by road, rail, sea, or air transportation. 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 … CIF is considered a more costly option when buying goods whereas FOB shipping relieves the seller of responsibility once the goods are shipped. Free on Board (FOB): Advantages and Disadvantages What are the advantages for the seller to use the FOB Incoterms® 2020 rule? CIF is also the best option for some buyers who import a small batch of cargo, as the cost of insurance for small volumes may be higher than the fees charged by the sellers. This question needs to be improved first before a good answer can be established. You can control your costs from the factory to your door. FOB and CIF mainly differ in who assumes responsibility for the goods or product during transit. The (CIF) contract governs the sale and movement of goods from the point of production to the agreed 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. From the buyer’s perspective, any shipping terms that give them control are preferable. If you’re buying goods from a supplier based abroad, you’ve probably come across Incoterms. This issue can be viewed as an advantage or disadvantage depending on the perspective. 3. With CIF, all the above-mentioned variables are controlled by the seller, which may disadvantage you. Want to learn more about international shipping agreement? 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. In most cases, we recommend FOB for buyers and CIF for sellers. They then have the benefit of working with one company throughout the transportation process. Please call Roger 832 577 3182. (b) The licensor gets guaranteed income in the form of fees. That means one central point of contact for any questions or problems that may arise. 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. At least you have to describe your role in the trade; as a seller or a buyer. FOB meaning. [5] Generally the buyer will have no opportunity to inspect the … FOB stands for “free on board” and CIF stands for “cost, insurance, and freight”. 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. These are International Commercial Terms, defined by the International Chamber of Commerce. Ciao ciao, Andrea. As a matter of fact, FOB … With CIF, all the above-mentioned variables are controlled by the seller, which may disadvantage you. 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 … Updated September 26, 2017. hxdyl/iStock/Getty Images . In most cases of FOB, liability and title possession shifts when the shipment leaves the point of origin. Great work. Moreover, buyers have more control over freight costs and transit timing. El vendedor sólo debe cumplir con la obligación de entregar la mercancía en el medio de transporte designado por el comprador. The seller must tender the documents to the buyer. 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. It is true, however, that the Incoterms can have disadvantages when comparing one to another. News Portal PL. 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. CIF or “Cost, Insurance, and freight “, often holds primary ownership with the seller until delivery. The seller has the benefit of charging a higher price, taking into account extra services. The seller has also, the advantage of receiving the transacting money before the goods actually reach the … Since we are looking at the advantages of FOB over CIF, let us take a quick look at what each entails. The classical judicial definition of CIF was given in Taylor Bros [4] by Lord Wright. These Incoterms are abbreviated as CIP, CPT, CFR, CIF, DAP, DDP, DAT, EXW, FAS, FCA and FOB, respectively. SOLO LEARNING – if you need clarification on a topic, it’s not … 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. In most cases, we recommend FOB for buyers and CIF for sellers. 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 … Share . Exporting Alcohol to Macau: Advantages and Disadvantages. FOB is suitable where ‘S’ does not normally ship goods overseas. This is essay will look at the, nature, advantages and the disadvantages of free on board (fob) contract. Both of them resemblance each other. 3.2.1 Advantages and Disadvantages of CIF Contracts The biggest advantage of the CIF contracts, as stated before, is the sell afloat ratio. 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. Currently importing machinery from xhina need advice as we are ndw to importing . Furthermore, the goods are only insured to the point of arrival at the destination port. and c.i.f. FOB Shipping Advantages Incoterms. 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 Print . TIP 3: FOB is the most cost effective term for shipping costs You’ll probably be aware that CIF and CNF gives the supplier the responsibility to transport goods to the port, airport or terminal in their country, whilst DAP or DDP takes this a step further and gives the seller the responsibility of getting the goods to your destination place. 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. because they are able to choose their freight forwarder. In CIF agreements, the insurance and other costs are assumed by the seller until the goods arrive at the point of destination. 2. 5. Terms and Conditions Warehouse and Storage. This means they can use their preferred carrier and they can set the transit times. Post . This is essay will look at the, nature, advantages and the disadvantages of free on board (fob) contract. Because it allows for greater control over both the freight itself and the freight costs. FOB meaning. But there are many advantages to using the Incoterms. My customer terms were cfr for badly needed Pharama raw material scheduled for production. This question needs to be improved first before a good answer can be established. It is accepted as a standard contract by most buyers and sellers and thus has wide acceptance. 