Many beginners importing from China do not know what the terms FOB (Freight On Board) or C.I.F(cost insurance and freight) are when importing goods and what is best for them, and the difference between the two. (FOB) or (C.I.F) Also, there are two other terms (C & F) and (C & I), so what do these terms mean in international contracts and the difference between them.
Table of Content
Chapter 1 What does FOB mean?
Chapter 2 How the FOB process works
Chapter 3 Obligations of the buyer and the seller using the Incoterm FOB
Chapter 4 What does CIF Means?
Chapter 5 Difference between the two. (FOB) or (C.I.F)
Chapter 6 Which one is the best to use
Chapter 1 What Does FOB Mean?
FOB is an abbreviation for Free On Board, which means that goods are at the responsibility of the importer when the goods are ready for delivery on the supplier’s shipping dock, then the importer insures and packs the goods and incurs shipping costs until reaching the port of the importer as the importer bears all risks as lost The shipment or any damage that may happen to the goods.
Chapter 2 How the FOB Process Works
The seller has to prepare the goods, the final invoice, export procedures, and documents, but the goods inside the ship specified by the buyer at the specified port and date and bear all costs and risks until the moment the goods are placed in the ship at the specified port. The buyer must be adequately notified of the place and time of delivery of the goods and bear the costs of the pre-examination Shipping.
In fact, The buyer has to bear all the procedures and costs related to importing from the moment they are placed on board the ship and bear all the risks of transporting the goods from the moment the goods are in the ship and contracting to transport the goods from the specified port and bear the adaptations and risks that will be caused to the goods as a result of the delay in shipping. Pay all customs clearance procedures.
Chapter 3 Obligations of the Buyer and the Seller Using the Incoterm FOB
Obligations of the buyer
The buyer must have to regulate all customs formalities for the importation of the merchandise, in addition to obtaining any import license or official authorization, and must obviously have to pay the stipulations in the purchase-sale contract.
If there are extra charges the buyer must pay taxes and other expenses that may be generated by it.
You must contact the transport of the merchandise starting from the port of shipment to the others to receive the delivery of merchandise.
It will assume all the costs generated during the delivery of the merchandise such as the procedures, freight, or unloading of the port.
In the event that the seller pays the charges or costs obtained by the documents or charges, the buyer must reimburse the seller.
Notify the name, date, and point of loading of the ship accepting all the required tests on prior inspection of the shipment.
Obligations of the Seller
It will assume all the risks of damage or loss of the merchandise until the ships overboard have been exceeded in the stipulated port, in addition to giving notice when the merchandise has been delivered providing all the documentation of the proof of delivery and will pay all expenses arising on the verification operations, the required packaging will also provide it.
The seller will have to supply the commercial invoice and the merchandise on the conformity of the sales contract. You have to obtain all export licenses and any other authorization required in customs procedures to transfer the merchandise.
In the case of export, you have to assume all the necessary customs costs.
You must deliver the merchandise on-board the vessel that has been designated by the buyer.
The seller also has to provide all documentation facilities on the country of shipment or origin that the buyer may need for the importation of the merchandise and its transit through other countries.
What Else Should You Know About the Incoterm FOB?
In this case, the seller (the exporter) has no responsibility for the goods exported once they are delivered.
The buyer is the only one who assumes the majority of the expenses, therefore it will be necessary to obtain insurance against all risks avoiding posthumous problems. ask your seller to provide all the information about it.
Chapter 4 What Does CIF Mean?
The incoterm CIF (C.I.F) means that the price of the goods, adding insurance, and the ship’s fare. In incoterm, the ownership of the goods is transferred to the buyer from the time of shipment.
It means that one who will ship the goods is the one who will bear all of the cost of the goods, insurance, and shipping charges until they are ready for delivery at the importer’s port.
The seller is obligated to conclude the contract of transportation and insurance of the goods and chooses the ship to be transported on, in this case, the seller is not an agent here but and, but rather seller does so, in implementation of the sales contract itself.
Cost Insurance Freight
The use of the CIF incoterm means that the seller who will be charged with shipping and insurance process and the buyer will also save time and money.
But remember that even the seller pays the shipping and insurance charges, which does not mean that he is responsible if something happens to the goods, or if the customer receives or does not receive the goods, you will wonder Why? and who will pay the customer?
Even the supplier who has taken out insurance does not mean that he is the one who will reimburse the customer in the event of a problem, but it is the insurance company taken by the supplier who will pay and reimburse the customers in the event of a problem, this is why the majority of importers choose the FOB incoterm because better to choose your own shipping and insurance company that can protect your rights as an importer.
Chapter 5 Difference Between (FOB) and (CIF)
-The seller must deliver the goods to the ship.
-The seller is responsible for the goods until the goods loaded.
-The risk of loss passes when the goods pass the ship,s rail.
-The buyer is responsible for the shipping and insurance process.
-Seller pays the cost of the shipping and the insurance, he is not -responsible for the reimburse but the insurance company do
-The risk of loss passes when the goods pass the ship,s rail.
As for the term CIF, very briefly, the seller bears all costs and risks until the buyer’s hands over the delivery port.
Other Terms (C & F) And (C & I)
C & F (Cost – Freight)
It means that the seller bears the costs of the goods and the shipping charges, but the buyer bears the insurance costs for the goods.
C & I (Cost – Insurance)
It means that the seller bears the costs of the goods and ensures both, but the buyer bears the shipping costs from the port of the source to the port of the buyer.
Chapter 6 Which One is the Best to Use
For the sellers, the incoterm FOB is the best one, why?
Because (FOB) is for the benefit of the seller, responsibility for the goods ends as soon as the goods are delivered to the seller’s port. the buyer here will bear the other costs of the goods (shipping costs and insurance expenses).
For the importer, the incoterm CIF is the best one, why?
Because (CIF) It is in the interest of the importer, the seller will bear all the costs of the goods that must be sent from his country to the buyer’s country, and the buyer does not bear anything, only the seller will bear all shipping and insurance expenses until the goods reach the country or the port of the buyer, here the seller’s responsibility ends and the buyer’s responsibility begins.
Now that you know what does each incoterm means, how the process of each one works, and which one will be the best for your business, we are glad to make you have an overview of everything you need to know and we also recommend for you this ultimate guide to reading too.