In this case, the buyers don’t have to pay a high cost to their sellers as they might have with CIF. CIF is considered an expensive option than FOB for buyers because the seller decides all the factors such as the route, transit time, shipping company, freight insurance costs, and other factors that may affect the overall price. FOB saves buyers money and provides control, but CIF helps sellers gain a higher profit. There are lots of acronyms, all 3 lettered, and having a predefined meaning that is easily understood by both buyers and sellers in international trade. Buyer will not be held responsible for any loss in-transit. Please call Roger 832 577 3182. Working with one company further ensures that the carrier will be working with the customer’s best interests in mind, since their sole purpose is to get the freight to the specified destination. Advantages and Disadvantages for the Buyer When trading under a CIF agreement, there are significant advantages for the buyer, making the purchasing process easier. The seller must give notice to the buyer that this … It is true, however, that the Incoterms can have disadvantages when comparing one to another. Copyright © 2016 LILLY + Associates International. Using FOB shipping terms means the costs, risks and responsibilities are split fairly equally between the buyer and the seller of goods.On FOB terms your supplier is responsible for paying all the costs involved with your shipment until the goods are on a vessel at their outbound port. Email . Im doing a repsort on the logistics of india. It is important for both exporters and importers to understand FOB when requesting quotes and business. Furthermore, if something goes wrong with a CIF shipment, it will be difficult for the buyers to obtain accurate information because they don’t own the goods until they get the delivery. Advantages of CIF over FOB when importing into China. Related. Why? Have you experienced the advantages of shipping FOB or ran into issues shipping CIF? Under the FOB terms, buyers do not usually pay the higher fees that CIF protection plans incur. Advantages and Disadvantages of CIF. Moreover, buyers have to rely on the seller to provide the Importer Security Filing document, if the buyers delay filing this, there are serious fines and penalties. Under the ‘C’ term (CFR, CIF, CPT and CIP), the seller has to contract for carriage, but without assuming the risk of loss of or damage to the goods or additional costs due to events occurring after shipment or dispatch. These two types are the most commonly used Incoterms. But as soon as the goods are loaded onto the ship, all risk transfers to the buyer. News Portal PL. When it comes to international shipping, FOB shipping and CIF are the most commonly used agreements which determine the responsibility of both the buyer and the seller. With FOB, the buyer has more flexibility and control of the terms, the cost, freight shipping planning, and more. New buyers are recommended to use CIF because they don’t yet understand the intricacies of international shipments and possibly can make mistakes that can have severe penalties. The most obvious is that when the goods have been delivered on board the buyer’s vessel the seller has not only physically done what it has to do but it might seem also has no further costs, risk of loss or damage to the goods or responsibilities. What does DAP Mean in shipping terms? FOB vs CIF . In most cases of FOB, liability and title possession shifts when the shipment leaves the point of origin. Hi Eyuel – thank you! If a shipment is delayed, there is no recourse for the customer. CIF and FOB both describe international shipping agreements that specify when the ownership and liability of the goods transfer from seller to buyer. When using FOB trade, you should consider advantages and disadvantages of the terms before contracting out. Your email address will not be published. CIF is a defined Incoterm under the Incoterms 2000 [3]. Glad you found this article useful. This means they can use their preferred carrier and they can set the transit times. On the other hand, CIF contracts … According to this contact law, the buyer is expected to make the agreed payment once the documents relating the contact are produced by the seller. Looking for information of handling and shipping of goods and their costs. By: Paul Cole-Ingait. The classical judicial definition of CIF was given in Taylor Bros [4] by Lord Wright. Very nice article. If you’re buying goods from a supplier based abroad, you’ve probably come across Incoterms. FOB shipment relieves the seller of responsibility once the goods are shipped from the seller. In Malaysia, it is quite common for us to use FOB for sea shipment if we purchase commodities