Aspect | FOB Contract | CIF Contract |
Meaning | The seller's responsibility ends when the goods are loaded on the ship at the specified port of shipment. | The seller's responsibility extends until the goods are delivered to the specified port of destination. |
Delivery | The buyer is responsible for arranging and paying for the transportation of goods from the port of shipment. | The seller is responsible for arranging and paying for the transportation of goods to the port of destination. |
Transportation Costs | The buyer bears the transportation costs from the port of shipment, including loading and unloading costs. | The seller includes transportation costs to the port of destination in the contract price. |
Insurance | The buyer is responsible for arranging and paying for insurance coverage for the goods during transportation. | The seller is responsible for arranging and paying for insurance coverage for the goods during transportation to the port of destination. |
Risk of Loss/Damage | The risk of loss or damage to the goods transfers from the seller to the buyer once the goods are loaded on the ship. | The risk of loss or damage to the goods transfers from the seller to the buyer once the goods are delivered at the port of destination. |
Price | The price agreed upon between the buyer and seller only includes the cost of goods and any local charges at the port. | The price agreed upon between the buyer and seller includes the cost of goods, insurance, and freight charges to the port of destination. |
Import Formalities | The buyer is responsible for completing import formalities, including customs clearance and duties/taxes. | The seller may assist the buyer in completing import formalities, including customs clearance and duties/taxes. |
Documentation | The seller provides the buyer with the necessary documents for the goods, such as the commercial invoice and packing list. | The seller provides the buyer with additional documents, including the insurance certificate and bill of lading. |
Buyer's Control | The buyer has more control over the shipment, as they select the shipping method and carrier. | The buyer has less control over the shipment, as the seller arranges the transportation and insurance. |
Seller's Responsibility | The seller is responsible for delivering the goods to the port of shipment and ensuring they are ready for export. | The seller is responsible for delivering the goods to the port of destination and ensuring they are ready for import. |
Cost Allocation | The buyer incurs most of the costs associated with transportation, including freight charges and customs duties. | The seller incurs most of the costs associated with transportation, including freight charges and insurance premiums. |
Export Clearance | The buyer is responsible for obtaining any necessary export licenses or permits. | The seller is responsible for obtaining any necessary export licenses or permits. |
Import Clearance | The buyer is responsible for obtaining any necessary import licenses or permits. | The seller may assist the buyer in obtaining necessary import licenses or permits. |
Point of Delivery | The point of delivery is at the port of shipment. | The point of delivery is at the port of destination. |
Risk Allocation | The buyer assumes the risk of loss or damage to the goods once they are loaded on the ship. | The seller assumes the risk of loss or damage to the goods until they are delivered at the port of destination. |
Freight Charges | The buyer is responsible for paying any freight charges incurred for the transportation of goods. | The seller includes the cost of freight charges in the contract price. |
Insurance Coverage | The buyer is responsible for arranging and paying for insurance coverage during the transportation of goods. | The seller is responsible for arranging and paying for insurance coverage until the goods reach the port of destination. |
Delivery Time | The delivery time is determined by the buyer's arrangements for transportation from the port of shipment. | The delivery time is determined by the seller's arrangements for transportation to the port of destination. |
Letter of Credit | The buyer may need to provide a letter of credit to ensure payment to the seller upon satisfactory delivery. | The seller may request a letter of credit to ensure payment from the buyer upon delivery. |
Incoterms | FOB is an Incoterm that can be used in any mode of transportation. | CIF is an Incoterm used specifically for maritime transportation. |
Payment Terms | The buyer typically pays the seller upon satisfactory delivery of the goods. | The buyer typically pays the seller upon delivery of the goods at the port of destination. |
Documentation | The seller provides commercial invoices, packing lists, and export documents to the buyer. | The seller provides commercial invoices, packing lists, export documents, and insurance documents to the buyer. |
Customization | FOB contracts offer more flexibility for customization, as the buyer has control over transportation arrangements. | CIF contracts may offer less flexibility for customization, as the seller is responsible for transportation arrangements. |
Local Charges | The buyer is responsible for any local charges incurred at the port of shipment, such as handling or terminal fees. | The seller may include local charges at the port of destination in the contract price. |
Discharge of Goods | The buyer is responsible for unloading the goods from the ship at the port of destination. | The seller is responsible for unloading the goods from the ship at the port of destination. |
Applicable Modes | FOB contracts can be used for any mode of transportation, including sea, air, rail, or road. | CIF contracts are primarily used for maritime transportation. |
Seller's Role | The seller's primary role is to deliver the goods to the port of shipment and ensure they are ready for export. | The seller's primary role is to deliver the goods to the port of destination and ensure they are ready for import. |
Export Declaration | The buyer is responsible for making the export declaration to the relevant authorities. | The seller may assist the buyer in making the export declaration to the relevant authorities. |
Import Duties/Taxes | The buyer is responsible for paying any import duties or taxes incurred upon arrival at the port of destination. | The seller may assist the buyer in determining and paying import duties or taxes. |
Dispute Resolution | Dispute resolution mechanisms can be determined by the terms of the contract agreed upon by both parties. | Dispute resolution mechanisms can be determined by the terms of the contract agreed upon by both parties. |
FAQs
Difference Between FOB and CIF Contracts: What's the Difference? ›
CIF requires the seller to cover the total cost of the goods, freight and insurance. Whereas FOB only requires the seller to cover the cost of loading the goods onto the vessel; the buyer then pays to transport and insure the goods (as well as any other charges incurred once the goods are on board).