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. Ultimately, if you decide to ship with an FOB agreement, you will be in control of your shipment. 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. 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. Bridge (2010) notes that, the contracts that govern sale of goods impose a variety of obligations to both the buyer and the seller. 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. FOB Shipping Advantages Incoterms. Most buyers choose FOB because it’s arguably the most affordable or cost-effective option. When entering into a shipping agreement regarding goods to be transported by sea, the buyer and seller must decide which terms of sale to use. What is FOB? 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. On the other hand FOB contract can be described as a flexible instrument. The Advantages and Disadvantages of Virtual Learning | CIF ... Deal ciftraining.ie. For the majority of buyers, it is the sensible option. They are updated every ten years or so, with the most recent version, Incoterms 2010, released in January, 2011. Advantages of Licensing Method: (A) Advantages of licensing method are as follows: (a) It is a simple method for entry in foreign markets. Learn more about the advantages and disadvantages of FOB terms when buying goods from abroad, here. FOB contract can be described as a flexible instrument. Relevance. When choosing CIF shipment, you don’t have to handle any risks, claims, or freight related concerns in transit. Sellers may prefer to ship CIF because of higher profit margins but also it puts a lot more responsibility on the sellers. 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. Buyer will not be held responsible for any loss in-transit. Advantages and Disadvantages of CIF. Ultimately, if you decide to ship with an FOB agreement, you will be in control of your shipment. Includes … Example, pier charges, wharfage fees, loading and unloading charges. But are there any advantages to it? 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. Advantages & Disadvantages of Incoterms. 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. This means that the seller is responsible for risk and insurance costs until the goods reach the buyer’s nearest port. With CIF, responsibility transfers to the buyer when the goods reach the point of destination. Please include country code eg. It could be said that CIF serves better the interests of the seller as a shipper. When using FOB trade, you should consider advantages and disadvantages of the terms before contracting out. Required fields are marked *, Example: Yes, I would like to receive emails from ShipLilly. 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. The price of goods in CIF contracts is inclusive of freight (consideration, reward payable in respect of carriage of cargo from loading point to point of discharge) and insurance cost to the destination specified by the contract. and c.i.f. C.I.F is one of the most popular of trade terms used in international sales contracts. Abstract. This is really a very cool blog, thanks a lot for this! Certain disadvantages of FOB Destination are: 1. Why? FOB and CIF are the two most popular price terms of the Inco terms. Example, pier charges, wharfage fees, loading and unloading charges. There are little to no disadvantages to FOB for most buyers. LOCATION – you can take part in an online course from any location where … … I am Customs Clearing Agent in Pakistan. The brief starts by defining the f.o.b. A CIF contract, as Scrutton J said in Arnhold Karberg v Blythe, … Ive read a great deal … In FOB, the insurance and other costs are only assumed by the seller until the goods leave the point of origin. Abstract. However, the significant cost savings and control quickly outweigh this disadvantage. Thank you! December 10, 2018 3 min read This is the fourth and final article in our four-part series on the advantages and disadvantages of selling alcohol in each of the Greater China markets—Mainland China, Hong Kong, Macau, and Taiwan. The supplier handles every aspect of the shipment until it arrives at the destination port. Incoterms, established by the International Chamber of Commerce (ICC), help to clarify and define the various rules for each party’s obligations, risks, and costs. All Rights Reserved. Copyright © 2016 LILLY + Associates International. The Incoterms® rules developed by the International Chamber of Commerce is the industry standard for the interpretation and usage of trading terms used in a contract of sale in domestic and international trade.. since their sole purpose is to get the freight to the specified destination. 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. Im doing a repsort on the logistics of india. Incoterms appear in contracts and quotations from … Cost, Insurance and Freight and Free on Board are international shipping agreements used in the transportation of goods between a buyer and a seller. By: Paul Cole-Ingait. Advantages and Disadvantages for the Buyer When trading under a CIF agreement, there are significant advantages for the buyer, making the purchasing process easier. One more reason why the CIF contracts are so appealing is the price that buyer is called to pay. These are International Commercial Terms, defined by the International Chamber of Commerce. For most shippers, FOB is the most frequently recommended term of sale. … As mentioned above you have many options when shipping goods from China. Advantages & Disadvantages of Incoterms. Disadvantages of CIF terms when shipping goods. 