International contracts typically contain shorthand terms (Incoterms) describing when the risk of loss transfers from a seller to a buyer. The most commonly used Incoterms are listed below:
FOB stands for “free on board”. Its use would be “FOB ” where would be the city or place where the goods would be left. This term is typically used in sales contract, and designates a location for the delivery of goods. For example, FOB Dallas means that the seller would provide the goods at the seller’s expense to Dallas. The buyer is responsible for transport of the goods beyond Dallas.
FAS stands for “free along side”. Typical usage would be FAS (Port or Vessel). This means that the seller is responsible for delivering goods to a specific port or vessel. The buyer would then assume the risk of loss once the goods were delivered to the side of the vessel. Once the loading process begins, the risk of loss shifts to the buyer.
CIF stands for “cost insured freight”. This means that the seller will bear the cost of shipping and insurance up to the designation. Common usage would be “CIF Buyer’s address”
C&F means “cost and freight” which means the seller pays for shipping, but not insurance. The buyer would be responsible for all insurance.
As an international trade specialist with extensive experience in contract negotiations and logistics, I've worked extensively with various Incoterms, understanding their nuanced implications in international contracts. Incoterms, or International Commercial Terms, are fundamental shorthand terms used to define the allocation of risks and responsibilities between buyers and sellers in global transactions.
Let's delve into the concepts outlined in the article:
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FOB (Free On Board): This term specifies that the seller is responsible for delivering the goods to a particular location, typically a city or a specific point of shipment. For instance, "FOB Dallas" means that the seller is responsible for delivering the goods at their expense to Dallas. Once the goods reach Dallas, the risk transfers to the buyer, who then takes charge of transporting the goods further.
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FAS (Free Alongside): FAS denotes the seller's responsibility for delivering the goods to a designated port or vessel. Once the goods are at the side of the vessel, the risk shifts to the buyer. When the loading process commences, the buyer assumes the risk of any loss or damage to the goods.
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CIF (Cost, Insurance, Freight): CIF obligates the seller to cover the costs of shipping and insurance until the goods reach a specified destination, often the buyer's address. Under CIF terms, the seller is responsible for both the cost of the goods and insurance during transit.
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C&F (Cost and Freight): C&F, similar to CIF, requires the seller to pay for the shipping cost but not the insurance. The responsibility for insurance falls upon the buyer, while the seller ensures the goods are delivered to the agreed destination.
These Incoterms play a pivotal role in international trade contracts by clearly delineating the obligations and risks borne by both the buyer and the seller at various stages of the transportation process. Understanding these terms is crucial for businesses engaged in global commerce to mitigate risks and ensure smooth transactions across borders.
In my professional experience, I've negotiated and implemented these Incoterms in contracts across diverse industries, enabling seamless and efficient global trade operations while safeguarding the interests of both parties involved.
FAQs
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.
What are the trade terms FOB and CIF defined by? ›
Cost, insurance, and freight (CIF) and free on board (FOB) are international shipping agreements used in the transportation of goods between buyers and sellers.
What is FOB and CIF contracts in international trade transactions? ›
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).
What is the difference between CIF and FAS? ›
With FAS, the seller has to deliver goods alongside the vessel at a designated port of shipment but does not have to arrange for the main carriage or cover insurance for it. With CIF, the seller must arrange for the main carriage and also cover insurance costs up until delivery to the buyer's destination.
What is FOB and FAS? ›
FOB (Free On Board) and FAS (Free Alongside Ship) are two common Incoterms you'll come across: FOB means the seller gets the goods on the ship, and then the buyer takes over. FAS involves the seller placing the goods next to the ship, and the buyer is responsible from there.
What is a FAS contract? ›
What does free alongside ship (FAS) mean? FAS is a term used in overseas shipping that denotes delivery has been made when the goods have been offloaded from the seller's ship and cleared through export customs. Under FAS, the buyer is responsible for the cost of clearing export and unloading.
Which is better, CIF or FOB? ›
Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF. FOB provides greater control and saves buyers money, but CIF helps sellers maintain a higher profit. The caveat being that new buyers would be better advised to use CIF until they get accustomed to the import process.
What is CIF terms in a contract? ›
A CIF (cost, insurance and freight) contract is a contract of sale of goods by shipment where the seller pays for the cost of transport and insurance of the goods to the destination and the legal delivery is when the goods cross the ship's rail in the port of shipment.
What are the different types of FOB contracts? ›
A Free on Board (FOB) contract is a contractual term in the sale of goods under which the seller bears the cost of delivering goods via a specific route determined by the buyer. Once the goods are on board, property and risk passes to the buyer. There are two key types of FOB terms: FOB Destination and FOB Origin.
What is the meaning of C&F? ›
It means that the seller must pay the costs and freight necessary to bring the goods to a named port of destination and must also procure marine insurance against the buyer's risk or loss to the goods during the carriage. Description: C&F stands for cost and freight and is always stated as C&Fthe port of importation.
Six commonly used terms in international commerce are EXW (Ex Works), FOB (Free On Board), CFR (Cost and Freight), CIF (Cost, Insurance, and Freight), DDU (Delivered Duty Unpaid), and DDP (Delivered Duty Paid). Understanding the nuances of these terms is essential for businesses engaging in cross-border transactions.
What is CIF in international trade law? ›
Cost, insurance, and freight (CIF) is an international shipping term that describes the seller's responsibility for the cost of shipping, freight charges, and insuring the cargo being shipped via ocean or waterway.
What is a C&F agreement? ›
A C&F agency agreement is a legal document that outlines the terms and conditions of the relationship between the principal and the C&F agent. In this article, we will discuss what a C&F agency agreement is, its components, and why it is essential.
What is FOB C&F CIF? ›
Cost and Freight (CFR), Cost, Insurance and Freight (CIF) and Free on Board (FOB) are three of the terms included in the International Chamber of Commerce's International Commerce Terms (Incoterms).
Who pays freight in FAS? ›
Who pays for freight under FAS? If a FAS incoterm is specified in a shipping contract, the importer is responsible for all costs from the time when goods are delivered by the exporter to the transport vessel. This covers the expense of shipping, setting up export clearance, and risk of loss or damage.
What is FOB, CIF, and CNF? ›
There are two major terms of shipment widely used round the globe. These are freight on board (FOB) and cost net freight (CNF). Other terms such as cost net insured (CIF) and cash against document/delivery (CAD) are also used.
Who pays for freight with CIF? ›
Who Pays CIF Freight? The seller must pay for the costs of transferring and shipping the freight as well as insuring the cargo until the goods have been delivered to the buyer's port.
Which is cheaper CIF or FOB? ›
Compared to FOB, CIF comes at a higher cost for buyers: sellers invoice buyers to cover costs of shipping and insurance. As mentioned, sellers can add additional fees for the service to make a larger profit. Therefor using CIF provided by the seller ends up costing more for the buyer.
What does FOB mean in shipping? ›
FOB is a shipping term that stands for “free on board.” If a shipment is designated FOB (the seller's location), then as soon as the shipment of goods leaves the seller's warehouse, the seller records the sale as complete.
