Get the Best Shipping Price: FOB vs CIF

INCOTERMS

In 1936, the International Chamber of Commerce established a system of 13 international commerce terms, or INCOTERMS. Each INCOTERM refers to an agreement that governs the shipping responsibilities of sellers and buyers engaged in international trade. The purpose of this system is to facilitate orderly international trade by providing contract models that are easily identified across language barriers. CIF and FOB are two widely used INCOTERM agreements. Each specifies which party is responsible for goods in transit, what insurance is required and who pays freight charges. The agreements also specify the point at which a seller’s obligation is complete and the buyer assumes responsibility. The shift of responsibility from seller to buyer is considered delivery even though the goods may still be in transit.

1. FOB : Free on Board.

This means that the exporter / seller pays all the transportation costs, insurance, freight etc up to the port of loading. i.e. his port where he loads the goods on the shipped from. For eg, if an exporter from the Port of Quanzhou, in Fujian and his invoice says FOB Mumbai, then he pays all the costs like customs clearance, origin documentation charges,  and any, port handling charges up to the port of Quanzhou. The buyer  or importer pays cost of freight transport, insurance, unloading, and transportation from the arrival port to the final destination. The passing of risks occurs when the goods pass the ship's rail at the port of shipment.

2. CIF : Cost Insurance and Freight

In this term the exporter pays all costs, insurance and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel / ship. But here the seller pays for maritime transport only up to the port of destination. All other costs, freights and insurance there after from arrival port up to the final destination of importer has to be paid by importer only.

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