International Shipping: Who Owns the Goods and Who is Responsible?

International shipping involves a clear transfer of ownership and responsibility. The answers to who owns the goods and who is liable if something goes wrong are found in the logistics of Free on Board (FOB) and Cost, Insurance, and Freight (CIF).

At some stage, cross-border imported products transfer from the seller’s property to the buyer’s property. But exactly when and where does ownership transfer? Who bears the risks and costs of the product during transit?

Since international shipping agreements have been used for thousands of years, modern contracts between buyers and sellers help answer these questions in a legally binding way. Incoterms (CIF and FOB) clarify the attribution of responsibility at any stage along the shipping route.

Regarding FOB vs. CIF logistics, which one is better for your business? Let’s take a look.

What is the Difference Between CIF and FOB?

As a wholesaler, shipping agreements play a vital role in your sales and distribution process. They determine who is responsible for the goods transported between the seller and the buyer.

In import and export trade, there are many different shipping agreement options. This is where Cost, Insurance, and Freight (CIF) and Free on Board (FOB) come into play. CIF and FOB are among the most commonly used international shipping agreements in the Incoterms established by the International Chamber of Commerce (ICC).

This article will discuss the differences between CIF and FOB. We will compare CIF and FOB agreements and discuss factors to consider when choosing an international shipping protocol.

What is a Shipping Agreement?

Shipping obligations dictate whether the buyer or seller is responsible for an order placed between transit and delivery.

This is especially important in cross-border trade because freight often passes through international waters, governed by different rules and regulations. Recording everything according to who is responsible for what helps reduce potential issues.

Shipping contracts may also contain other clauses, such as delivery details and price. However, when handling large orders—especially international ones—it is crucial to determine the attribution of responsibility for potential damage during transit.

When negotiating with buyers, you need to clarify the shipping obligations your company is willing and able to support. For example, you must inform suppliers whether you prefer to hand over responsibility before shipment.

Fortunately, standard shipping agreements are detailed in the ICC’s International Commercial Terms. Let’s look closer at the two most popular protocols—CIF and FOB—to better understand how they work.

What is CIF?

Cost, Insurance, and Freight (CIF) is a shipping agreement where the seller bears the costs and risks associated with transportation. Under a CIF shipping point agreement, the seller is responsible for loading the goods until they arrive at the destination port.

In a CIF agreement, “crossing the ship’s rail” at the destination port is usually regarded as the official location where the seller’s responsibility ends and transfers to the buyer.

For CIF contracts, the seller’s responsibilities include freight, cargo insurance, and any other fees. Notably, insurance usually only covers minimum loss (e.g., total loss of cargo), so buyers may need additional protection for specific risks.

Since these costs are added together, buyers usually factor them into the cost of goods, increasing costs for all involved parties. It is important to note that under CIF terms, the buyer must bear the subsequent transportation costs from the destination port to the buyer’s warehouse.

With CIF, the supplier has more control and responsibility. This is a double-edged sword. Transferring responsibility to the seller reduces the buyer’s burden; however, because the seller has more control, the buyer is completely at the mercy of the seller’s decisions. Buyers cannot make cost-effective decisions, often paying higher fees for goods and shipping services.

Example: Imagine a small US retailer importing clothing from China. They choose CIF because they lack logistics experience, and the Chinese supplier handles everything before the goods reach the port. However, they later realize shipping costs were higher than expected due to the carrier chosen by the supplier.

Pros and Cons of CIF

Choosing CIF has advantages and disadvantages for both parties.

Pros:

• Seller has more control.
• Buyer has less responsibility.
• Provides a smoother experience for the buyer.
• Less stress for the buyer.
• Gives the seller an advantage among buyers (due to convenience).

Cons:

• Seller assumes more liability.
• Buyer has less control over delivery costs.
• Extra costs for the seller may drive up product prices.
• Can be more expensive for all parties.

What is “China CIF”?

“China CIF” usually refers to the use of the CIF Incoterm in an international trade context involving China. CIF is a standardized shipping term defined by the ICC. It outlines the respective responsibilities, costs, and risks of the seller and buyer.

In the case of “CIF China,” it typically means the seller (usually a Chinese supplier or exporter) is responsible for:

• The cost of the goods.
• Insurance coverage during transit.
• Freight charges to deliver the goods to a designated destination port in China (e.g., CIF Shanghai or CIF Ningbo).

Breakdown of CIF in Trade with China:

• Seller Obligations: The seller (e.g., Chinese exporter) must arrange and pay for the transport to the designated Chinese port, cover marine insurance during transit, and handle export customs clearance in their country. Risk transfers from the seller to the buyer once the goods are loaded onto the vessel at the port of origin.
• Buyer Obligations: The buyer assumes responsibility for the goods after they arrive at the destination port. They must bear unloading costs, import customs clearance, taxes, duties, and any subsequent transportation from the Chinese destination port to the final destination.

