least ICC (C), for at least 110% of contract value
- Supplier chooses the carrier and routing
- Destination charges are yours unless the seller's freight contract includes them
- Example wording: CIF Jebel Ali Port, Dubai, UAE, Incoterms 2020
| Item | FOB | CIF |
|---|---|---|
| Export packing and export clearance | Seller | Seller |
| Origin terminal handling and loading on board | Seller | Seller |
| Sea freight to the Gulf | Buyer | Seller |
| Cargo insurance | Buyer (optional, recommended) | Seller, minimum ICC (C) at 110% |
| Risk during the voyage | Buyer | Buyer |
| Destination THC, delivery order and local charges | Buyer | Buyer, unless in the seller's freight contract |
| Import clearance, 5% duty and 5% VAT in the UAE | Buyer | Buyer |
| Delivery to your warehouse | Buyer | Buyer |
| Who controls booking and routing | Buyer | Seller |
Risk: the part both terms share
Many importers believe CIF keeps the supplier responsible until the ship reaches Jebel Ali. It does not. CIF has two critical points: the seller pays costs up to the destination port, but risk moves to the buyer at origin, once the goods are on board. If cartons are crushed in heavy weather or a container is lost at sea, the loss is yours under FOB and under CIF alike. Under CIF you claim on the policy the supplier bought; under FOB, on the policy you bought. Either way the voyage must be insured, and only you can make sure the cover is good enough.
The CIF insurance gap
The insurance a CIF seller must buy is the narrowest standard cover. Institute Cargo Clauses (C) pays for major casualties only; theft, most water damage and rough handling are not covered. The carrier will not fill the gap either. Under the Hague-Visby Rules, which most carrier B/Ls incorporate, its liability is capped at 666.67 SDR per package or 2 SDR per kg, whichever is higher, and it is excluded for causes such as perils of the sea or fire. A 20 kg carton of electronics worth USD 5,000 might recover only about USD 900 from the carrier.
| What happened | ICC (C) | ICC (B) | ICC (A) |
|---|---|---|---|
| Fire, explosion, sinking, stranding, collision | Covered | Covered | Covered |
| General average sacrifice or jettison | Covered | Covered | Covered |
| Washing overboard or entry of sea water | Not covered | Covered | Covered |
| Whole package lost overboard or dropped during loading or unloading | Not covered | Covered | Covered |
| Theft, rough handling and other accidental damage | Not covered | Not covered | Covered unless excluded |
| War and strikes | Only if added | Only if added | Only if added |
| Poor packing, delay, inherent vice | Excluded | Excluded | Excluded |
The destination charges trap
Some Chinese suppliers quote CIF with very low or even zero freight. The difference often reappears at the destination: before the shipping line releases the container, the consignee at Jebel Ali, Khor Fakkan or Sohar receives invoices for destination terminal handling, the delivery order fee, documentation and other local charges. Under CIF these are for the buyer unless the seller's freight contract expressly includes them. Under FOB you see them up front in your own forwarder's quote, which makes two offers easier to compare.
Questions to ask a supplier quoting CIF
0/7Worked example: the duty base is the same
UAE customs calculates duty on the CIF value, so switching between FOB and CIF does not change your duty base. Example: goods at FOB USD 20,000 plus freight and insurance of USD 2,000 give a CIF value of USD 22,000, about AED 80,795 at the 3.6725 peg. Duty at 5% is about AED 4,040. Import VAT at 5% applies to CIF plus duty, about AED 4,242; a VAT-registered importer whose customs code is linked to its tax number can usually account for it through the reverse charge. The freight figure is illustrative only. Try your own numbers below.
Most goods from China pay 5% GCC duty on CIF, once, at the first GCC entry. VAT is on CIF + duty. Estimate only.
Which to choose when importing to the Gulf
| Your situation | Better fit | Reason |
|---|---|---|
| Regular importer with your own forwarder | FOB, or FCA | You control carrier, routing and see destination costs up front. |
| Small first order, one price to the port | CIF, with cover upgraded to ICC (A) | Simple, but get destination charges confirmed in writing. |
| Paying by letter of credit | Either, matched to the L/C | CIF needs an insurance document; an FOB L/C should not ask for one. |
| Several suppliers in one container | FOB or FCA to our Guangzhou warehouse | One booking and one B/L; each supplier clears its own export. |
| High-value or fragile goods | FOB with your own ICC (A) policy | You control the cover and the claim. |
Quick quiz
FOB or CIF?
Frequently asked questions
What is the difference between FOB and CIF?
Under FOB the buyer pays sea freight and insurance from the Chinese port; under CIF the seller pays freight to the destination port and buys minimum insurance. In both cases risk passes to the buyer once the goods are on board at origin.
Is FOB or CIF better for importers?
For regular importers with a trusted forwarder, FOB usually gives more control over carrier, routing, insurance and destination costs. CIF suits small or first orders, provided you check the insurance level and destination charges.
Who pays insurance under FOB?
Nobody is obliged to, but the buyer carries the risk from on board, so the buyer should insure. ICC (A) at 110% of CIF value is the usual recommendation.
Under CIF, who is responsible if goods are damaged at sea?
The buyer bears the loss, because risk passed at loading. The buyer claims on the insurance policy the seller bought and may also claim against the carrier within its liability limits.
Is UAE customs duty calculated on FOB or CIF value?
On the CIF value. Customs adds freight and insurance to an FOB price, then charges 5% duty on most goods, plus 5% VAT on CIF plus duty.
Who pays destination charges under CIF?
Usually the buyer. Terminal handling, delivery order and local charges at the destination port are billed to the consignee unless the seller's freight contract expressly includes them.
Can FOB or CIF be used for truck or air freight?
No. Both are for sea and inland waterway transport only. For other modes use FCA, CPT, CIP or a D-term.
Sources
- ICC – Incoterms rules (official page)
- ICC – Incoterms 2020 rules overview
- Trade Finance Global – Incoterms 2020 commentary (PDF)
- Wecox Claims Group – Summary of transport conventions and liability limits (Dec 2024)
- Al-Monitor – Ship insurers juggle war risks for perilous Gulf route (March 2026)
- Seatrade Maritime – London marine insurers extend Middle East war risk zones
- Lloyd's List Intelligence – Strait of Hormuz Brief, 30 September 2026
General information checked on the date shown. Rules and rates change: our team confirms the details for your shipment.