What are CIF and FOB?? What are the roles of buyers and sellers in CIF and FOB contracts?? Let's find out more details through our shares below.

What is CIF??

Concept

CIF is the acronym for Cost, Insurance and Freight, means money, Insurance and freight costs associated with the transportation of goods from seller to buyer, between one country and another according to Incoterms standards set by the International Chamber of Commerce (ICC) Missfather.

According to CIF incoterms 2020 conditions, The seller will be responsible for customs clearance of goods at the port of departure, Load and unload goods on board and pay freight, Minimum insurance until the goods arrive at the destination port.

Although the seller will pay the costs, Insurance related to the transportation process. However, Risk still passes to the buyer at the moment the goods are placed on board the vessel.

Overall, CIF incoterms 2020 is applied to goods that are chemicals or agricultural products.

Besides, CIF terms in Incoterms 2020 will be appropriate for liquid goods, Bulk or oversized cargo.

With this condition, The seller will have to arrange transportation, Buy cargo insurance as well as provide relevant documents to the buyer.

Advantage

• For the seller: When exporting goods under CIF terms, the seller will receive many benefits during the export process -> Enjoy discounts during freight/insurance negotiations. Control cargo schedule.
• For buyers: Besides, The buyer will not have to worry about declaring the shipment to his own insurance company.

Disadvantages

• For the seller: The seller only has to pay for insurance, shipping costs without having to bear the risk of the goods during the process of loading the ship and reaching the buyer. Therefore, If the goods transportation process encounters risks, loss, the buyer must work with the foreign insurance company chosen by the seller in their country. This is a disadvantage for buyers when using CIF terms.
• For buyers: The disadvantage for the buyer may be that the insurance company may not be too enthusiastic about responding to any claims. Or sellers who are not trustworthy enough may buy fake insurance.

What is FOB??

Concept

FOB (Free on Board hay Freight on Board) is a condition that exempts the seller from liability when the goods are delivered, The product has been delivered over the ship's rail.

This means: When the goods have not yet boarded the ship, All related responsibilities belong to the seller. When the goods are on board the ship, every responsibility, The risks involved in the goods during transportation belong to the buyer.

FOB is a form of delivery of goods at ports in exporting countries. In there, The ship's rail is the risk barrier of FOB conditions. If the goods are exported under FOB terms, The buyer only needs to buy the value of the goods, without the need to purchase additional transportation and its insurance.

FOB price does not include international shipping fees, insurance of the shipment to the destination. Therefore, Buyers must bear the cost of renting a vehicle to transport goods, Cargo insurance fees and related fees during transportation.

Advantage

Based on the above concept, We can see that FOB is a favorable term for the seller. Specifically:

• The seller does not have to find a shipping unit, No international shipping fees and no insurance for goods.
• The seller does not have to contact the supplier to support the shipment at the destination.

Some advantages for buyers include::

• Buyers have more control hthank you, Be proactive in the transportation process.
• Buyers can make cost-effective decisions.

Disadvantages

Some disadvantages of FOB for sellers like:

• Passive in the shipping process because the buyer is the one who books the destination freight.
• Having difficulty gathering goods and time to prepare goods.
• It is difficult to be proactive in market prices when the seller has to work with many suppliers.

Some disadvantages of FOB for buyers include::

• Buyers have more responsibility.
• Less seamless for the buyer than CIF.

Distinguish between CIF and FOB

During the import and export process, CIF and FOB prices are clearly different.

Similarities of CIF and FOB

• CIF and FOB prices are 2 of the 11 conditions specified in the Incoterms 2020 group, Applicable to sea and internal waterway freight transport.
• The seller is responsible for completing export customs procedures. The buyer is responsible for completing import procedures for the goods.
• The transfer point of responsibility as well as risks at the loading port when applying CIF and FOB prices are the same. Specifically, the departure port, ship railing.

