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What's the Difference by FOB and CIF? - Incoterms Comparison

Views: 34     Author: Site Editor     Publish Time: 2022-11-24      Origin: Site

FOB vs CIF


Trade Terms

Trade Terms, also known as Price Terms, is a shorthand expression that defines the division of costs, risks and responsibilities between the buyer and seller, as well as the obligations of the buyer and seller in the process of delivery and receipt of goods, and is an important part of the price in trade. Commonly used are FOB incoterms and CIF incoterms.


This is the content list:

· FOB Incoterms

· CIF Incoterms

· Difference Between FOB and CIF



What's the Difference by FOB and CIF? - Incoterms Comparison


FOB Incoterms


FOB Incoterms

Definition: FOB is the capitalization of the first letter of the three words FREE ON BOARD, meaning delivery on board at the port of shipment, specifying the name of the specific port of shipment.


Applicable modes of transportation: sea freight.


Key points: risk division point, delivery point, cost division point are in the port of shipment designated by the buyer's ship side (in practice for loading to the ship's hold).


The main obligations of the seller:


1. Responsible for the delivery of the goods conforming to the contract to the ship designated by the buyer in the port of shipment in the customary manner at the designated port within the date or period specified in the contract, and give the buyer sufficient notice of loading.


2. Responsible for obtaining export license or other approved certificates (commodity inspection certificate, certificate of origin, etc.) for the export of goods (customs clearance, export booking, etc.).


3. Bear all costs and risks until the goods cross the ship's rail at the port of shipment (actually until the ship's hold).


4. Responsible for providing commercial invoices and usual documents proving that the goods have been delivered to the ship (shipping bill of lading has been loaded).


Buyer's main obligations:


1. Responsible for paying the price of the goods according to the contract.


2. Responsible for booking or chartering, payment of freight (sea freight), and give the seller adequate notice of the name of the ship, the place of loading and the required delivery time, (in practice the buyer informs the seller of its freight forwarder at the port of shipment, and asks the seller to book the ship, sea freight is paid on arrival, paid by the buyer, usually the buyer pays the sea freight cheaper than the seller himself to book the ship 10-20%).


3. Obtain import license (quota in the importing country also by the buyer to the domestic administrative agencies) or other approved certificates at your own risk and expense, and handle all customs formalities for the import of goods and, if necessary, transit transport through another country.


4.  Bear all the costs and risks of the goods after crossing the ship's rail at the port of shipment (actually after the cabin of the port of shipment)


5. Receive the goods delivered by the seller according to the contract, and accept the documents in accordance with the contract.


Points to note in the actual business:


1. Trade contracts specify the port of departure: the port of departure should be a seaport or river port (Nantong, Chongqing port, etc. for the river port)


2. The trade requires the seller to provide a clean bill of lading has been loaded, the transfer of risks and costs that the port of shipment specified in the cabin.


3. Ship and cargo connection should be clearly defined in the trade contract, empty space charges, demurrage and storage insurance and other additional costs paid by who.


4. The loading charges at the port of shipment shall be borne by whoever pays the THC charges, and the international trade principle shall be whoever pays the THC charges for the ocean freight.


5. When making trade contracts with U.S. customers and other American customers, pay attention to whether the customer chooses the "1941 U.S. Foreign Trade Definition Revision" trade practice or the internationally accepted INCOTERMS 1990/2000 practice in determining the price terms. Because the same FOB term two practices are interpreted differently, the risks, costs, responsibilities and obligations of both parties are very different.


6. Negotiate with the customer to strive for its only designated shipping company or shipping agency, strive for the freight forwarder by our arrangement, the destination port freight forwarder should also be designated by our freight forwarder, which can greatly reduce trade risks.


CIF Incoterms


CIF Incoterms

Definition: CIF is COST, INSURANCE, AND FREIGHT (....) NAMED PROT OF DESTINATION) the first letter of the three words composed of capital letters, meaning cost plus insurance plus freight. (NAMED PROT OF DESTINATION), means that when the goods cross the ship's rail at the port of shipment, (actually in the hold of the shipping vessel), the seller completes the delivery. The freight and insurance of the goods from the port of shipment to the port of destination are paid by the seller, but the risk of damage and loss of the goods after loading is borne by the buyer.


Applicable modes of transportation: ocean freight.


Key points: risk point, delivery point on board the ship at the port of departure, cost division point to the ship at the port of destination.


The main obligations of the seller:


1. Within the period stipulated in the contract, deliver the goods conforming to the contract at the port of shipment to the ship carrying to the designated port of destination, and give the buyer notice of loading.


2. Responsible for the export procedures of the goods, obtain export license or other approved certificates (origin, commodity inspection certificate, etc.)