from overseas such as China, Taiwan or even United States. Example, pier charges, wharfage fees, loading and unloading charges. CIF is thus a contract for the sale of goods performed by the delivery of documents: Hindley [1973]50. Reply. Cost, Insurance and Freight and Free on Board are international shipping agreements used in the transportation of goods between a buyer and a seller. In addition, he gets worldwide recognition as the owner of the popular brand. However, the two most common terms would be CIF and FOB. WORKSHOP 6 ‘Define FOB and CIF contract and what are its advantages and disadvantages in practice’ Prepared by Gan, Yin Yen (lead writer) Lee, Pay Wen (lead writer) Raychelle Tan Tee, Siaw Chin 2. Select the FOB price of the transaction, shipping and insurance in the unstable market conditions fluctuate in their favor. That means one central point of contact for any questions or problems that may arise. Includes … Tweet . WORKSHOP 6 ‘Define FOB and CIF contract and what are its advantages and disadvantages in practice’ Prepared by Gan, Yin Yen (lead writer) Lee, Pay Wen (lead writer) Raychelle Tan Tee, Siaw Chin FOB meaning. Learn more about the advantages and disadvantages of FOB terms when buying goods from abroad, here. The various disadvantages of Free On Board contract are as follows Looking for information of handling and shipping of goods and their costs. But are there any advantages to it? While considering advantages and disadvantages of using CIF, it is important to remember that the seller bears more responsibility when CIF is agreed on. Unfortunately, sellers and buyers commonly treat FOB as merely a price point – the seller doesn’t pay the freight and the buyer does. And the advantages and disadvantages of making this transition? CIF can be regarded as an expense that includes costs, insurance, and freight, which is required to be borne by the seller of the goods until these goods are loaded onboard the vessel, and the liability of the concerned goods passes on to the buyer from the seller the moment the freight … 5. Acronyms are quite popular in the supply chain, and FOB is one of the misunderstood. If you’re buying goods from a supplier based abroad, you’ve probably come across Incoterms. With CIF, responsibility transfers to the buyer when the goods reach the point of destination. We also recommend that newer … SOLO LEARNING – if you need clarification on a topic, it’s not … They are the widely used standards that guide international trade. Despite the development of technology and internet which by far have affected the way how business is conducted and contracts performed, goods (save for intangibles ) are still shipped from the seller’s place to the purchaser’s place in the traditional way, i.e. Advantages and disadvantages of a C.I.F and F.O.B contract to seller and buyer. Currently importing machinery from xhina need advice as we are ndw to importing . FOB and CIF mainly differ in who assumes responsibility for the goods or product during transit. Shapiro says: August 24, 2016 at 1:34 pm . Abstract. A supplier is in a fairly well positioned to obtain a fair price for the goods sold to load on onboard a truck, boat or plane, operating in the country of origin. The latter contains four incoterms: A detailed explanation of each incoterm is provided in our previous blog post, Incoterms Demystified. This is essay will look at the, nature, advantages and the disadvantages of free on board (fob) contract. FOB means “Free on Board” or “Freight on board”. Freight … FOB Definition and Meaning. This means that the seller is responsible for risk and insurance costs until the goods reach the buyer’s nearest port. 3. Terms and Conditions Warehouse and Storage. This question needs to be improved first before a good answer can be established. Moreover, buyers have more control over freight costs and transit timing. Well, actually I must say yeah! The seller has the benefit of charging a higher price, taking into account extra services. These documents must include the full description of the goods, the parties, price, shipping mark and numbers, the part of loading, route, and the port of discharging. There are several advantages and disadvantages of using FOB protection, which we’ll outline in the information below. 