Differences between CIF and FOB

To know the difference between CIF and FOB, You need to rely on the following factors:

	CIF PRICE	FOB PRICE
Delivery conditions	CIF (cost, Insurance, Freight) – money for goods, insurance, train charges	FOB (Free on Board) – delivery of goods on board
Insurance fee	The seller must buy insurance for exported goods, with insurance contract regulations of at least 110% of the value of the goods	The seller is not required to purchase insurance for the goods
Responsibility for charter transportation	The seller is responsible for hiring a ship for transportation, Buyers do not need to charter a ship	The seller does not have to charter the ship, but the buyer will have to rent a ship
Final location to end service	Although both have the same risk transfer point which is the ship's rail or port but with CIF, The seller has final responsibility once the goods have arrived at the port	The risk transfer location is the ship's rail or port of departure, The seller is not responsible once the goods have arrived at the port

Role of buyer and seller in CIF and FOB contracts

Roles of buyer and seller in FOB contracts

FOB contract	The role of the seller	The role of the buyer
General responsibility	The seller is responsible for delivering the goods on board the vessel, Provide commercial invoices or equivalent documents to the shipping party.	The buyer must pay the seller the exact amount of goods as committed in the contract.
License and procedure	The seller completes export procedures and provides a license for the shipment to be exported.	Buyers need to prepare an export license and procedures related to the goods.
Contracts and insurance	The seller bears the shipping costs from the inland warehouse to the designated shipping port. The insurance contract in this case is not mandatory for the seller.	The buyer bears the cost of transporting the goods from the port to the final destination. When buyers want their goods to be guaranteed, They need to buy additional insurance policies.
Pick up/Delivery	The seller is responsible for delivering the goods to the designated port and bears the costs of bringing the goods on board the ship.	The buyer has the right to receive the goods in his possession after they are loaded at the named port.
Risk transfer	After completing the delivery process on the ship, All costs and risks are transferred to the buyer.	The buyer bears all risks of the goods when they are delivered over the ship's rail. If the goods are lost, postponed, the buyer must bear all costs incurred.
Division of costs	The seller bears the costs until the goods are delivered to the ship, Includes costs: customs clearance fees, tax, Surcharges arise.	The buyer must pay freight charges from the time the goods are delivered over the ship's rail. Besides, The buyer must pay the costs for the goods to reach the final port of destination, include: Train fare, insurance, taxes and other surcharges incurred.
Information	The seller must notify the buyer that the goods have been delivered over the ship's rail at his own expense.	The buyer must inform the seller of the name of the vessel, named port to which the goods arrived in the contract of sale.
Delivery voucher	The seller provides the buyer with proof of delivery, Transport documents for delivery from warehouse to port (EDI system).	The buyer must provide the seller with documentation of the shipment of the goods (Bill of Lading hoặc Seaway bill)
Check – pack – commodity symbol	Seller bears all costs of inspection, quality management, measure, tally, Packaging and marking of goods.
Other support	The seller is obliged to assist in securing the information and documents necessary for the transportation of the goods to their final destination..