2 Answers. In this article, we will discuss the CIF Incoterm which is one of the 11 Incoterms® 2010 rules. The seller pays costs, including freight and insurance. We also recommend that newer … By: Paul Cole-Ingait. 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. Very nice article. When you sell CIF you can make a slightly higher profit and when you buy FOB … Working with one company further ensures that the carrier will be working with the customer’s best interests in. They are the widely used standards that guide international trade. CIF is thus a contract for the sale of goods performed by the delivery of documents: Hindley [1973]50. However, we recommend that new buyers use CIF as they get accustomed to the importing process. Select the FOB price of the transaction, shipping and insurance in the unstable market conditions fluctuate in their favor. … The advantage of a FOB contract is that it is the most cost-effective solution for buyers. Mainly, under the CIF contract, the parties have to deal with delivery of documents and not actual physical delivery of goods by the seller. Her unique background has allowed her to help improve the supply chain of many international clients and provide customized logistical solutions throughout the years. The seller pays for transportation and loading costs, and clears the goods for export. Compare this to CIF, where the customer relinquishes any control over the shipment, while acquiring most of the risk. Your email address will not be published. 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. 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. There are several advantages and disadvantages of using FOB protection, which we’ll outline in the information below. Compared with the FOB contract, CIF seller has to provide a commercial invoice in order to get a payment. (You can unsubscribe anytime), ShipLilly 11430 NW 122nd St, Suite 400 Medley, FL 33178 Phone:_305-513–9540 e-fax:_305-356–7001. With FOB, the buyer has more flexibility and control of the terms, the cost, freight shipping planning, and more. Lv 6. Sellers often choose CIF because they hold a better grasp on their shipments; buyers often choose FOB for the same reasons. 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. To conclude, CIF and FOB contracts are the most important contracts in the field of International Trade. The latter is the preferred choice of many experienced importers due to the following disadvantages CIF terms brings to the buyer/importer of goods Tweet . Well, actually I must say yeah! Full Form of CIF – Cost, Insurance, and Freight. Therefore a seller needs to know when to agree on the Incoterm CIF. Excelente articulo muy claro, Una consulta, como saber si la mercadería viene en CIF o FOB. However, CIF contract has a very significant difference from FOB contract. Your email address will not be published. CIF presentation 1. On the other hand, CIF contracts … 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. In case of any problem, they can better access the information of the freight and solve various issues. 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. FOB and CIF mainly differ in who assumes responsibility for the goods or product during transit. contract. There is only one advantage we can think of – convenience. Answer Save. Well done Diana! Leprechaun. FOB refers to Free on Board but can also be called Freight on Board. Advantages of CIF over FOB when importing into China. Under the FOB terms, buyers do not usually pay the higher fees that CIF protection plans incur. Advantages and Disadvantages of FOB Destination. In … According to CIF contact, the risk of goods loss or damage passes from the seller to t… 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 … For newer importers or importers who have always purchased under Incoterms where the seller organizes the freight costs, the process can seem more complicated, because there is an added step. It is important for both exporters and importers to understand FOB when requesting quotes and business. 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. Below are the advantages and disadvantages of both methods. Why is this a good rule to follow? CIF contract is that when the seller has delivered the goods or provides them afloat. Im doing a repsort on the logistics of india. AFFORDABLE – because you can learn from the comfort of your own home it means that there are no travel costs involved in virtual learning. How to Record Freight Charges in Accounting. What are the differences? When a buyer uses FOB terms, he saves all costs as highlighted above. +11234567890, That means one central point of contact for any questions or problems that may arise. 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. The reason is very obvious. For the majority of buyers, it is the sensible option. 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 . It is important for both exporters and importers to understand FOB when requesting quotes and business. The customer must be ready, however, to handle customs and fees as soon as the shipment arrives in the US. Then, it examines the legal obligations and rights of the buyer and seller under an f.o.b. He pays only once with no concerns about the freight rates, the place of origin of the insurance cost etc. by road, rail, sea, or air transportation. The focus is on the importation, sales and promotion of foreign alcoholic products. Hi Eyuel – thank you! At least you have to describe your role in the trade; as a seller or a buyer. A good rule of thumb when doing business in international trade is that you should buy FOB and sell CIF. : SELF-DISCIPLINE – it’s essential that you have the motivation necessary to sit and do the course. Once the goods are onboard, risk and costs are divided between the buyer and 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. What is a CIF Contract? Select the FOB price of the transaction, shipping and insurance in the unstable market conditions fluctuate in their favor. 