Almost every aluminum contract is written FOB or CIF. Both are perfectly workable, and both are routinely misunderstood in the same way: the buyer believes the seller is responsible for the cargo until it arrives.
Neither term says that. In both, the risk leaves the seller when the goods are on board the vessel. What changes is who pays the freight.
The three terms side by side
| FOB | CIF | DAP | |
|---|---|---|---|
| Export clearance | Seller | Seller | Seller |
| Main carriage | Buyer | Seller | Seller |
| Insurance | Buyer | Seller, minimum cover | Seller, no obligation |
| Risk transfers | On board vessel | On board vessel | At destination, on the vehicle |
| Destination terminal costs | Buyer | Buyer, usually | Seller |
| Import clearance and duty | Buyer | Buyer | Buyer |
| Unloading at destination | Buyer | Buyer | Buyer |
FOB: what you are actually buying
Free On Board, named port of shipment. The seller delivers the goods on board the vessel the buyer has nominated, clears them for export, and is done. Cost and risk both transfer at that point.
Three practical consequences for aluminum.
The buyer controls the freight. That is the point of FOB — you choose the forwarder and you see the ocean rate. On a regular lane with a forwarder you use, this is usually cheaper than letting the seller bundle freight into the price.
The buyer also carries the risk from the moment of loading. Six weeks of ocean, transhipment, port handling, and any damage in between is yours. If the cargo is insured, you bought the insurance.
Nomination timing matters. Under FOB the buyer must nominate the vessel in time for the seller to deliver. If the seller's material is ready and no vessel is nominated, storage charges accumulate — and under FOB those can fall on the buyer.
A common variation is FOB with the seller arranging freight anyway, which is convenient and drifts toward CIF without the insurance. If you want that, write it; do not let it happen by default.
CIF: the term with a trap in it
Cost, Insurance and Freight, named port of destination. The seller pays for carriage to the destination port and arranges insurance. Cost transfers further than under FOB.
Risk does not. This is the part buyers miss. Under CIF the risk still passes to the buyer when the goods are on board at origin. If the vessel sinks in the Indian Ocean, the buyer's remedy is against the insurer, not the seller — the seller has performed.
Which brings up the trap. CIF requires the seller to provide minimum insurance cover, and under Incoterms 2020 that minimum for CIF remains Institute Cargo Clauses (C). (CIP was raised to (A) in the 2020 revision; CIF was not.)
ICC(C) is a named-perils cover. It responds to major casualties — sinking, stranding, fire, collision, discharge at a port of distress — and it does not cover:
- handling damage, including the dented edges and crushed corners that make up most aluminum claims
- water damage from condensation, which is the mechanism behind white rust
- theft
- scratching and abrasion
Read that list against the four failure patterns aluminum actually suffers, and the conclusion is uncomfortable: the insurance a CIF seller is obliged to provide covers almost none of the risks an aluminum buyer faces.
This is not sharp practice. The seller is meeting the standard. It is simply that the standard is written for cargo in general, and aluminum's typical losses are handling and moisture, not catastrophe.
If you buy CIF, ask two questions before the order: what clauses is the cover on, and what is the insured value. Then either require ICC(A) in the contract — it is quotable, and it costs a fraction of a percent of cargo value — or arrange your own cover and tell the seller not to include insurance.
DAP: when you want the door
Delivered at Place, named destination. The seller carries the goods to your named location, ready for unloading, with all transport risk to that point. Import clearance and duty stay with the buyer, and so does unloading.
DAP is the simplest term for a buyer who does not want to run a forwarder, and it is common on smaller or first orders. Two things to watch:
"Ready for unloading" is not "unloaded". If the vehicle arrives and your dock cannot take the load, the seller has still performed, and waiting time may become your cost.
Duty and import formalities are yours. DAP is not DDP. If your broker is not ready when the truck arrives, you have a loaded vehicle and a demurrage clock.
The costs that sit outside all three terms
Destination terminal handling charges, documentation fees, and port security fees are usually the buyer's under both FOB and CIF. They are small per shipment and large per year, and they are the reason a CIF quote and an FOB quote plus your own forwarder's invoice can differ by more than the freight line suggests.
Ask for a landed cost breakdown rather than comparing headline rates. Our note on the six costs between FOB and your door walks through what actually accumulates.
The documents have to match the term
A letter of credit is a documentary instrument. The bank pays against documents listed in the credit, and it will refuse a presentation that does not match. Which means the term and the credit have to be written as one thing, and they often are not.
The mismatch that causes most trouble: a credit written on FOB terms that requires an insurance policy.
Under FOB the seller has no obligation to insure. If the credit demands a policy, the seller either buys cover they were not obliged to buy — and charges for it — or presents without one and the documents are rejected. Neither outcome was intended by whoever wrote the credit.
The reverse also happens. A CIF credit that asks for "insurance covering all risks" is asking for ICC(A), not the ICC(C) that CIF minimally requires. If the seller prices CIF on the default, the presentation fails on the insurance document.
Four document sets, by term:
| Term | Seller presents | Note |
|---|---|---|
| FOB | Commercial invoice, packing list, bill of lading, certificate of origin, MTC | No insurance document required |
| CIF | The above plus insurance policy or certificate | Policy must match the clauses named in the credit |
| CFR | The above, without insurance | Cost and freight, no cover |
| DAP | Invoice, packing list, transport document to the named place | Usually not a bill of lading, so weaker under a credit |
DAP deserves the warning. A truck delivery produces a CMR or an inland consignment note, not an ocean bill of lading. That document is not a document of title, and many credits cannot work with it. If payment is by letter of credit, CIF or FOB is the practical choice regardless of which is commercially preferable.
The fix is simple: write the credit from the term, not the term from the credit. If the term is FOB, the credit should require no insurance. If the buyer wants insurance cover, either buy it themselves or change the term to CIF and specify ICC(A) in both the contract and the credit.
Which to choose
First order with a new supplier: CIF, with ICC(A) written into the contract. You get one number, one point of contact, and cover that matches the risks. The extra insurance premium is small against the value of not discovering the gap during a claim.
Regular lane, your own forwarder: FOB. You control the rate, you consolidate with other suppliers, and you keep the freight data. This is where FOB earns its reputation.
Small order, no freight capability: DAP. Accept the premium for simplicity, and make sure your receiving dock can handle the vehicle.
Never: CIF and assuming you are covered. That combination is how a routine handling claim turns into a total loss.
The clause worth adding either way
Whichever term you use, one sentence in the contract closes most of the gap:
Insurance, where provided by the seller, shall be on Institute Cargo Clauses (A), insured value 110% of invoice value.
ICC(A) is all-risks subject to exclusions, and its exclusions are narrower and more specific than ICC(C)'s. The 110% figure is the trade convention and covers the freight and expected margin on top of the goods.
Incoterms decide who arranges what. They do not decide whether the cover is adequate — that is a contract term, and it is yours to write.
If you are comparing an FOB quote against a CIF quote and want the two put on the same footing, send both and the destination postcode. The difference is usually in the insurance and the terminal charges, not in the freight.