There are some differences between CIF and FOB. Thus, we explained the differences between CIF and FOB in detail for you in this article.
If shipping is part of your business, it's important to become familiar with International Commerce Terms (Incoterms). The International Chamber of Commerce has established Incoterms. By knowing these terms and their meanings, you can follow a more accurate way. Also, knowing the rules and standards will keep you safe as a buyer or seller. Incoterms to know include CIF and FOB. They specify what buyers and sellers need to know and their responsibilities.
There are some differences between CIF and FOB. Differences come with different responsibilities. Thus, we explained the differences between CIF and FOB in detail for you.
CIF stands for cost, insurance, and freight. The seller is responsible for the cost, insurance, and freight. CIF is a shipping agreement. This agreement specifies the seller's responsibilities and the fees he must pay. The seller pays these fees to cover costs, insurance, and freight. These costs incur while the cargo is in transit. Only goods transported via waterways, sea, or ocean are subject to CIF. Hence, other forms of shipping are not subject to CIF.
In general, CIF applies to large, heavy, and bulk items. According to CIF, the seller is responsible for the cargo until it reaches the port of destination. The seller is also responsible for export clearance. Thus, ownership of the transport remains with the seller until delivery. For this reason, the risks that occur until the transport reaches the buyer's port are the responsibility of the seller. In this process, the seller must cover the damages. Moreover, the seller is responsible for the additional factors such as customs duties and paperwork required for the goods.
However, the responsibility passes to the buyer as soon as the goods reach the port of destination. For example, the buyer should pay the unloading costs. Besides, the buyer must ensure that the transport reaches the final destination. Also, the buyer bears the costs incurred in this process.
CIF comes with some responsibilities for both buyers and sellers. Sellers take responsibility for all export and transport of the cargo until the goods reach the ship. After loading, the responsibility of the shipment passes to the buyer. Responsibility remains with the seller until the products reach the final destination. Apart from these, we can explain the responsibilities of both parties in more detail.
FOB stands for Free on Board. FOB is a shipping agreement. It is the responsibility of the buyer from the moment the shipment leaves the port of departure with FOB. FOB requires the buyer to choose the shipping company, insure the shipping, and pay some costs.
With FOB, the buyer assumes responsibility once the goods have passed the ship's rails. This happens at the point of origin. Full responsibility passes to the buyer from the moment the goods begin their journey. The buyer should pay for transport, insurance, and other costs. In addition, the buyer is responsible for unloading the goods from the vessel in FOB.
As we mentioned above, the responsibility passes to the buyer as soon as the shipment leaves the port of departure. But, it would be useful to explain the responsibilities of the parties in more detail.
The key difference between FOB and CIF is the point where responsibility passes from the seller to the buyer. In FOB, responsibility transfer happens when the shipment reaches the point of origin. With CIF, the seller is responsible for the goods until they reach the destination port.
Another difference between FOB and CIF is the costs. Generally, FOB is a more cost-effective method than CIF. Because with FOB, sellers can negotiate rates. Also, it is up to the buyers to choose insurance policies by price or to work with low-priced companies. Yet, if you are new to international trade, CIF may be a better option. Furthermore, if your cargo is small, CIF may be more suitable for you. CIF makes the process smoother for the buyer, even if it costs more.
In conclusion, CIF and FOB have their own pros and cons. Choosing one of the two according to your situation gives you different advantages.
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