FOB vs CIF for New Zealand Sea Freight: What Is the Difference?

What is the difference between FOB and CIF?

CIF is FOB plus two seller obligations: paying the sea freight to the destination port and buying cargo insurance. The delivery point and the risk transfer point do not move.

Under FOB (Free on Board) the seller clears the goods for export and delivers them on board the vessel you nominate at the named port of shipment. You choose the carrier or forwarder, pay the main sea freight and take on everything from there. Nobody has to buy insurance, so cover is your decision.

Under CIF (Cost, Insurance and Freight) the seller arranges and pays the sea freight to the named destination port, such as Auckland or Tauranga, and buys insurance for the voyage. The seller still delivers the goods on board at the origin port, and risk still passes to you there. The seller builds the freight and insurance into the price and does not look after the goods once they are on board.

Who pays for what under FOB and CIF?

The two terms split the same list of jobs in almost the same way. The differences are the sea freight and the insurance.

The row that causes most confusion is the one about risk. Under CIF the seller carries the cost of the voyage and you carry the risk.

When does risk pass under FOB and CIF?

When the goods are physically loaded on board the vessel at the named port of shipment, which is later than the terminal gate and earlier than sailing.

That moment is the delivery point for both terms. If a crane drops the cargo while loading, the seller bears the loss. If it is damaged at sea or while it is discharged in New Zealand, you bear it, whether you are on FOB or CIF terms. The only difference is whether a policy exists to claim against, and whose choice of carrier you are relying on.

Risk and cost are separate questions in Incoterms. CIF puts the freight cost on the seller up to the destination port while the risk sits with you from loading. Reading CIF as "the seller looks after it until it arrives" is a common error, and our guide to common Incoterms mistakes that cost New Zealand businesses money covers that and seven others.

What insurance does CIF actually give you?

The minimum. Incoterms 2020 requires the seller to buy Institute Cargo Clauses (C), a named perils policy, for at least 110 percent of the contract price.

Clauses (C) responds to major events: fire or explosion, a vessel stranding, sinking or capsizing, collision, discharge at a port of distress, general average sacrifice and jettison. It does not cover handling damage, vibration, cargo shifting inside the container, improper packing, delay or the carrier becoming insolvent. For bulk commodities that is often enough. For machinery, electronics, pharmaceuticals or anything fragile it usually is not.

Two further points apply to CIF. The seller must give you a transferable insurance document so you can claim, so check that the certificate names you or is assigned to you. And if you need all risks cover from the seller, the Incoterms 2020 rule that provides it is CIP, which requires Clauses (A). CIP is an any mode rule, so it suits containers as well. Under FOB nobody has to insure, so confirm with your own broker that your marine cargo policy starts at the point risk passes at origin.

Should you use FOB or CIF for containers?

Usually not. FOB and CIF were written for cargo lifted from the quay straight onto the ship. For containers, use FCA in place of FOB and CIP in place of CIF.

A container is handed to the terminal before the vessel loads it, and it can sit in the yard for several days. Under FOB or CIF the seller's risk continues until the box is on board, but the seller has lost control of it at the terminal. That is the terminal risk gap, and it is where disputes over damaged or missing containers tend to start.

FCA transfers risk when the goods are handed to your carrier or terminal, which matches how container logistics work. Since Incoterms 2020, FCA can also produce an on board bill of lading for letter of credit work, which removes the last common reason to keep writing FOB on container contracts. FOB still works as designed for bulk and break bulk cargo such as grain, coal, timber and project cargo loaded directly from the quay.

In practice, many New Zealand importers still see FOB and CIF on container quotes because they are familiar. If you cannot change the term, treat the gap as a fact and confirm where your insurance actually begins. Our guide to EXW vs DDP for New Zealand importers covers the two terms at the other end of the range.

How do FOB and CIF affect Customs value and GST in New Zealand?

The Incoterm sets how the invoice price is made up, and your broker reconciles that when the entry is lodged. The duty and GST you owe come from the law.

Duty in New Zealand is assessed on the Customs value of the goods, broadly the transaction value on an FOB type basis, which excludes international freight and insurance. GST on imported goods is assessed on a larger figure: the Customs value plus duty plus international freight and insurance. Both come from the Customs and Excise Act 2018 and the GST rules, not from the contract.

A FOB invoice is already close to the Customs value, and the freight and insurance arrive as separate invoices from your forwarder and insurer. A CIF invoice rolls freight and insurance into the unit price, so your broker needs the breakdown to arrive at the Customs value and to calculate GST correctly. Ask the seller to show freight and insurance as separate lines on the commercial invoice. Valuation rules and thresholds can change, so confirm the current position with your broker for any live shipment.

The importer of record claims the GST input credit. Under both FOB and CIF that is you, the New Zealand buyer, which is a reason these terms keep the credit with you in a way DDP does not.

When should a New Zealand importer choose FOB, and when CIF?

Choose FOB when you want control of the freight and have a forwarder you trust. Choose CIF when the seller can offer better freight than you can buy and you are happy with the insurance.

FOB suits you when

• You buy regularly and have a forwarder who negotiates rates and gives you shipment visibility.
• You want to choose the carrier, the sailing and the routing through to New Zealand.
• You carry your own marine cargo policy and want the cover to match your goods.
• The cargo is bulk or break bulk loaded directly from the quay.

CIF suits you when

• You are a small or occasional importer and want a single price for goods and sea freight.
• The supplier ships large volumes and gets better freight rates than you could.
• The goods are sturdy and Clauses (C) cover is adequate, or you have separate cover for the gaps.

Neither suits you when

• The goods move in containers and you want a clear handover. Look at FCA or CIP.
• You want the seller to deliver to your door. Look at DAP, and read the DDP warnings first.

Whichever you choose, compare the full landed cost, not the unit price. A CIF quote that bundles freight at a high rate can cost more than a FOB quote with freight you buy yourself. A forwarder can price both routes for you. If you are not sure what that role involves, read how to start a career in freight forwarding in New Zealand.

How do you write the term into the contract?

State the rule, a specific named place and the Incoterms edition, in that order.

For example: FOB Shanghai Port, INCOTERMS 2020, or CIF Auckland, INCOTERMS 2020. With FOB the named place is the port of shipment. With CIF the named place is the port of destination, which is where the seller's freight obligation ends, even though risk passed at the origin port. That difference catches people out, so make sure the contract, the invoice and the bill of lading all agree.

The Incoterm is one clause in your contract. It does not say when title passes, how you pay or what happens if the goods are not as described. In New Zealand those matters sit with the contract and the Contracts and Commercial Law Act 2017.