In most cases, we recommend FOB for buyers and CIF for sellers. FOB saves buyers money and provides control, but CIF helps sellers have a higher profit. However, we recommend that new buyers use CIF as they get accustomed to the import process.
Should I buy CIF or fob?
FOB is generally the best option for buyers. With CIF, goods are only insured to the destination port, so anything that occurs after is all on the buyer. The buyer, in this case, must also be ready to handle fees and customs as soon as the good arrive.
What is FOB and CIF price?
CIF – COST INSURANCE AND FREIGHT (named port of destination): Seller must pay the costs and freight includes insurance to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the ship. FOB – FREE ON BOARD (named port of shipment): The seller must themselves load the goods on ...
What is difference between FOB CIF and CFR?
What is difference between CIF and CFR? Cost and freight (CFR) is a trade term that requires the seller to transport goods by sea to a required port. Cost, insurance, and freight (CIF) is what a seller pays to cover the cost of shipping, as well as the insurance to protect against the potential damage of loss to a buyer’s order
What is C&F CIF and FOB?
CIF, C&F, and FOB are among the Incoterms Rules for Sea and Inland Waterway. Each of these represents a specific agreement between the buyer and the seller, which divides the costs and responsibilities between them. A Cost, Insurance, and Freight (CIF) agreement states that the seller has a higher responsibility than the buyer in terms of delivery.
Is CIF better?
CIF is considered a better way to buy goods for those who are new to international trade. It might also be a better option for new traders who have small cargos.
Is CIF and FOB the same?
If you're familiar with shipping or exporting and importing products then you must be familiar with terms like FOB and CIF which in simple language means Free on Board and Cost, Insurance, Freight.
What is the disadvantage of CIF?
When a buyer imports under CIF Incoterms, they are not only paying customs duty and taxes on the product price, but also on the cost of freight and insurance. Possibly the biggest disadvantage of CIF is when the buyer does not fully understand the terms of this agreement.
Which incoterm is best for buyer?
Best Incoterms for buyersFOB: Freight on Board. Under the FOB Incoterm, the seller/exporter will leave the goods at the port of origin, prepared and ready for international transport. ... EXW: Ex Works. The EXW Incoterm is another good option for buyers. ... DAP: Delivered at Place.
What are the advantages of CIF?
Advantages and Disadvantages of CIF – Cost insurance and Freight. The advantage to the seller is that it can often obtain cheap insurance and then build a larger amount into its selling price. The advantage to the buyer is that it does not have to worry about declaring the shipment to its own insurer.
What is FOB price?
The f.o.b. price (free on board price) of exports and imports of goods is the market value of the goods at the point of uniform valuation, (the customs frontier of the economy from which they are exported).
Who bears the risk in CIF?
THE SELLERRISKS BORNE BY THE SELLER UNDER CIF CONTRACTS: The seller must bear all risks of loss of or damage to the goods until such time as they have passed the ship's rail[21] at the port of shipment.
What are the advantages of FOB?
Most buyers choose FOB because it's arguably the most affordable or cost-effective option. Under the FOB terms, buyers do not usually pay the higher fees that CIF protection plans incur. With Free On Board, the buyer has more flexibility and control of the terms, the cost, freight planning, and more.
Who will claim insurance in CIF?
The difference between CIF and CFR is that while the risk of loss or damage at delivery becomes the buyer's, the seller is obliged to take out insurance for that risk and provide the buyer with a document which allows the buyer to claim against that insurance.
Which Incoterm is best?
Most recommended Incoterms for importing For an international purchase operation, the most advantageous Incoterms for the importer will be DAT (Delivered At Terminal), DAP (Delivered At Place) and DDP (Delivered Duty Paid).
What is the most popular Incoterm?
Which Incoterm should I use? For webshops that sell internationally, DAP (Delivered At Place) is the most commonly used Incoterm. DAP simply means that you as a seller pay the shipping costs, arrange the insurance and prepare export documents. The recipient pays any import and customs costs.
Does FOB mean free shipping?
The acronym FOB, which stands for "Free On Board" or "Freight On Board," is a shipping term used in retail to indicate who is responsible for paying transportation charges. It is the location where ownership of the merchandise transfers from seller to buyer.
How do I convert CIF to FOB?
International Trade Quotations and Conversion Formulas among Three Terms 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.
How do you calculate CIF from FOB?
In order to find CIF value, the freight and insurance cost are to be added. 20% of FOB value is taken as freight. Means USD 200.00. Insurance is calculated as 1.125% - USD 13.00 (rounded off).
What is the difference between CIF and FOB prices?
Buyers generally consider FOB agreements to be cheaper and more cost-effective. That's because they have more control over choosing shippers and insurance limits. CIF contracts, on the other hand, can be more expensive. Since the seller has more control, they may opt for a preferred shipper who may be more costly.
What is FOB and CIF in export?
FOB. CIF stands for cost, insurance and freight. It stands for free on board. Under the CIF agreement, the reseller's responsibility is that of goods in transit until the buyer receives the goods. Under FOB agreements, the responsibility of the goods in transit is that of the buyer.
What is FOB and CIF?
FOB and CIF both describe overseas shipping agreements that specify whether the buyer or the seller is responsible for the goods while they are in transit¹.
What does CIF mean when buying?
Buying CIF means the shipping details are handled for you. There’s a lot less headache, and the seller is responsible for the cost of shipping, rather than having to pay it yourself³.
What are hidden costs when buying internationally?
A hidden cost when you buy internationally: Exchange rates . When you buy internationally and two currencies are involved, there can be hidden costs in the exchange rate used to convert the payment for the goods.
Who is responsible for CIF?
