(b) The licensor gets guaranteed income in the form of fees. By: Paul Cole-Ingait. If a shipment is delayed, there is no recourse for the customer. Should you buy CIF or FOB? Below are the advantages and disadvantages of both methods. The seller also takes responsibility for loading the goods onto the ship. Tweet . For the majority of buyers, it is the sensible option. Want to learn more about international shipping agreement? FOB and CIF are the two most popular price terms of the Inco terms. This issue can be viewed as an advantage or disadvantage depending on the perspective. The classical judicial definition of CIF was given in Taylor Bros [4] by Lord Wright. Have you experienced the advantages of shipping FOB or ran into issues shipping CIF? FOB, the responsibility move from an exporter’s to importer’s once the cargoes are on the deck of the vessel of exporting port. The initials CIF stand for: cost (the sale of contract), insurance (the contract of insurance) and freight (the contract of carriage). By: Paul Cole-Ingait. When a buyer uses FOB terms, he saves all costs as highlighted above. … 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are obliged to ship the insured contractual goods to the agreed destination under a CIF … Your email address will not be published. What are the advantages and disadvantages of FOB(free on board), FAS(free alongside ship) and CIF? 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 . Abstract. Acronyms are quite popular in the supply chain, and FOB is one of the misunderstood. 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. CIF contract is that when the seller has delivered the goods or provides them afloat. As a matter of fact, FOB … Please include country code eg. While considering advantages and disadvantages of using CIF, it is important to remember that the seller bears more responsibility when CIF is agreed on. Currently importing machinery from xhina need advice as we are ndw to importing . When you buy CIF, the sellers are responsible for everything involved with the shipping of goods from the seller to the buyer. The latter contains four incoterms: A detailed explanation of each incoterm is provided in our previous blog post, Incoterms Demystified. News Portal PL. 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 … We will look at what it is, where it is used, its advantages and disadvantages. 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. [5] Generally the buyer will have no opportunity to inspect the … 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. CIF is thus a contract for the sale of goods performed by the delivery of documents: Hindley [1973]50. 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. I am Customs Clearing Agent in Pakistan. This question needs to be improved first before a good answer can be established. These Incoterms are abbreviated as CIP, CPT, CFR, CIF, DAP, DDP, DAT, EXW, FAS, FCA and FOB, respectively. At least you have to describe your role in the trade; as a seller or a buyer. This is essay will look at the, nature, advantages and the disadvantages of free on board (fob) contract. In … Since we are looking at the advantages of FOB over CIF, let us take a quick look at what each entails. It is true, however, that the Incoterms can have disadvantages when comparing one to another. Sellers often choose CIF because they hold a better grasp on their shipments; buyers often choose FOB for the same reasons. As mentioned above you have many options when shipping goods from China. When choosing CIF shipment, you don’t have to handle any risks, claims, or freight related concerns in transit. By: Paul Cole-Ingait. FOB Definition and Meaning. Exporting Alcohol to Macau: Advantages and Disadvantages. Lv 6. The seller must tender the documents to the buyer. Learn More → In a contract for the sale and transportation of goods, a buyer’s … Working with one company further ensures that the carrier will be working with the customer’s best interests in. 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. 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. Therefore a seller needs to know when to agree on the Incoterm CIF. From the buyer’s perspective, any shipping terms that give them control are preferable. The customer must be ready, however, to handle customs and fees as soon as the shipment arrives in the US. In … There are two categories of incoterms: General Transport and Sea and Inland Waterway Transport. Sellers also prefer FOB sometimes because they let them free from all the responsibility of the goods. … Great work. 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. 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. 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. Free on Board (FOB): Advantages and Disadvantages What are the advantages for the seller to use the FOB Incoterms® 2020 rule? Hi Eyuel – thank you! With CIF, all the above-mentioned variables are controlled by the seller, which may disadvantage you. FOB vs CIF . The brief starts by defining the f.o.b. by road, rail, sea, or air transportation. You can control your costs from the factory to your door. How to Record Freight Charges in Accounting. In this article, we will discuss the CIF Incoterm which is one of the 11 Incoterms® 2010 rules. Advantages and Disadvantages of CIF. This type of learning is more difficult for those who are prone to procrastination. 1 decade … 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. What is FOB? 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. FOB Shipping Advantages Incoterms. In this case, the buyers don’t have to pay a high cost to their sellers as they might have with CIF. ADVANTAGES DISADVANTAGES; ACCESSIBLE – virtual learning is accessible to anyone who has a computer, tablet or smartphone. 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. Had this shipment been booked fob we would be in control right from the beginning. Most buyers choose FOB because it’s arguably the most affordable or cost-effective option. Advantages of Licensing Method: (A) Advantages of licensing method are as follows: (a) It is a simple method for entry in foreign markets. If you’re buying goods from a supplier based abroad, you’ve probably come across Incoterms. and c.i.f. 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. Learn more about the advantages and disadvantages of FOB terms when buying goods from abroad, here. However, the two most common terms would be CIF and FOB. FOB is suitable where ‘S’ does not normally ship goods overseas. On the other hand, CIF contracts … 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. After all, the customer is not the carrier’s client; there is no obligation to meet their needs. FOB saves buyers money and provides control, but CIF helps sellers gain a higher profit. SOLO LEARNING – if you need clarification on a topic, it’s not … FOB is suitable where ‘S’ does not normally ship goods overseas. Once the goods are onboard, risk and costs are divided between the buyer and the seller. However, the significant cost savings and control quickly outweigh this disadvantage. Looking for information of handling and shipping of goods and their costs. 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 . This means that the seller is responsible for risk and insurance costs until the goods reach the buyer’s nearest port. 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 seller pays for transportation and loading costs, and clears the goods for export. Disadvantages of CIF terms when shipping goods. Certain disadvantages of FOB Destination are: 1. In most cases, we recommend FOB for buyers and CIF for sellers. With CIF, responsibility transfers to the buyer when the goods reach the point of destination. A DAP Incoterm is an agreement that means “Delivered at Place,” where the seller is responsible for all costs and risks associated with the delivery of the goods to the final agreed-upon place, usually the buyer’s premises. Advantages and disadvantages of a C.I.F and F.O.B contract to seller and buyer. Looking for information of handling and shipping of goods and their costs. This brief discusses the legal implication why buyers and sellers would prefer a c.i.f. FOB meaning. 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 … FOB means “Free on Board” or “Freight on board”. Advantages & Disadvantages of Incoterms. 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. Compared with the FOB contract, CIF seller has to provide a commercial invoice in order to get a payment. All Rights Reserved. This is really a very cool blog, thanks a lot for this! 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. Some advantages are: 1. According to CIF contact, the risk of goods loss or damage passes from the seller to t… The focus is on the importation, sales and promotion of foreign alcoholic products. 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 latter is the preferred choice of many experienced importers due to the following disadvantages CIF terms brings to the buyer/importer of goods In case of any problem, they can better access the information of the freight and solve various issues. However, CIF contract has a very significant difference from FOB contract. 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. Then, it examines the legal obligations and rights of the buyer and seller under an f.o.b. It is important for both exporters and importers to understand FOB when requesting quotes and business. 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