3. Responsible for chartering or booking and paying the sea freight to the destination port.


4. Responsible for handling cargo transportation insurance and paying insurance premiums


5. Responsible for all costs and risks until the cargo crosses the ship's rail in the port of shipment.


6. Responsible for providing commercial invoice, insurance policy and bill of lading of the goods loaded on board, etc.


Buyer's main obligations:


1. Pay the price according to the contract.


2. Responsible for the import procedures to obtain import license or other approvals.


3. To bear all the costs and risks of the goods after crossing the ship's rail in the port of shipment.


4. Receive the goods delivered by the seller according to the contract and accept the documents which are in conformity with the contract.


Points to note in the actual business:


It should be stressed that, according to the CIF term transaction, although the seller to arrange for the transport of goods and freight insurance, but the seller does not assume the obligation to ensure that the goods to the agreed port of destination, because CIF is a term belonging to the shipment of delivery, rather than the term of delivery to the port of destination, that is, CIF is not "CIF".


CIF, i.e. "cost, insurance and freight", means that delivery is completed when the goods are loaded onto the carrier's vessel at the port of shipment.


CIF usually means FOB + freight + insurance.


C&F (CFR) is different from CIF, C&F: cost and freight, means cost + freight, followed by the name of the port of destination, which means the freight should be counted to the port of destination, and the responsibility also stops at the port of loading.


C&F (CFR) usually means FOB+freight. The seller must pay the freight and charges required to bring the goods to the named port of destination, but the risk of loss of or damage to the goods after delivery and any additional costs due to various events is transferred from the seller to the buyer. However, under CIF conditions, the seller must also take out marine insurance against the risk of loss of or damage to the buyer's goods in transit.


Therefore, it is up to the seller to conclude the insurance contract and pay the insurance premium. The buyer should note that the CIF term only requires the seller to carry a minimum level of insurance coverage. If the buyer requires a higher level of insurance coverage, it is necessary to make an express agreement with the seller or to make additional insurance arrangements on its own.


The CIF term requires the seller to handle the export customs clearance of the goods and the buyer to handle the import customs clearance of the goods.


The term is only applicable to sea and river transportation. CIP terminology should be used if the parties are not obliged to load the vessel.


FOB VS CIF.


Difference Between FOB and CIF

1. The price term after the nature of the port is not the same, FOB after the port refers to the seller's country of seaport or river port, and CIF after the port refers to the buyer's country of seaport or river port, CIF price term after the port of destination should be indicated after the port belongs to the country, such as the port of Victoria, there are in Hong Kong, the United Kingdom, Brazil, the country must be added to distinguish.


2. The cost composition is not the same, the offer is not the same. FOB price is to consider the goods from the purchase of raw materials, production until the export of goods loaded into the buyer's designated cabin with all the costs and profits, while the CIF is based on the FOB price plus shipping costs and insurance costs.


3. THC terminal handling charge payment object is different. In accordance with the principle of who pays for shipping costs who pays for THC costs, FOB price terms in THC costs should be borne by the buyer, CIF in THC should be borne by the seller, the current domestic THC standard for 20 'cabinet 370 yuan, large cabinet 40 'for 560 yuan, THC costs should be clearly stated in the trade contract by who pays.


4. Insurance payment, for different: FOB, CNF insurance by the buyer, the seller shall notify the buyer before shipment; CIF insurance by the seller and pay the insurance premium, the seller according to the terms of the contract, the insurance terms for insurance and the insurance policy to the buyer.


5. The price term international practice is different, FOB price in the United States and the International Chamber of Commerce in 1990 and 2000 general practice, CIF most of the International Chamber of Commerce in 1990 / 2000 practice, the conclusion of trade contracts or the customer issued a letter of credit to note the difference.


6. Air cargo: FOB, CFR, CIF are terms used in ocean freight and correspond to FCA, CPT, CIP respectively in air freight. FOB seller only bear all the costs of air freight before the goods on the plane, air freight port of destination costs borne by the buyer.


CIF seller in addition to bear the FOB air freight costs also need to bear the buyer's request for air freight charges and insurance coverage for air cargo.


The ownership of the goods is transferred to the buyer after the delivery of the goods by air from the port of shipment.


7. Chartering and booking different: FOB price by the buyer to specify the shipping company / shipping agency or even freight forwarding company to arrange shipping, the buyer can timely chartering and booking, will affect the timely delivery of the seller and the bank to pay the bill.


CIF price by the seller's own choice of shipping companies or freight forwarding companies.


8. Shipping notice to inform the buyer time is different: FOB price and CNF before shipment to inform the buyer, shipping content, shipping details so that the buyer has sufficient time for cargo marine insurance and CIF is insured by the seller can inform the buyer of shipping notice within a few days after shipment.


9. After shipment tracking services are different: FOB price terms due to the customer designated shipping agent / freight forwarder, the second and third transit is generally handled by the buyer, and CIF price terms, in order to provide better service to the seller generally by the seller in a timely manner contact the freight forwarder shipping agent will transit, the destination port agent information, when to the port and other information to inform the buyer. (But the CIF price in the seller does not have this obligation, the general operation of the buyer will have this requirement)


10. The risk of force majeure is different: the difficulty of the claim is different


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