What Is the Difference Between CIF and FOB? (2024)

FAQs

What Is the Difference Between CIF and FOB? ›

In a nutshell, the major difference between FOB and CIF is in transference of liability and ownership. With FOB, title possession and liability usually shift when the shipment leaves the point of origin. With CIF, responsibility moves to the buyer once the goods reach the point of destination.

The major difference between FOB and CIF is mostly evident when liability and ownership transfer. In most cases of FOB, liability and title possession shift when the shipment leaves the point of origin. With CIF, responsibility transfers to the buyer when the goods reach the point of destination.

Under CIF, the seller delivers the goods, cleared for export, onboard the vessel at the port of shipment. The seller pays for the transport of the goods to the destination port and obtains and pays for minimum insurance coverage on the goods through their journey to the destination port.

In most cases, we recommend FOB for buyers and CIF for sellers. FOB saves buyers money and provides control, but CIF helps sellers have a higher profit. However, we recommend that new buyers use CIF as they get accustomed to the importing process.

In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.

What Is Cheaper, FOB or CIF? A Free on Board contract is much cheaper than a cost, insurance, and freight agreement. That's because buyers have more control over the shipping logistics, including insurance and transport costs.

CIF does not include any import duties, VAT, or taxes. It does include all export requirements. Under CIF, the seller must export and pay the costs to ship to your destination port, but you must import and pay all costs associated with the importation.

CIF is only used when shipping goods via ocean or waterway, meaning CIF cannot be used for air freight. CIF can be easier for buyers who don't want to go through the trouble of obtaining insurance, paying freight charges, and assuming all of the responsibility for shipping internationally.

Under CIF (short for “Cost, Insurance and Freight”), the seller delivers the goods, cleared for export, onboard the vessel at the port of shipment, pays for the transport of the goods to the port of destination, and also obtains and pays for minimum insurance coverage on the goods through their journey to the named ...

CIF includes duty and charges, where the seller assumes responsibility for export customs proceeding and the buyer for import customs.

Why do sellers use CIF? ›

In CIF, the seller is responsible for transporting goods to the nearest port, loading the goods on the ship and paying freight for the goods to be delivered to a port chosen by the buyer. The seller is also responsible for paying insurance for the goods.

A buyer can save money by using FOB Destination since the seller assumes costs and liability for the transportation. However, the disadvantage for the buyer is the lack of control over the shipment including shipment company, route and delivery time.

One of the main disadvantages for seller under FOB terms is that the exporter does not have any control over main carriage, import clearance and on carriage of goods to final destination. The tracking of shipping details is depended with the buyer as he undertakes main carriage and on carriage contract.

Freight on board, also known as free on board, refers to a set of Incoterms that govern who owns and pays for a shipment when traveling overseas. Although its original definition was used exclusively for seafaring transport, modern use of the term can be applied to all shipment modes of transit.

Who Pays Freight for FOB Origin? If the terms include the phrase "FOB origin, freight collect," the buyer is responsible for freight charges. If the terms include "FOB origin, freight prepaid," the buyer assumes the responsibility for goods at the point of origin, but the seller pays the cost of shipping.

In FOB, the seller is responsible from the point of origin i.e. maintaining goods and transporting them till the delivery point. The loading of goods at the destination port is done by the seller. The processing responsibility after the delivery point rests with the buyer.

One of CIF's main disadvantages is that the seller can only use it for specific types of international trade. This means sellers must ensure they obtain the right shipping policy for the entire cargo journey. Another disadvantage of CIF is that it might be hard for the buyer to take out a claim if anything goes wrong.

CIF stands for Cost, Insurance, and Freight. These are the fees a seller pays to cover the costs, insurance, and freight of a dealer's order when it's enroute. This sums up the CIF definition. Only commodities carried by water, sea, or ocean are subject to CIF.

A bill of lading (BL or BoL) is a legal document issued by a carrier (transportation company) to a shipper that details the type, quantity, and destination of the goods being carried.

EXW (Ex Works) means that the seller delivers when it places the goods at the disposal of the buyer at the seller's premises or at another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load goods or clear them for export.

Is CIF all of California? ›

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The freight cost per unit can be calculated by dividing the total weight of the shipment by the number of units it takes to measure that weight.

Demurrage is a penalty charge imposed on buyers if they exceed the free allotted time to clear and collect the goods. The time allotted is specified in terms of the charter agreement. Sellers do not take the trouble to negotiate these terms and conditions as they don't have to pay up the penalties.

Freight Prepaid is the agreement in case of incoterms such as C&F, CIF, CFR, DDU, whereas Freight Collect is seen in the case of EXW and FOB. Read on to understand how either arrangement can be accommodated in a FOB (Free On Board) agreement.

There are three necessary documents: an invoice, a bill of lading, and an insurance policy.

Import Duty, Taxes & Customs Clearance: The buyer is responsible for all taxes and fees associated with customs clearance.

If you're shipping high-value or sensitive goods, then DDP is often the best option as it offers more protection for the buyer. However, if you're shipping non-containerized or bulk freight, then CIF is often the most cost-effective option. It's up to both parties to decide which method is best for their needs.