1 decade … Want to learn more about international shipping agreement? Diana MaureMay 17, 2016Imports, Ocean Freight, Shipping Guide16 Comments. FOB and CIF are among the most common of the 12 international commerce terms (incoterms) established by the International Chamber of Commerce (ICC) in 1936. For the majority of buyers, it is the sensible option. To conclude, CIF and FOB contracts are the most important contracts in the field of International Trade. Incoterms appear in contracts and quotations from … The main difference between CFR and CIF is the supplier pays for insurance as well as the freight charges when a container is shipped CIF. The customer must be ready, however, to handle customs and fees as soon as the shipment arrives in the US. To conclude, the rule of thumb for doing business in international trade should be, buy FOB and sell CIF. and c.i.f. But going back to our list, the only convenience it gives is you not spending too much time dealing with the movement of your goods and just … Hi Bruno, Thanks for reaching out! Since we are looking at the advantages of FOB over CIF, let us take a quick look at what each entails. FOB refers to Free on Board but can also be called Freight on Board. FOB saves buyers money and provides control, but CIF helps sellers have a higher profit. Example, pier charges, wharfage fees, loading and unloading charges. However, the significant cost savings and control quickly outweigh this disadvantage. Sellers also prefer FOB sometimes because they let them free from all the responsibility of the goods. ADVANTAGES DISADVANTAGES; ACCESSIBLE – virtual learning is accessible to anyone who has a computer, tablet or smartphone. Mainly, under the CIF contract, the parties have to deal with delivery of documents and not actual physical delivery of goods by the seller. At least you have to describe your role in the trade; as a seller or a buyer. This question needs to be improved first before a good answer can be established. Share your story in the comments below! because they are able to choose their freight forwarder. El vendedor sólo debe cumplir con la obligación de entregar la mercancía en el medio de transporte designado por el comprador. This brief discusses the legal implication why buyers and sellers would prefer a c.i.f. In … The seller pays costs, including freight and insurance. FOB is suitable where ‘S’ does not normally ship goods overseas. Despite the development of technology and internet which by far have affected the way how business is conducted and contracts performed, goods (save for intangibles ) are still shipped from the seller’s place to the purchaser’s place in the traditional way, i.e. Great work. The seller pays for transportation and loading costs, and clears the goods for export. FOB meaning. As Lord Wright observed, C.I.F is a type of contract which is more widely and frequently used that any other contract used where sea carriage is envisaged. 2. In most cases, we recommend FOB for buyers and CIF for sellers. When choosing CIF shipment, you don’t have to handle any risks, claims, or freight related concerns in transit. 2 Because, the buyer has to nominate a ship and the seller has to put the goods on board of vessel for account of the buyer and procuring a bill of lading. The Advantages and Disadvantages of Virtual Learning | CIF ... Deal ciftraining.ie. The significant feature of a CIF contract is that performance of bargain is to be fulfilled by delivery of documents and not by actual physical delivery of goods by the seller. Had this shipment been booked fob we would be in control right from the beginning. These are International Commercial Terms, defined by the International Chamber of Commerce. FOB is suitable where ‘S’ does not normally ship goods overseas. There is only one advantage we can think of – convenience. Space from Barcelona to Istanbul is confirmed but not onward to destination,- as there are Ester holidays in Italy we couldn’t get hold of shipper or agent. FOB, the responsibility move from an exporter’s to importer’s once the cargoes are on the deck of the vessel of exporting port. November 18, 2020 at 5:21 pm . Disadvantages of CIF terms when shipping goods. This type of learning is more difficult for those who are prone to procrastination. But there are many passive areas, such as: delay to send vessels as importers, or for a variety of situations lead to shipment delays, vessel name changes, it will enable exporters to increase the cost of warehousing and other expenses, or is caused by late … FOB Shipping Advantages Incoterms. An important advantage of Free On Board or FOB is that there are no hidden extra costs in the process. The initials CIF stand for: cost (the sale of contract), insurance (the contract of insurance) and freight (the contract of carriage). Hola Kelvin – CIF Es el valor que el vendedor aporta, cubriendo los costos de transporte de la mercancía, ya sea por vía marítima al puerto de destino, o por vía terrestre a un hito determinado que puede ser un paso fronterizo o un punto terminal asi como el seguro contratado para cubrir riesgos como pérdida o daño de la mercancía. They then have the benefit of working with one company throughout the transportation process. 