CIF and FOB are two familiar terms in international trade, But in particular what they are? The role of buyers and sellers in these contracts is prescribed? Let's explore details through the article below.

What is CIF?

Concept

CIF (Cost, Insurance, and Freight) Is the term in Incoterms 2020, Due to the International Chamber of Commerce (ICC) promulgate, Means the cost of goods, insurance, and shipping charges. This is a delivery condition applied to sea or inland waterway transportation.

Theo CIF Incoterms 2020, The seller is responsible:

• Complete export clearance procedures.

• Loading and unloading goods on the ship.

• Pay for shipping costs and buy minimum insurance for goods until the goods arrive at the target port.

However, Risk of goods transferred from sellers to buyers as soon as the goods are arranged on the train at the port. This means that although the seller pays shipping costs and insurance, Buyers will be at risk if the goods have a problem after this time.

CIF is often used for goods such as chemicals, agricultural, liquid, Leaving goods or oversized goods. The seller is responsible for arranging transportation, Buy Insurance, and provide the necessary documents for the buyer.

Advantage

• For the seller: CIF offers export advantages because the seller can negotiate freight and insurance to receive discounts, At the same time control the transportation schedule.

• For buyers: Buyers do not need to worry about buying insurance or shipping arrangement, Helps simplify import process.

Disadvantages

• For the seller: The seller is only responsible for shipping costs and insurance, No risk after the goods board. This can make it difficult for buyers if a dispute occurs.

• For buyers: Buyers must work with the insurance company selected by the seller, Often in foreign countries, lead to difficulties in claiming compensation. Besides, If the seller is not reliable, There is a risk of buying fake insurance or not quality assurance.

What is FOB?

Concept

FOB (Free on Board) Is the delivery condition in Incoterms 2020, This means that the seller is exempt from responsibility when the goods have been delivered through the ship railing at the port.

This means:

• Before the goods boarded, All responsibilities and costs belong to the seller.

• After the goods are arranged on the train, All risks and costs transferred to buyers.

FOB usually applies to sea or inland water transport, With the ship railing is a risk division point. Buyers only pay goods, The cost of international shipping and insurance is self -sufficient. This allows buyers to flexibly choose the method of shipping and insurance.

Advantage

• For the seller:

  • No need to find a shipping unit or buy an insurance, Reduce the burden of cost and responsibility.

  • No contact with the parties shipping at the destination point.

• For buyers:

  • Having control over the entire shipping process, From choosing a shipping company to insurance.

  • Can optimize shipping costs according to demand.

Disadvantages

• For the seller:

  • Less control the shipping schedule because the buyer decides the method and shipping lines.

  • There may be difficulties in preparing and gathering goods on time.

  • It is difficult to control the market price when working with many shipping providers.

• For buyers:

  • Be more responsible, Including self -arrangement and insurance.

  • Shipping process may be more complicated than CIF.

Compare CIF and FOB

CIF and FOB are two common conditions in Incoterms 2020, But they have similarities and distinct differences.

Similarity

• Both CIF and FOB are in group 11 conditions Incoterms 2020, Applicable to sea and inland water transport.

• The seller is responsible for carrying out export customs procedures, While the buyer is responsible for the import procedures.

• The risk transfer point of both conditions is when the goods cross the ship railing at the port.

Different points

Criterion	CIF	FOB
Delivery conditions	Expense, insurance, train charges (Cost, Insurance, Freight)	Delivery (Free on Board)
Insurance fee	The seller must buy a minimum of 110% of the value of the goods	The seller is not responsible for buying insurance
Responsibility to rent ships	The seller is responsible for chartering and paying charges	The buyer is responsible for renting a ship
Location end	The seller is responsible until the goods arrive at the destination port	Summit ends the responsibility when the goods cross the train railing

The role of buyers and sellers in CIF and FOB contracts

The role in FOB contract

Category	The role of the seller	The role of the buyer
General responsibility	Delivery, Provide commercial invoices or equivalent vouchers.	Pay for goods under the contract.
License and procedure	Export procedures and export licenses.	Prepare import licenses and implement import customs procedures.
Contract and insurance	Bear the cost of shipping from the warehouse to the port. Not required to buy insurance.	Bear the shipping cost from the port to the destination point, Buy insurance yourself if needed.
Delivery/receipt	Delivery board at the indicated port, Take the cost until the goods through the train railing.	Receive goods after the goods are arranged on the ship at the indicator.
Risk transfer	Understand the risk until the goods cross the train railing, Then the risk is transferred to the buyer.	Bear all risks after the goods cross the train railing, Including costs incurred if there is a problem.
Cost division	Take the cost until the goods through the train railing, Including customs fees, tax, extra charge.	Bear shipping costs, insurance, Import tax and expenses incurred after the train railing.
Information	Notify the buyer when the goods have been delivered to the train.	Notify the seller about the name of the train, indicated port, and delivery time.
Delivery voucher	Provide transport vouchers and evidence delivery from warehouse to port.	Provide shipping documents like Bill of Lading or Seaway Bill.
Check, pack	Bear the test costs, measure, pack, and commodity symbols.	Do not pay the checking cost before delivery, Unless required by the exporting agency.
Other support	Support buyers to get the necessary documents and information for transportation and import.	There is no additional support.

Role in CIF contract

Category	The role of the seller	The role of the buyer
General responsibility	Supply goods, bill, and essential documents under the contract.	Pay for goods under the contract.
License and procedure	Bear costs and risks to get an export license, Implement export customs procedures.	Bear costs and risks to get import licenses, Implement import customs procedures.
Contract and insurance	Signing a shipping contract from the delivery point to the destination port, Buying a minimum insurance of 110% of the value of goods.	No required to sign shipping or insurance contracts, But provide information for the seller to buy additional insurance if needed.
Delivery/receipt	Delivery on board according to the agreement at the designated port.	Receive goods from the carrier at the target port.
Risk transfer	Understand the risk until the goods cross the train railing, Then the risk is transferred to the buyer.	Bear risk from the goods through the train railing, Or from the date of delivery if not notified on time.
Cost division	Bear shipping costs, insurance, Export customs procedures, and the costs until the goods arrive at the destination port.	Bear the cost of unloading, Import tax, and the costs incurred after the goods through the train railing.
Information	Notify the buyer to take measures to import goods.	Decide time, Venue to import and notify the seller.
Delivery voucher	Provide appropriate transport vouchers, Show goods and delivery time.	Accept transport vouchers if in accordance with the contract.
Check, pack	Bear the test costs, pack, And the commodity symbol is suitable for shipping.	Bear compulsory inspection costs before delivery, Unless required by the exporting agency.
Other support	Support buyers to get the necessary documents and information for imports and transportation.	Notice of security information requirements and support the seller to get the necessary documents.

Conclude

CIF and FOB are two important conditions in Incoterms 2020, Determine the responsibility and cost between buyers and sellers in international transport. While CIF brings convenience to buyers by including shipping costs and insurance, FOB gives more control over buyers. Understand the role of each side of these two conditions helps businesses make appropriate decisions in international trade.