When it comes to buying and selling goods internationally, it’s crucial to understand the various trade terms. Two common trade terms used in international shipping are CIF (Cost, Insurance, and Freight) and FOB (Free on Board). These terms define the responsibility of the buyer and the seller regarding international freight and insurance costs. Understanding the difference between CIF and FOB can save importers and exporters from unnecessary expenses and losses.
What’s the difference between CIF and FOB?
CIF and FOB are both freight terms used to describe the delivery of goods by sea. However, there are significant differences between the two. The main difference is the point at which the responsibility for the goods and associated risks transfers from the seller to the buyer.
CIF: Under CIF, the seller is responsible for arranging and paying for the cost, insurance, and freight of the goods until they are delivered to the port of destination. This means that the seller is responsible for the transit of the goods and the associated risk involved with shipping. Once the goods arrive at the port of destination, the responsibility then transfers to the buyer. The buyer must handle the goods and bear any additional costs, such as local taxes and customs duties.
FOB: Under FOB, the seller is responsible for delivering the goods to the port of origin and loading them onto the vessel. Once the goods are loaded, the buyer assumes responsibility and risks involved with the shipping of the goods. This includes paying the freight charges, arranging for the carriage of goods, and insuring them while in transit. The buyer must also handle the goods and bear any additional costs, such as local taxes and customs duties upon arrival at the destination port.
What are the Buyer’s and Seller’s Responsibilities with CIF or FOB Agreements?
Here is a side-by-side comparison of Buyer’s and Seller’s Responsibilities with CIF or FOB agreements:
– CIF: The seller arranges and pays for the cost of freight, insurance, and the delivery of the goods to the port of destination.
– FOB: The seller arranges and pays for the delivery of the goods to the port of origin and loading them onto the vessel.
– CIF: The seller bears the associated risks involved with the shipping until the goods reach the port of destination.
– FOB: The buyer assumes the risks involved with shipping the goods once they are loaded onto the vessel.
– CIF: The buyer must bear any additional costs, such as local taxes and customs duties, once the goods arrive at the port of destination.
– FOB: The buyer must bear any additional costs, such as local taxes and customs duties, after the goods are loaded onto the vessel.
How Does Shipping Under FOB Incoterms Work in China?
- Request a Product Manufacturing Quotation
If you’re buying products from factories in China, you’ll typically receive product quotations under FOB Incoterms. Although small products may be shipped by air, or small suppliers with minimal experience working with international buyers may offer EXW Incoterms. However, most quotes from Chinese sellers are typically under FOB Incoterms. When you receive a quotation, the unit price, FOB as the Incoterm, and shipping point are usually listed. The unit price reflects the cost of the product, including all expenses associated with the Incoterm. The Incoterm defines the agreed-upon International Commercial Trade Term, and the shipping point is the specific port the seller uses. If your cargo requires export from a different port than what the seller initially quoted, you must communicate with your supplier to adjust the unit price to factor in the cost of shipping to the new port.
- Request a Freight Shipping Quotation
Certain information is needed when requesting an international shipping quote from a China freight forwarder or third-party logistics company.
Ship-from Address: your Chinese supplier’s address
Ship-to Address: this is the destination address.
Pickup and Delivery Service: Some freight forwarders in China can provide door-to-door delivery service; for others, a local trucking company may take over. It’s best to have your China freight forwarder handle everything to reduce stress.
Type of Your Cargo: the type of your cargo is critical because specific products require specific documentation, types of containers, may include hazardous materials, or are illegal to transport. China freight forwarder often handles the customs brokerage portion of the import, so knowing the products early can help prepare import documents.
Cargo Dimensions/Weight: cargo dimensions and weight also play a role in suggesting the ideal shipping method for your shipment.
Before getting a detailed quotation from your China Freight Forwarder, it is best to confirm the cargo dimensions and weight and the address to deliver your international freight. Once you have all of the above information, requesting a quotation from your China Shipping Agent is easy, and you should be able to get your shipping rates in a couple of hours.
Once you have all of this info from your supplier, you can request a quotation from China Global Freight, and we will send you a detailed shipping offer for your international freight from China.
3. Confirm Your Shipment
Once you are satisfied with the shipping quote, the next step is to inform your logistics company that you would like to use them to ship your products. Depending on where the cargo is traveling, they will usually send you documentation and ask you to sign an agreement stating that you wish for the forwarder to handle your shipment.
4. Freight Forwarder Arranges Export
Before the day your cargo is scheduled to leave, your China logistics company will arrange a truck to collect it. Suppose you are shipping a full container load (FCL shipping). In that case, the truck will carry the container to the freight forwarder’s warehouse, and the forwarder will load the cargo directly into the container. Suppose you are shipping less than container load (LCL shipping). In that case, your cargo will be loaded onto the truck and taken to the origin consolidation warehouse to consolidate your shipment with the other consignments sharing the same container. Once your cargo loads onto your freight forwarder’s truck, it will begin its journey to the port.
FOB shipping from China is simple and ideal for ensuring your international shipment leaves China safely and arrives at your destination seamlessly.
When is it better to buy CIF, and when is FOB more suitable?
The answer depends on several factors:
- Cost: Buyers generally consider FOB agreements to be cheaper and more cost-effective. If the price of insurance and freight is comparatively economical, it might be better to purchase CIF. This is especially true for shipments of goods that are large in volume and low in value.
- Risk: The buyer must consider the level of risk involved during transportation. If a buyer has few freight options and the transportation route is risky, then CIF might be more advantageous as the seller will bear the responsibility for any danger that occurs along the way.
- Insurance: If the buyer isn’t experienced in getting insurance coverage for the shipment, and the seller offers a good deal for the CIF cost, it might be a better choice to go with CIF.
- Time: The shipping time is another important factor to consider. If the buyer needs the items quickly, FOB might be the better option as the arrival time could be reduced. However, if time is not a constraint and the seller provides a reasonable CIF quote, it’s worth considering CIF.
Final Thought:
Understanding the differences between CIF and FOB can have a great impact on your international business operations. While CIF offers a more expensive but secure shipping experience, FOB allows buyers to have more control over the shipping process and can be more cost-effective. Whichever option you choose, be sure to have a clear understanding of your responsibilities in the trade and any risks involved. Need A Shipping Quote?Get The Best Shipping Rate From China Global Freight.
