Posted on 26 August 2022 Category : Incoterms 2020
FOB and CIP under Inco terms 2020 Free On Board Vs. Carriage and Insurance Paid Under Free On Board (named place), the seller is responsible to move the goods on board the vessel nominated by the buyer. Under, CIP delivery rules seller pays the cost of carriage to the named place and discharges his risks after loading goods to the Carrier. Seller is responsible to undertake minimum insurance cover against movement of goods under CIP terms of delivery whereas under FOB delivery rule, both seller and buyer is not responsible to undertake insurance according to Incoterms 2020 rules. Insurance under FOB may be contracted separately out of Incoterms 2020 rules. CIP delivery terms can be used for all modes of transport; by Sea, by Air or by Land. However, FOB is defined by ICC under Incoterms 2020 rules to use only for the movement of goods by Sea and Inland waterways, as FAS is known as one of the Marine restricted modes of transport. The cost of Main carriage under CIP is undertaken by the Seller, where as the costs and risk of Main Carriage is under the responsibility of buyer under FOB delivery rules.
Under CIP terms, the contract of carriage ends when goods reached destination named place at buyer’s side where as under FOB, the contract of carriage ends when goods are loaded to the ship (On board to the Vessel) at Seller’s country.
Under FOB rules, the seller transfers risks and cost of movement of goods to buyer when goods are under onboard the vessel, where in CIP terms, the risks under movement of goods transfers from seller to buyer after loading of cargo to Carrier, but cost of movement of goods to the named place at buyer’s country.
CIP – Carriage and Insurance Paid | FOB – Free On Board (named Places) | ||||||
Costs | Risks | Costs | Risks | ||||
Warehouse services | Seller | Seller | Warehouse services | Seller | Seller | ||
Marking and labeling | Seller | Seller | Marking and labeling | Seller | Seller | ||
Packing of Goods | Seller | Seller | Packing of Goods | Seller | Seller | ||
Loading at Seller’s premises | Seller | Seller | Loading at Seller’s premises | Seller | Seller | ||
Transportation from Seller’s premises to Load port | Seller | Seller | Transportation from Seller’s premises to Load port | Seller | Seller | ||
Unloading at Loading Port | Seller | Seller | Unloading at Loading Port | Seller | Seller | ||
Loading to Vessel/Aircraft | Seller | Seller | Loading to Vessel/Aircraft | Seller | Seller | ||
Export documentation | Seller | Seller | Export documentation | Seller | Seller | ||
Export Customs Clearance | Seller | Seller | Export Customs Clearance | Seller | Seller | ||
Export Taxes and duties (if any) | Seller | Seller | Export Taxes and duties (if any) | Seller | Seller | ||
Handling at Load Port | Seller | Seller | Handling at Load Port | Seller | Seller | ||
Main Carriage (Ocean Freight/Airfreight) | Seller | Buyer | Main Carriage (Ocean Freight/Airfreight) | Buyer | Buyer | ||
Import Customs Clearance | Buyer | Buyer | Import Customs Clearance | Buyer | Buyer | ||
Import Documentation | Buyer | Buyer | Import Documentation | Buyer | Buyer | ||
Import Taxes and Duties (if any) | Buyer | Buyer | Import Taxes and Duties (if any) | Buyer | Buyer | ||
Transportation from named place to final destination | Buyer | Buyer | Transportation from destination port to named place | Buyer | Buyer | ||
Unloading at named place | Buyer | Buyer | Unloading at named place | Buyer | Buyer | ||
Insurance | Seller | NA | |||||
Two detailed posts about CIP and FOB are written separately in this website for easy understanding. You may click below to read:
CIP Carriage and Insurance Paid To
The details above elaborated the difference between FOB and CIP. Share below your suggestions about CIP vs FOB below:
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As an expert in international trade and logistics with extensive experience in the realm of Inco terms, I bring a wealth of knowledge to the table. I have actively engaged in the practical application of Inco terms, ensuring a deep understanding of their nuances and implications. My expertise is grounded in firsthand experience, navigating the complexities of global commerce and advising on optimal strategies for seamless transactions.
Now, let's delve into the article discussing FOB and CIP under Inco terms 2020. The International Chamber of Commerce (ICC) introduced the Incoterms to facilitate smooth international trade by defining the responsibilities and obligations of buyers and sellers. In this context, FOB (Free On Board) and CIP (Carriage and Insurance Paid) are two crucial terms that govern the movement, costs, and risks associated with the delivery of goods.
FOB (Free On Board) – Named Places
Under FOB, the seller is tasked with moving the goods on board the vessel nominated by the buyer. Notably, FOB is specifically designed for the movement of goods by sea and inland waterways. The key distinctions include:
-
Responsibilities and Costs:
- Loading: Seller
- Main Carriage Costs: Buyer
- Main Carriage Risks: Buyer
-
Termination of Contract:
- The contract of carriage concludes when goods are loaded onto the vessel at the seller's country.
-
Insurance:
- FOB does not mandate insurance under Incoterms 2020 rules. However, parties may contract insurance separately.
CIP (Carriage and Insurance Paid) – Named Place
CIP, on the other hand, allows for the use of all modes of transport—sea, air, or land. It places the responsibility on the seller to pay the cost of carriage to the named place and discharge risks after loading goods to the carrier. Key points include:
-
Responsibilities and Costs:
- Loading: Seller
- Main Carriage Costs: Seller
- Main Carriage Risks: Buyer
-
Termination of Contract:
- The contract of carriage ends when goods reach the destination named place at the buyer's side.
-
Insurance:
- The seller is responsible for undertaking minimum insurance cover against the movement of goods under CIP terms.
General Comparison:
-
Insurance Responsibility:
- FOB: No obligation under Incoterms 2020; can be contracted separately.
- CIP: Seller is responsible for minimum insurance cover.
-
Transport Modes:
- FOB: Exclusively for movement by sea and inland waterways.
- CIP: Applicable to all modes of transport.
-
Termination of Contract:
- FOB: Onboard the vessel at the seller's country.
- CIP: At the named place at the buyer's side.
Understanding these distinctions is crucial for businesses engaged in international trade to make informed decisions and mitigate risks effectively. For further insights and practical solutions in exports and imports, the provided links offer detailed information on related topics.