Roles of buyer and seller in CIF contracts

CIF contract	The role of the seller	The role of the buyer
General responsibility	A1. The seller is responsible for providing goods and invoices, Necessary documents.	B1. The buyer is responsible for paying for the goods according to regulations.
License and procedure	A2. The seller must bear the risk and expense of obtaining any export license, Official license and carry out all customs formalities to export goods.	B2. The buyer must bear the risk and expense of obtaining an import license, Official permits and customs clearance to import goods.
Contract and insurance	A3a- Transport contract: The seller must contract for the carriage of the goods from the place of delivery to the named port. The contract of carriage is signed with the usual conditions, The seller must bear the costs and transport the goods along the usual route using a specialized ship to transport those goods. A3b- Insurance contract: The seller must purchase insurance for the goods. The minimum insured value must be equal to the price of the goods specified in the contract plus 10% and in the currency of the contract.. Insurance takes effect from the place of delivery specified in sections A4 and A5 and ends at the named port of destination.	B3a- Transport contract: The buyer has no obligation to the seller to conclude a contract of carriage. B3b- Insurance contract: The buyer has no obligation to the seller to conclude an insurance contract. The buyer must provide the information required by the seller to purchase additional insurance as required under A3 b).
Delivery/receipt	A4. The seller must deliver the goods at the time agreed upon in the contract, in the usual manner at the port.	B4. The buyer must take delivery of the goods when delivered in accordance with A4 and collect them from the carrier at the named port.
Risk transfer	A5. The seller bears all risks in the goods until they have been delivered in accordance with A4. Except for losses, damage specified in section B5.	B5. The buyer bears all risks in the goods from the time they are delivered in accordance with A4. If the buyer fails to notify as prescribed in section B7, The buyer must bear all costs of the goods from the date of delivery or from the last day of the agreed period.
Divide costs	A6- The seller bears all costs relating to the goods until they have been delivered in accordance with A4, minus costs paid by the buyer according to section B6. A6b- Shipping charges and costs incurred from A3a. A6c- Insurance costs according to section A3b A6d- Customs clearance costs, tax, fees, Other costs may be payable when exporting, Transportation costs according to the transportation contract.	B6a- The buyer relies on section A3a, pay costs related to the goods when they are delivered according to section A4, minus customs clearance costs, tax, fees, Other expenses according to section A6d. B6b- Costs and fees related to the goods in transit until the goods arrive at the port. Except for fees and charges paid by the seller under the contract of carriage. B6c- Unloading costs, wharf fees, less the fees and charges paid by the seller under the contract of carriage. B6d- Costs incurred when the buyer fails to notify according to section B7. B6e- Tax, fees, Other costs when carrying out customs procedures to import goods. The cost of transporting the goods through any country unless included in the cost of the contract of carriage. B6f- Cost of purchasing additional insurance at the buyer's request according to sections A3b and B3b.
Information	A7. The seller notifies the buyer of information so that the buyer can apply normal measures to import goods.	B7. The buyer must decide the timing, import location and notify the seller of this information.
Delivery voucher	A8. The seller provides the buyer with transport documents. This document must show that the goods are under the contract, dated within the agreed delivery time. Unless otherwise agreed, The buyer can sell the goods in transit by transferring the shipping documents to the next buyer by notifying the carrier..	B8. The buyer accepts the transport documents in section A8 if they comply with the contract.
Check – Pack – Sign code	A9. The seller must pay inspection costs for delivery as prescribed in section A4, Includes inspection costs. The seller must package the goods in accordance with the mode of transport. Packaging must be appropriately marked.	B9. The buyer must pay the cost of mandatory inspection before delivery, except for inspection required by competent authorities in the exporting country.
Other support	A10. The seller must assist the buyer in obtaining the documents and information the buyer needs for import and transportation to the final destination.. The seller must reimburse the buyer for all costs and charges incurred by the buyer in obtaining documents or assisting in obtaining documents and information in accordance with B10..	B.10. The buyer must notify the seller in a timely manner of any security information requirements so that the seller can comply with A10.. The buyer must reimburse the seller for all costs and charges incurred by the seller in obtaining documents or assisting in obtaining documents and providing information in accordance with A10.. The buyer must assist the seller in a timely manner to obtain documents and information, including security information, that the seller needs for transportation., export goods and transport them to other countries.

Conclude

Above is all information about the concept CIF and FOB along with the roles of buyer and seller in CIF and FOB contracts. Monitor Logistics power to update useful information!

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Cuong Quoc Freight Forwarding Company Limited

Office: 7th floor, Parami Building, 140 Bach Dang, Tan Son Hoa Ward, Ho Chi Minh City

Hotline: 0972 66 71 66

Email: info@cql.com.vn

Website: https://cql.com.vn/