CIF vs FOB: What’s the Difference?

The main difference between CIF and FOB is who is responsible for the products in transit. Also, under CFR, the seller must provide the buyer with the documents necessary to obtain them from a carrier. Usually, this includes providing the required customs forms to clear the cargo through the customs inspection process.

The History of FOB Shipping

In FOB agreements, the responsibility for shipping transfer to the buyer as soon as the goods leave the seller’s location under FOB Shipping Point. Or, the responsibility can transfer to the buyer once he or she receives the goods if there is a FOB Destination agreement in place. The primary difference between using cost and freight (CFR) and free on board (FOB) shipping lies in who must pay for various shipping or freight costs—the buyer or the seller.

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• The supplier is only responsible for providing transportation of the goods sold to a designated main shipping origin point.
• However, this method does limit the buyer’s control over the shipping terms, which might be a disadvantage in certain situations.
• FOB means that you, as the buyer, are responsible for the goods as soon as they are loaded onto the ship on the seller’s end.
• The supplier’s responsibility ends once the electronic devices are handed over to the carrier.
• In North America, the term “FOB” is written in a sales agreement to determine when the liability and responsibility for the shipped cargo transfers from the seller to the buyer.
• Freight prepaid is particularly useful when the buyer prefers a hands-off approach, leaving the intricacies of international commercial terms and customs clearance to the seller.

Specifically, FOB indicates at which point the responsibility (and risk) of the shipped goods transfers from the seller to the buyer. FOB is part of the incoterms list published by the International Chamber of Commerce. These terms are used to standardize shipping and freight contracts fob shipping point and avoid lengthy negotiations by expressing contractual obligations in simple phrases. Remember, while FOB and other Incoterms are internationally recognized, trade laws vary by country. So, if you’re buying or selling globally, review the laws of the country you’re shipping from.

• The disadvantages include greater complexity for buyers, who assume the responsibility for all aspects of shipping, which is often complicated and time-consuming.
• First developed in 1936, the terms are used by 45 million companies in more than 170 countries.
• Imagine the same situation above, except the agreement terms are for FOB destination.
• That’s because the buyer can negotiate a cheaper price for the freight and insurance with a forwarder of their choice.
• While FOB destination may seem like a good deal to any buyer as they don’t have to worry about the costs and liability of the goods in transport, it has its disadvantages, too.
• Although FOB shipping point and FOB destination are among the most common terms, other agreements vary from these two.

Final delivery

A shipping point generally refers to the location where goods begin their journey to the final destination. This could be a seller’s loading dock, a shipping port, or an originating port where a freight forwarder consolidates shipments. Under a cost and freight (CFR) agreement, the seller has a weightier responsibility for arranging and paying for transportation the ordered products. For goods shipped CFR, the shipper is responsible for organizing and paying for the shipping of the products by sea to the destination port, as specified by the receiver.

Just enter the dimensions and weight of your goods and specify the port of shipment, and you’ll get your FOB price calculation instantly. The term ‘free’ refers to the supplier’s obligation to deliver goods to a specific location, later to be transferred to a carrier. Anyone who ships goods or provides services can benefit from using Skynova’s invoice template. The free, easy-to-use template enables you to quickly create sales invoices, giving you more time to spend on crucial aspects of running and growing your business. It’s possible to turn into a cash-only business model, only recording the transaction in the ledger when the buyer pays.

Costs Associated with Freight on Board

Choosing the right FOB term can significantly impact your business operations, financial records, and risk management, so consider these factors carefully. The buyer is not responsible for the goods during transit; therefore, the buyer often is not responsible for paying for shipping costs. The buyer is also able to delay ownership until the goods have been delivered to them, allowing them to do an initial inspection prior to physically accepting the goods to note any damages or concerns. The fitness equipment manufacturer is responsible for ensuring the goods are delivered to the point of origin.

An FOB shipping point agreement is signed and the container is handed off to the freight carrier at the shipping point. Upon delivery of the goods to the destination, the title for the goods transfers from the supplier to the buyer. From there, the title for the goods transfers from the supplier to the buyer immediately and if anything happens to the goods at any leg of the journey to the buyer from there, the buyer assumes all responsibility.

What Is Cheaper, FOB or CIF?

It requires the supplier to pay for the delivery of your goods up until the named port of shipment, but not for getting the goods aboard the ship. Sometimes, “shipping point” and “destination” can be replaced by a place name in a contract. So, if goods are shipping from New York to Miami, and the invoice says “FOB New York,” that means the buyer in Miami has ownership of the goods when they leave New York. But if the invoice says “FOB Miami,” the responsibility stays with the seller until they arrive at their destination. FOB shipping point terms and FOB destination terms are two of several international commercial terms (“Incoterms”) published by the International Chamber of Commerce (ICC).