The FOB (Free On Board) price is the price of goods at the frontier of the exporting country or price of a service provided to a non-resident. It includes the values of the goods or services at the basic price, the transport and distribution services up to the frontier, the taxes minus the subsidies.

Cost, Insurance, and Freight Import Value (C.I.F.) – This value represents the landed value of the merchandise at the first port of arrival in the importing country. It is computed by adding “Import Charges” to the “Customs Value” and therefore excludes import duties.

When they chose FOB, these buyers do not account for their risk of loss. Under FOB, risk of loss passes only after the product has been loaded onto the vessel (crosses the rail). Since risk of loss transfers when the product crosses the rail, the buyer purchases insurance that covers the product at that point.

What are the two types of FOB? ›

There are two types of FOB, which are FOB destination and FOB shipping point. The type of FOB to be used is typically designated in a customer's purchase order, and is also stated on the supplier's invoice to the customer.

In the case of FOB origin shipping terms, freight is typically exempt from tax in many states. Sellers tend to have FOB origin shipping terms because those terms defer liability to the buyer. The other shipping term, FOB destination, entails that title is not transferred until the buyer receives the goods.

1 The costs associated with FOB include transportation of the goods to the port of shipment, loading the goods onto the shipping vessel, marine freight transport, insurance, and unloading and transporting the goods from the arrival port to the final destination.

What is Delivered at Place (DAP)? An Incoterms^® rule, applicable to any form or forms of transport (air, ocean, ground, or multimodal), under which the seller is responsible for delivery of the goods, ready for unloading, at the named place of destination (often the buyer's place of business).

Freight allowed (or collect) is when the buyer, or receiver of goods, pays the freight charges upon delivery of the goods to them. While freight prepaid, the shipper or seller pays all of the shipping costs up until the cargo arrives to the buyer.

Examples of FOBs in the Usage

FOB shipping destination, freight prepaid by the seller – The seller pays all the cost, and the buyer owns responsibility only after receiving the shipment. The buyer will not pay any shipping costs.

The buyers must handle all of the claims and damages, assuming all related costs. Note that a freight hauler or shipping company is still liable for any damage caused in transit. However, in the case of FOB Origin, the carrier would work solely with the buyer and the buyer's insurance to settle any claims or disputes.

Under FOB shipping point, the sale takes place when the goods reach the shipping point and therefore, the title passes to the buyer before the goods are shipped out. That means the buyer now gets ownership of the goods in transit.

Here is how the process of FOB shipping works: The seller and the buyer both decide the terms of the contract and modes of transportation. Once the terms of the FOB shipping contract are decided, the supplier will load the goods onto the vehicle and clears the goods for export to the port of destination.

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.

What is FOB vs CFR vs CIF? ›

FOB, FREE ON BOARD FOB price, all costs and risks borne by the shipper before the cargo passes through the ship's rail. CIF, COST INSURANCE FREIGHT plus insurance, all costs of goods to the port of destination, the insurance is borne by the shipper. C&F, CFR COST AND FRIEGHT have the same meaning.

When goods are bought or sold via “Cost, Insurance, and Freight” (CIF) it means that the Seller is responsible for delivery of the goods to a ship, loading the goods onto the ship, and insuring the shipment until it reaches the port of destination.

CIF implies that the goods are transported oversea or inland waterway transport only, while CIP means that you can use any mode of transport including air freight, trucks, railways, etc.

A CIP process starts with the seller -- responsible for the the freight, shipping and insurance till the destination port after which the risk is transferred to the buyer who is liable for transit and costs incurred thereafter.

INCOTERMS are a set of three-letter standard trade terms most commonly used in international contracts for the sale of goods. First published in 1936, INCOTERMS provide internationally accepted definitions and rules of interpretation for most common commercial terms.

CIF stands for Cost, Insurance, and Freight. These are the fees a seller pays to cover the costs, insurance, and freight of a dealer's order when it's enroute. This sums up the CIF definition. Only commodities carried by water, sea, or ocean are subject to CIF.

Under CFR terms (short for “Cost and Freight”), the seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination.

In CIF, the seller is responsible for paying off any duties and clearing the goods for customs when the goods are being shipped from his country. Buyer is responsible for for customs clearance at the destination port, thus he is also accountable for import duties and charges.

In CIF, the seller is responsible for paying off any duties and clearing the goods for customs when the goods are being shipped from his country. Buyer is responsible for for customs clearance at the destination port, thus he is also accountable for import duties and charges.

Disadvantages of CIF

Cost difficulty is one of the disadvantages of this method. Also, due to differences in transportation laws in some countries, costs may be somewhat higher than expected. These additional costs are also called hidden costs.

What is an example of a CIF? ›

CIF (Certificado de Identificación Fiscal): This is the tax ID number for all companies. It consists of a letter followed by 8 digits (example: B12345678).

Yes, CIF is used exclusively for ocean or inland waterway shipping. With CIF product risk transfer of the goods occurs when the products are placed onto the vessel.

Freight prepaid is a general shipping term used when the seller or the shipper of goods pays the freight charges to the shipping line for transporting the goods to the buyer's specified location.

Freight allowed (or collect) is when the buyer, or receiver of goods, pays the freight charges upon delivery of the goods to them. While freight prepaid, the shipper or seller pays all of the shipping costs up until the cargo arrives to the buyer.