FOB Condition
FOB is only used in sea
freight and stands for "Free On Board", and always used in
conjunction with a port of loading. Indicating "FOB port" means that the
seller pays for transportation of the goods to the port of shipment, plus
loading costs. The buyer pays cost of marine freight transport, insurance, unloading, and transportation from the
arrival port to the final destination.
CIF Condition
Cost, insurance and freight (CIF) is a trade term requiring the
seller to arrange for the carriage of goods by sea to a port of destination,
and provide the buyer with the documents necessary to obtain the goods from the
carrier.The specific stipulations of a CIF agreement are as follows (it is important to realize that because this is a legal term, its exact definition is much more complicated and differs by country; contact an international trade lawyer before using any trade term):
Under the terms of CIF, the seller's responsibilities include the provision of the goods and commercial invoice in conformity with the contract of sale, the acquisition and cost of any and all export licenses and other official authorizations, as well as the contracts and costs of the carriage of goods and insurance coverage. The seller is also responsible for the delivery of goods aboard the ship at the port of destination and during the stipulated timeframe, as well as the risk of lost or damaged goods up until the point of delivery, and the division of freight, customs and other associated costs. Further, the seller must give sufficient notice of delivery to the buyer, provide the buyer proof of delivery, cover checking, packaging and marking costs, and fulfill any other stipulated obligations.
Difference between CIF and FOB
Cost, Insurance and Freight CIF and Free on Board FOB are
international shipping agreements used in the transportation of goods between a
buyer and a seller. The specific definitions are different for every country,
but CIF and FOB have similar uses. They differ in who assumes responsibility
for the goods during transit. Both contracts specify origin and destination
information that is used to determine where liability officially begins
and ends. In CIF agreements, insurance and other costs are assumed by the seller, with liability and costs associated with
successful transit paid by the seller up until the goods are received by the
buyer. Goods are not considered to be delivered until they are in the buyer's
possession. FOB contracts relieve the seller of responsibility once the goods
are shipped. Once goods have passed the ship's rail, they are considered to be
delivered into the control of the buyer. When shipping to the buyer begins, the
buyer then assumes all liability. Each agreement has particular advantages and
drawbacks for both parties.
While sellers often prefer FOB and buyers prefer CIF, some trade
agreements find one method more convenient for both parties. A seller with
expertise in local customs that the buyer lacks would likely assume
responsibility to encourage the buyer to accept a deal, for example. Smaller
companies may prefer the larger party to assume liability, as this can result
in lower costs. Some companies also have special access through customs,
document freight charges when calculating taxation and other needs that
necessitate a particular shipping agreement.
CIF vs. CFR
Cost and Freight
(CFR), like CIF, requires the seller to pay the costs and
freight necessary to transport goods to the named port of destination. Risk
responsibility for lost or damaged goods, as well as any additional costs, gets
transferred from the seller to the buyer once the goods are onboard the
ship in the port of shipment. CFR requires the seller to clear the goods
for export. CFR and CIF are similar agreements; the exception being that, under
CIF, the seller is obligated to insure the goods while in transit for 110% of
their value.
CIF vs. CIP
Carriage and
Insurance Paid (CIP) is also similar to CIF in
that the seller is responsible for providing insurance coverage for the goods
while in transit for 110% of their value. However, CIP applies to all modes of
transport, while CIF can only be used for non-containerized sea freight.
CIF vs. FOB
With a Free on Board (FOB) agreement, the seller arranges for the transport of goods to a designated port or other point of origin. Once the seller releases the goods to the buyer, when the goods are onboard the ship, the delivery is considered accomplished. Unlike CIF, however, the point at which responsibility shifts from the seller to the buyer occurs when the shipment reaches the point of origin. With a CIF agreement, the seller assumes responsibility and pays costs until the goods reach the buyer's chosen port of destination. Furthermore, unlike CIF, FOB contracts are not limited to sea freight, and may also be used for inland and air shipments.
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