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CIF (Cost, Insurance, Freight) and FOB (Free on Board)

The terms of delivery (Incoterms) represent a universally known and recognized codification of the International Chamber of Commerce of Paris which aims to establish the precise meaning of eleven commercial delivery terms used in international sales. The incoterms clearly indicate the obligations and risks borne by the seller and the buyer and therefore provide uniform international rules for the interpretation of the commercial terms of delivery of goods to be included in the sales contracts. **

The most used yields for imports by sea are the following: CIF (Cost, Insurance, Freight) and FOB (Free on Board).

Aerial view container ship from sea port working for delivery containers shipment. Suitable use for transport or import export to global logistics concept.

FOB: Free on Board

FOB is the acronym for Free on Board: the seller fulfills the delivery obligation by placing the goods on board the ship designated by the buyer in the agreed port of shipment. From this moment on, all costs and risks of loss or damage to the goods are the responsibility of the buyer.

CIF: Cost, insurance and transport

CIF stands for Cost, Insurance and Freight and the seller must pay all costs along with the freight to get the goods to the port of destination. However, as soon as the goods are loaded onto the ship, the risk is transferred to the buyer. It also stipulates that the seller arranges and pays for the insurance of the goods.

loading cargo into the aircraft before departure

This rule presents a critical point because the passage of risk and the transfer of expenses take place in different places (the seller pays up to the port of destination and the buyer is responsible for the goods from when they are loaded on board)

Now let’s see 3 reasons to choose the FOB yield for your imports

Savings

In the CIF return, the cost of transport, insurance and freight are paid by the seller, who chooses the forwarder, the carrier and the service, therefore the seller will have to add a margin to the cost of the product to keep intact its operating profit margin. This also applies to cargo insurance, furthermore, it is possible to end up paying transport duties and insurance due to documents that are difficult to work with as the costs have to be shown on independent invoices, with proof of payment.

When using the FOB return, the shipping costs and the responsibility of the freight freight are paid by the receiver, in this way you are able to control the price of the goods and the shipment, moreover the insurance costs are not subject to duties , as they are not combined in the goods invoice but shown on single invoices with payments.

Control

Shipping in CIF terms is performed by freight forwarders hired by the seller, when delays or problems occur, they must communicate with you through the seller and vice versa. Even one day of delay in solving a problem can be very costly.

With the FOB return you communicate directly with your forwarder who keeps you updated on the evolution of the shipment. When you use FOB import return, you have much better control of shipping and transport costs as well as obtaining accurate and timely information, and greater assistance in case of problems.

With FOB return, the shipper’s customer is you, therefore his work is aimed at guaranteeing your interests, while with CIF return you give up any control over the shipment until it arrives at the agreed port. Furthermore, you only become the owner of the goods when they arrive at the port / airport, and you need to make sure you have the documents on time.

Safety

CIF-yielded imports often have bitter surprises, caused by costs that are not evident within the contract. Since the seller’s responsibility stops at the port of destination, you may have to pay additional fees before your goods are cleared through customs, especially for LCL imports. Furthermore, in the event of a claim, it is more difficult to obtain reimbursements and have assistance as the insurance is stipulated by the seller often with local companies. Unless specifically agreed with the seller, the insurance stipulated covers only up to the agreed port of unloading and is often a minimum coverage, which does not protect against all risks.

Responsibility scheme

Do you want to know why Italian exporters prefer to hand over control over the transport and logistics of their goods sold abroad to their counterparties? Read the full article

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