1 decade … FOB is suitable where ‘S’ does not normally ship goods overseas. Have you experienced the advantages of shipping FOB or ran into issues shipping CIF? 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. 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. [4] The seller’s obligation to arrange the shipping of goods gives the seller the upper hand to control the cost incurred for the whole course of shipping. What does DAP Mean in shipping terms? However, the disadvantages often outweigh the benefits for more experienced buyers. In this case, the buyers don’t have to pay a high cost to their sellers as they might have with CIF. To conclude, the rule of thumb for doing business in international trade should be, buy FOB and sell CIF. Share It. We will look at what it is, where it is used, its advantages and disadvantages. 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. These international shipping terms determine who assumes the responsibility and liability for the goods at a given point while the goods are in transit. Contact Tenaxx Logistics experts to know which will work best for you. If a shipment is delayed, there is no recourse for the customer. 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. CIF Advantages. 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. Sellers also prefer FOB sometimes because they let them free from all the responsibility of the goods. Full Form of CIF is Cost, Insurance, and Freight. Once the products leave their warehouse, sellers can mark the order as “complete” and not worry about any additional costs or problems. One comment . Should you buy CIF or FOB? To conclude, the rule of thumb for doing business in international trade should be, buy FOB and sell CIF. The seller must give notice to the buyer that this … Email . Acronyms are quite popular in the supply chain, and FOB is one of the misunderstood. 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. When using FOB trade, you should consider advantages and disadvantages of the terms before contracting out. Glad you found this article useful. Buyer will not be responsible for any shipping costs of the goods and their damage if happens. Your supplier may be able to offer cheaper insurance rates, but you need to make sure … Unfortunately, sellers and buyers commonly treat FOB as merely a price point – the seller doesn’t pay the freight and the buyer does. Disadvantages of CIF. Share your story in the comments below! By: Paul Cole-Ingait. These two types are the most commonly used Incoterms. Therefore if you want to be sure of paying the lowest overall costs, ask for both FOB and CIF prices. They are: Cost, Insurance and Freight (CIF) and Free on Board (FOB). En ambos casos, su Agente de Aduana, puede asesorarlo al respecto. 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. After all, the customer is not the carrier’s client; there is no obligation to meet their needs. FOB Definition and Meaning. Disadvantages of Free On Board contract. There are various advantages of CIF, especially for a buyer because they will probably choose to use CIF because of the convenience. An important advantage of Free On Board or FOB is that there are no hidden extra costs in the process. Updated September 26, 2017. Esandis: 150 training pages for european transactions Esandis, it's also an unique and exclusive expert system to … FOB, the responsibility move from an exporter’s to importer’s once the cargoes are on the deck of the vessel of exporting port. 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 … Hi Bruno, Thanks for reaching out! 6 Ways to Save Cost On Shipping and Fulfillment, Switch to 3PL Provider to Simplify your Logistics, 8 questions to ask your food distribution warehouse providers, 10 ABBOTT CT UNIT 302 BUILDING C, BRANTFORD, ON N3S 0E7, 10 Abbott Ct unit 302 building c, Brantford, on N3S 0E7. However, the two most common terms would be CIF and FOB. What are the advantages and disadvantages of FOB(free on board), FAS(free alongside ship) and CIF? They are the widely used standards that guide international trade. 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.” ADVANTAGES DISADVANTAGES; ACCESSIBLE – virtual learning is accessible to anyone who has a computer, tablet or smartphone. Diana MaureMay 17, 2016Imports, Ocean Freight, Shipping Guide16 Comments. contracts. 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. CIF Versus An FOB Contract. The various disadvantages of Free On Board contract are as follows Looking for information of handling and shipping of goods and their costs. 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. In addition, he gets worldwide recognition as the owner of the popular brand. 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 … contract rather than an f.o.b. FOB saves buyers money and provides control, but CIF helps sellers have a higher profit. November 18, 2020 at 5:21 pm . The latter contains four incoterms: A detailed explanation of each incoterm is provided in our previous blog post, Incoterms Demystified.

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