I'm sourcing products from a manufacturer in Guangzhou for the first time. They've offered me two price options:
I don't have a freight forwarder yet. The seller says CIF is easier for buyers because they don't have to worry about the shipping. But my cousin who works in logistics says I should always buy FOB.
Who is right? What are the actual trade-offs? Is the $1,700 difference reasonable for CIF on this shipment?
Your cousin is right — for most experienced importers, FOB is the preferred term. But let me explain why so you can make an informed decision.
Under FOB (Free On Board): Risk transfers to you when the goods are loaded onto the vessel at origin. You are responsible for booking the ocean freight, arranging cargo insurance, and handling import clearance. Your freight forwarder manages all of this on your behalf.
Under CIF (Cost, Insurance & Freight): Your supplier handles the ocean freight and a minimum insurance policy, and delivers to the named destination port. You take over from the moment the ship arrives at the destination port.
Why most importers prefer FOB:
Is $1,700 a fair CIF premium? That depends on shipment size. If this is a 1–2 CBM small parcel, $1,700 is extremely high. If it's a 15+ CBM LCL or an FCL, it might be roughly market rate. Ask the supplier for a freight cost breakdown.
My recommendation: Get a freight forwarder (there are many good ones with no minimums), buy on FOB terms, and control your own logistics.
Thank you all — this is incredibly helpful. I went ahead and contacted two freight forwarders. One quoted me USD 380 for LCL ocean freight (it's a 3.2 CBM shipment) plus $95 for cargo insurance. That's $475 total, versus the $1,700 CIF premium my supplier was charging.
I've switched to FOB terms and am now working directly with the forwarder. Saved $1,225 on the first order alone. Highly recommend anyone in the same situation to at least get a FOB comparison quote before agreeing to CIF.
Excellent answer from John. I'll add a real-world scenario that illustrates why CIF can bite you.
A client of mine — a first-time importer of kitchenware — bought CIF from a Guangzhou supplier. The goods arrived at LA port, but there was a 3-week delay in the shipping line releasing the container because of a billing dispute between the supplier and the carrier. My client had already paid the supplier in full, but couldn't get their goods. The supplier wasn't motivated to resolve the issue quickly because they'd already been paid.
Under FOB, the importer would have had a direct contract with the carrier (or through their forwarder) and could have resolved this independently. Under CIF, there was no direct relationship.
For your specific quote: The $1,700 difference on a $12,500 FOB cargo is a 13.6% CIF premium. To sanity-check whether this is fair, I'd suggest:
If it's a small shipment under 5 CBM, market freight rates might be only $300–500, making the CIF premium very expensive. If it's 20+ CBM, $1,700 might actually be competitive.
One more angle: customs duty calculation.
In many countries, import duties are calculated on the CIF value — meaning the cost of goods PLUS freight AND insurance to the destination port. When you import on FOB terms, you declare FOB value + freight + insurance as your customs value (CIF at destination). This is straightforward.
However, when you import on CIF terms, the customs value is the CIF price your supplier quoted. If the supplier inflated the CIF price (as Mike mentioned is common), you end up paying higher customs duty than necessary.
For the US, customs value is technically FOB origin (not CIF), which makes this less of an issue compared to countries that use CIF as the customs base. But it's a consideration worth knowing if you later import to India, the EU, Australia, or most developing countries.
Bottom line: always request FOB pricing from your Chinese supplier, then add your actual freight and insurance on top. You'll have a clean cost structure and avoid any hidden markups.