Example: If a supplier quotes “CIF Shanghai” for goods shipped from China to an overseas buyer, the supplier covers the cost, insurance, and freight, but the buyer handles all costs after the goods are loaded at the Chinese port.

CIF is popular in trade with China due to its massive export market. However, while CIF seems convenient for buyers, it can sometimes lead to higher fees or hidden costs because the seller controls the choice of the insurance company and carrier, potentially inflating prices.

What is FOB?

Free on Board (FOB) is a shipping agreement where the buyer assumes responsibility from the moment the goods leave the port of origin. The buyer is responsible for choosing and paying the freight company, cargo insurance, and other related costs.

In an FOB agreement, responsibility transfers from the seller to the buyer once the product “crosses the ship’s rail” at the origin.

The most notable feature of FOB is that it is often more cost-effective than CIF. This is because buyers can negotiate prices and choose their own insurance, providing greater flexibility. On the other hand, sellers are often reluctant to assume these risks as it may affect the quality of the customer experience.

Example: A German electronics importer chooses FOB Ningbo when sourcing from China. They hire their own freight forwarder and save 15% on shipping costs compared to CIF, but they must manage the logistics themselves.

Pros and Cons of FOB

FOB pricing also has several advantages and disadvantages.

Pros:

• Buyer has more control.
• Buyer can make cost-effective decisions.
• Lower costs for the seller.
• Less responsibility for the seller.

Cons:

• Buyer assumes more responsibility.
• Harder to manage smoothly for the buyer compared to CIF.
• Buyer needs to handle more expenses.

Key Differences: China CIF vs. FOB

The main difference between CIF and FOB lies in the responsible party for the goods. In a CIF agreement, the seller is responsible for the goods in transit; in an FOB agreement, the buyer is responsible.

Generally, FOB is considered the more cost-effective method. This is because buyers can make cost-effective decisions in transit, such as purchasing minimum insurance or working with low-cost freight companies. After all, they are in control. When a seller uses CIF, they are less likely to “cut corners” on costs because they are handling the other party’s goods, often leading to higher expenses.

Quick Comparison:

CIF vs. FOB: Which Will You Choose?

Both CIF and FOB have unique advantages. Your choice depends on your specific situation. Neither is inherently better or worse.

As a Seller: An FOB agreement gets you “off the hook” as soon as the goods leave the port. This arrangement costs you less but may cost the buyer more. It also saves you time. If your logistics resources are limited, FOB may be the ideal choice. However, to build long-term relationships, customer service is key. If you have a reliable logistics partner and want to attract customers by offering CIF, it might be the better choice despite the extra effort and expense.

As a Buyer: CIF is the better choice for a “done-for-you” experience. Of course, choosing CIF requires some flexibility in your budget.

How to Determine Which Incoterms to Use?

When shipping from China, customers often ask which option they should choose. Our usual answer is, “Most buyers choose FOB, so that might be what you want.” But that’s a bit brief.

Besides CIF and FOB, other Incoterms like EXW (Ex Works) transfer all responsibility to the buyer, while DAP (Delivered at Place) requires the seller to handle everything until the goods reach a specific destination.

Note: You do not need to be strictly limited by any international trade terms. Incoterms 2020 are “pre-packaged” terms designed to simplify life, but countless variations exist. If you are buying large quantities, these terms should not limit your creativity.

Example: A customer wants to receive goods at their own warehouse and have the seller pay import duties, but the customer wants to control the shipping (because they are more efficient at it than the supplier). They want something like DDU (Delivered Duty Unpaid), similar to FOB but with differences in transportation.

Writing these into a contract is not complicated. A professional logistics agent can help you identify opportunities and ensure the contract contains all key clauses. If you are buying small quantities from Chinese or Indian suppliers, they may not accept customized conditions. But if you represent a certain scale of business, they will usually listen and show flexibility.

The point is to avoid thinking “Which Incoterm should I choose?” without considering other options. Ultimately, the choice between CIF and FOB—and which shipping obligation makes the most sense—depends on you and your customer.

Please note: While Incoterms 2020 rules for CIF and FOB remain stable, recent global shipping challenges (such as port congestion as of March 2025) may affect your decision. Stay tuned to the latest logistics updates.

Conclusion

In summary, CIF and FOB each have pros and cons. The right choice depends on your business needs, budget, and desire for control. Whether you are a seller looking to simplify operations or a buyer seeking cost savings, discussing options with suppliers and logistics experts is key to optimizing your international trade process.

FAQ

Q: For a small business, which is better: CIF or FOB?

A: Small businesses with limited logistics experience may prefer CIF for its simplicity, while those with resources to manage shipping may save money through FOB.

Q: Can I have both CIF and FOB in one contract?

A: Yes, you can customize terms (e.g., the seller handles goods like CIF, but the buyer controls insurance like FOB), but this requires a clear agreement in the contract.

Q: If goods are damaged in transit, who is responsible?

A: In CIF, the seller’s responsibility ends after loading at the origin port; in FOB, the buyer assumes the risk from the start. Insurance coverage determines the compensation amount.