1) As contract of carriage and payment is part of seller’s obligation, it is important for the seller to understand … Well done Diana! When it comes to international shipping, FOB shipping and CIF are the most commonly used agreements which determine the responsibility of both the buyer and the seller. Most buyers choose FOB because it’s arguably the most affordable or cost-effective option. … +11234567890, That means one central point of contact for any questions or problems that may arise. Advantages and Disadvantages of each rule and whether they work with LCs; Rules for Any Mode or Modes of Transport ; Rules for Sea and Inland Waterway Transport; Conclusions; Using Free on Board for Container Shipments. Bridge (2010) notes that, the contracts that govern sale of goods impose a variety of obligations to both the buyer and the seller. 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. En ambos casos, su Agente de Aduana, puede asesorarlo al respecto. How to Record Freight Charges in Accounting. Unlike FOB, which is a domestic sales contract, CIF is used for international sales and it is a means by which a country can make sure its sellers use its national carriers. These Incoterms are abbreviated as CIP, CPT, CFR, CIF, DAP, DDP, DAT, EXW, FAS, FCA and FOB, respectively. Then, it examines the legal obligations and rights of the buyer and seller under an f.o.b. Then ask a UK forwarder to get you 2 prices, 1 based on the goods being shipped FOB and 1 based on the goods being shipped CIF (you will need to find out from your supplier which service they will use so the forwarder can contact the agent in the UK and find out how … The seller also takes responsibility for loading the goods onto the ship. Should you buy CIF or FOB? On the other hand FOB contract can be described as a flexible instrument. since their sole purpose is to get the freight to the specified destination. The disadvantages under the CIF contract is that the buyer must take risk for the period of carriage, as the buyer has no means of controlling or limiting those risks. Share . You can control your costs from the factory to your door. The (CIF) contract governs the sale and movement of goods from the point of production to the agreed destination. This is essay will look at the, nature, advantages and the disadvantages of free on board (fob) contract. CIF presentation 1. This issue can be viewed as an advantage or disadvantage depending on the perspective. FOB and CIF mainly differ in who assumes responsibility for the goods or product during transit. Her unique background has allowed her to help improve the supply chain of many international clients and provide customized logistical solutions throughout the years. To conclude, the rule of thumb for doing business in international trade should be, buy FOB and sell CIF. Compare this to CIF, where the customer relinquishes any control over the shipment, while acquiring most of the risk. Cost, Insurance and Freight (CIF) Bridge (2010) notes that, the contracts that govern sale of goods impose a variety of obligations to both the buyer and the seller. Thank you! A supplier is in a fairly well positioned to obtain a fair price for the goods sold to load on onboard a truck, boat or plane, operating in the country of origin. Definition of CIF • Stands for Cost, Insurance and Freight • Sellers are obliged to ship the insured contractual goods to the agreed destination under a CIF … So you’ve heard the many disadvantages CIF has over FOB. In this article, we will discuss the CIF Incoterm which is one of the 11 Incoterms® 2010 rules. (b) The licensor gets guaranteed income in the form of fees. They are updated every ten years or so, with the most recent version, Incoterms 2010, released in January, 2011. 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. CIF contract is that when the seller has delivered the goods or provides them afloat. by road, rail, sea, or air transportation. Sellers may prefer to ship CIF because of higher profit margins but also it puts a lot more responsibility on the sellers. Cheaper shipping costs (until the goods land in the UK) Can work well for full container loads; Safe if you have had previous success on CIF terms with this supplier; Excellent for Exporting; FOB Advantages. At the same time, it defines the point where this responsibility passes to either party. However, we recommend that new buyers use CIF as they get accustomed to the importing process. Updated September 26, 2017. hxdyl/iStock/Getty Images . The focus is on the importation, sales and promotion of foreign alcoholic products. Hi Rogef – please send an email with your cargo details to [email protected] and a member of our team will be in contact. AFFORDABLE – because you can learn from the comfort of your own home it means that there are no travel costs involved in virtual learning. A good rule of thumb when doing business in international trade is that you should buy FOB and sell CIF. Contact Tenaxx Logistics experts to know which will work best for you. Print . It is accepted as a standard contract by most buyers and sellers and thus has wide acceptance. contract. … After all, the customer is not the carrier’s client; there is no obligation to meet their needs. : SELF-DISCIPLINE – it’s essential that you have the motivation necessary to sit and do the course. [5] Generally the buyer will have no opportunity to inspect the … 3. When a buyer uses FOB terms, he saves all costs as highlighted above. Ive read a great deal … What is FOB? Defining FOB (Free On Board) FOB, or “Free On Board,” describes an agreement in which the seller is responsible for the goods until they arrive at the seller’s nearest port and are sent, or “past the ship’s rail.” Once the goods are onboard, risk and costs are divided between the buyer and the seller. Your supplier may be able to offer cheaper insurance rates, but you need to make sure … (You can unsubscribe anytime), ShipLilly 11430 NW 122nd St, Suite 400 Medley, FL 33178 Phone:_305-513–9540 e-fax:_305-356–7001. Certain disadvantages of FOB Destination are: 1. Esandis: 150 training pages for european transactions Esandis, it's also an unique and exclusive expert system to … 3.2.1 Advantages and Disadvantages of CIF Contracts The biggest advantage of the CIF contracts, as stated before, is the sell afloat ratio. The (CIF) contract governs the sale and movement of goods from the point of production to the agreed destination. FOB Shipping Advantages Incoterms. The seller has also, the advantage of receiving the transacting money before the goods actually reach the … FOB not only provides greater control over the shipping process than CIF does; it also gives better control over the related shipping costs and, in turn, the overall cost of the goods. These are International Commercial Terms, defined by the International Chamber of Commerce. When the customer can select their own freight carrier, they ultimately have more control over the shipment, having the ability to choose the route taken, and the transit time. A CIF contract, as Scrutton J said in Arnhold Karberg v Blythe, … by road, rail, sea, or air transportation. Excelente articulo muy claro, Una consulta, como saber si la mercadería viene en CIF o FOB. Since the transportation is beyond the customer’s control, and multiple companies may be used for different stages, it can be difficult to obtain information about the status of the cargo. Im doing a repsort on the logistics of india. It could be said that CIF serves better the interests of the seller as a shipper. However, the disadvantages often outweigh the benefits for more experienced buyers. The supplier handles every aspect of the shipment until it arrives at the destination port. The nature of free on board(fob)contract in International trade law has been modified overtime to ensure that the contract of sale between the seller and the buyer are followed to the latter and are seen to be binding between parties . 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. CIF is considered a more costly option when buying goods whereas FOB shipping relieves the seller of responsibility once the goods are shipped. One more reason why the CIF contracts are so appealing is the price that buyer is called to pay. This is really a very cool blog, thanks a lot for this! Furthermore, the goods are only insured to the point of arrival at the destination port. Post . By: Paul Cole-Ingait. Advantages and Disadvantages of FOB Destination. You will be in a position to choose a method of shipment, your own agents, organise for a convenient insurance policy and set your own transit time. Advantages & Disadvantages of Incoterms. FOB – Al igual que el valor CIF, es una cláusula de compraventa, pero se diferencia en cuanto a que el valor del transporte y seguro es cubierto por el comprador, es decir por el país de procedencia. However, CIF contract has a very significant difference from FOB contract. My customer terms were cfr for badly needed Pharama raw material scheduled for production. After the goods have been loaded—technically, “passed the ship’s rail,”—the goods are considered to be delivered into the control of the buyer. contract. What are the advantages and disadvantages of FOB(free on board), FAS(free alongside ship) and CIF? What are the advantages and disadvantages of FOB(free on board), FAS(free alongside ship) and CIF? Disadvantages of Free On Board contract. 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