CIF, or “Cost, Insurance and Freight,” puts a lot more responsibility on the seller, who is responsible for paying the freight charges and insurance on the goods, and is responsible for them until they reach the buyer’s nearest port².
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What does FOB mean in shipping terms?
What does FOB in shipping terms mean? FOB means “Free On Board” or "“Freight on Board”. What the seller is responsible for: Getting the product on the ship and clearing it for export. What the buyer is responsible for: Insuring the shipment and handling the importation process, including paying for any import duties.
Why do you need to have goods delivered FOB?
From a buyer’s perspective, it’s preferred to have goods delivered FOB because you will have more control over the freight and its costs. Should a problem arise during transport, your freight forwarder will be more responsive to you and your concerns, versus a forwarder that works for your supplier instead.
Why do customs use benchmarks?
This is because they are also used by customs departments worldwide to determine the value of incoming shipments. By using these terms as a benchmark, they can see whether duties and taxes are owed from your shipment.
What to know when choosing FOB?
One thing to keep in mind when choosing FOB is the potential complication if the supplier refuses to cooperate with your shipping company of your choice. Suppliers sometimes get a certain kickback for using a specific freight forwarder and may therefore not be willing to work with another consignee. This is a rather common issue. So the consignee should be prepared to put pressure on the shipper in order to help the freight forwarder smoothen the process.
What are the advantages of FOB?
The FOB also offers advantages such as: 1 By controlling the agents involved, the buyer is able to assert pressure to lower the commercial price. 2 By minimizing costs, it allows the buyer to obtain tax advantages, such as lower VAT burdens. 3 The FOB also allows the buyer to obtain better insurance prices, since you’ll be looking for a deal covering a larger part of the logistical transportation. Unlike the CIF, which only covers the cargo transport from the destination port to the buyer’s facilities.
Why the obsession with CIF?
As you can imagine, there’s a catch with choosing the CIF. This is a rather bad practice with regards to importing from China. Here are some characteristics of the CIF incoterm:
Why is it important to choose an Incoterm?
In general, it’s advisable to choose the Incoterm which offers us the most control over the ocean freight.
Why are novice buyers advantageous?
Many novice buyers find this option particularly advantageous because they’re relatively free of responsibility for the cargo – logistically and financially speaking. Plus, suppliers in China often offer lower prices if buyers agree to the CIF Incoterm.
What is common practice in China?
Common practices involve an agreement between the agent at destination and the seller establishing a low price at which to sell the merchandise. This is to lure you in before inflating expenses at destination and then splitting this profit between them. This happens quite a fair bit in imports from China and such cases have been on the rise in recent years – especially in Latin America.
Should a new importer commit to CIF?
So the consignee should be prepared to put pressure on the shipper in order to help the freight forwarder smoothen the process. In short, new importers should not commit themselves to the CIF Incoterm unless you’re familiar with the seller’s practices.
What is a CIF on a ship?
CIF – COST INSURANCE AND FREIGHT (named port of destination): Seller must pay the costs and freight includes insurance to bring the goods to the port of destination . However, risk is transferred to the buyer once the goods are loaded on the ship. FOB – FREE ON BOARD (named port of shipment): The seller must themselves load the goods on board ...
Why do you sell CIF?
The reason is very obvious. When you sell CIF you can make a slightly higher profit and when you buy FOB you can save on costs. Let me explain how. An importer must look into the options of buying the goods under the terms that are more favorable to his or her expenses.
Why do importers buy CIF?
Importers generally buy CIF if they are new in international trade or they have very small cargo. It is a more convenient way of shipping since they don’t have to deal with freight or other shipping details, but you must realize that you are probably paying a lot more to get the goods than you should.
Do CIF terms work?
Having CIF terms might not work for you when you start buying more. As the number of CIF shipments increase, more problems can occur, since obtaining accurate shipment information becomes more difficult. Overseas suppliers might not help you on a timely manner to handle service issues that might develop in transit.
What is the difference between FOB and FOB?
The main difference between the two is who accepts responsibility for goods while they are in transit. With FOB once the goods are on the ship, they are marked as delivered and the purchaser takes control.
What is FOB Price?
FOB stands for Free on Board and it means the cost of transporting your goods to the nearest port and loading them onto the ship is included in the price . As the buyer, you are then responsible for the cost of shipping the items from there to your location.
What are the disadvantages of FOB?
The main disadvantage of FOB is time. Hours can be spent making the arrangements and researching if the purchaser doesn’t know how it all works.
Who is responsible for CIF freight?
With CIF freight, the goods are the responsibility of the seller/manufacturer until they reach the destination port.
Why buy FOB?
The advantage of buying FOB is that the buyer can get better deals on freight services, unlike in CIF where the buyer has to rely on the freight services chosen by the seller. This is because the seller might be looking to make profit from the freight services . The buyer therefore makes profit from buying FOB.
What does CIF stand for in investing?
The abbreviation CIF stands for "cost, insurance and freight," and FOB means "free on board.".
What is FOB trading?
In FOB trading, the seller is only responsible for taking the goods to the nearest port on his or her end. This location is indicated after FOB, and it is important to accountants, as goods become assets to the buyer on the day they reach that location. The goods are considered delivered once they cross the ship’s rail.
What is CIF shipping?
The terms are also used for inland and air shipments. CIF is considered a better way to buy goods for those who are new to international trade. It might also be a better option for new traders who have small cargos. In CIF, the seller is responsible for transporting goods to the nearest port, loading the goods on the ship and paying freight for ...
What is the rule of thumb in international trade?
A simple rule of thumb in international trade is to buy FOB and to sell CIF. Following this rule can lead to some profit for the trader.