Should I use FOB or CIF quotation? ›The main difference is that under CIF contracts, the seller is responsible for the risks and costs of transportation, whereas FOB contracts assign these costs to the buyer. CIF contracts are more expensive, but FOB contracts give the buyer greater control over how their goods are transported and insured.
Should I sell CIF or FOB? ›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. Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF.
What is the difference between FOB and EX Works and CIF? ›CIF or CRF import freight terms are more expensive than EX works or FOB. This statement can generally be considered accurate as CIF (Cost, Insurance, and Freight) or CFR (Cost and Freight) terms usually entail more costs for the buyer compared to EXW (Ex Works) or FOB (Free On Board).
What are CIF contracts? ›Cost, insurance, and freight (CIF) is an international shipping agreement used when freight is shipped via sea or waterway. Under CIF, the seller is responsible for covering the costs, insurance, and freight of the buyer's shipment while in transit.
What is the main difference between FOB and CIF? ›CIF requires the seller to cover the total cost of the goods, freight and insurance. Whereas FOB only requires the seller to cover the cost of loading the goods onto the vessel; the buyer then pays to transport and insure the goods (as well as any other charges incurred once the goods are on board).
Which would be higher FOB cost or CIF cost? ›Which Is Cheaper, FOB or CIF? CIF often comes with a higher cost. You'll often be quoted a lower price for FOB since the shipping requires you, not the seller, to handle more legwork. However, whether it works out to be less expensive in the end depends on the rates you secure.
What are the disadvantages of FOB? ›The main disadvantage of FOB for the buyer is that they are responsible for any loss or damage that occurs during the transport, and they may face delays or extra charges at the destination port. The main advantage of FOB for the seller is that they have less risk and liability once the goods are loaded on the vessel.
Who pays for unloading under CIF? ›Introduction to Cost, Insurance and Freight (CIF)
The buyer is responsible for the costs of unloading the goods at the port of destination, the duties, tariffs, and taxes for import customs and any additional transportation costs to the final destination.
The buyer is responsible for the import process and the costs associated with bringing the shipment through customs and delivering the products to their final destination. CIF only applies to sea or waterway shipments, and no other forms of shipping.
How to calculate FOB price from CIF? ›
- FOB into CFR or CIF. CFR=FOB+F (Freight); CIF=(FOB+F (Freight))/[1- Insurance rate*(1+Insurance markup rate)]
- CIF into FOB or CFR. FOB=CIF- I (Insurance) - F (Freight) CFR=CIF- I (Insurance)
- CFR into FOB or FIB.
The two types of FOB shipping are termed FOB Shipping Point and FOB Destination. At the time of sale negotiations, a sales contract is brought forth outlining all the details of the shipping sale and determines if a FOB Shipping Point or FOB Destination will be used during a shipping agreement.
Does FOB mean freight is included? ›FOB, Free On Board, is a transportation term that indicates that the price for goods includes delivery at the Seller's expense to a specified point and no further.
What are the advantages of CIF contract? ›CIF shipping agreement has its pros and cons for the buyer and the seller. Reduced risks for the buyer: The seller takes up the responsibility of transporting the goods safely to the destination. This reduces the buyer's risk in case of loss or damage to goods during transit.
Who pays the duty in CIF? ›Under CIF the seller is responsible till the goods are loaded onboard the vessel and he also pays for the freight and insurance charges, while in incoterms FOB the seller is only responsible for getting the goods loaded onto the vessel and is not responsible for freight and insurance charges.
Who pays freight in CIF? ›CIF full form in export is Cost, Insurance, and Freight (CIF). It is an international shipping contract between a seller and a buyer, wherein the seller will be held responsible for the freight charges and obtaining the insurance cover to secure the cargo being transported to the buyer's destination port.
When would you want to use FOB destination pricing? ›| Characteristics | FOB Origin | FOB Destination |
|---|---|---|
| When Typically Used | Often used for domestic shipments or when the buyer has control over shipping preferences. | Often used for international shipments or when the seller wants to offer a more inclusive service. |
CIF agreements offer several advantages for buyers, such as reduced risk, lower costs, and ease of shipping. However, there are also some disadvantages to consider, such as lack of control over the shipping process, potential for hidden costs, and the need to be familiar with customs procedures.
What are the disadvantages of FOB incoterm? ›The main disadvantage of FOB for the buyer is that they are responsible for any loss or damage that occurs during the transport, and they may face delays or extra charges at the destination port. The main advantage of FOB for the seller is that they have less risk and liability once the goods are loaded on the vessel.