Several parties are involved in international shipment. But the main decision requiring active involvement of all parties is shipments. There are two major terms of shipment widely used round the globe. These are freight on board (FOB) and cost net freight (CNF). Other terms such as cost net insured (CIF) and cash against document/delivery (CAD) are also used. Based on the relationship between business entities, the terms are set. What these terms outline is the cost the supplier or buyer pays for shipments.
On FOB shipments suppliers are kept free of their responsibilities and finish when they hand over their goods to the nominated forwarders of their buyer. Suppliers will simply get their goods ready, make an invoice and packing list, and prepare the shipment booking sheet for the forwarder. Once the goods are handed over to the forwarder, it’s now the forwarder’s responsibility to contact the shipping line and get the insurance for the goods. In these cases, the buyer of the goods settles the arrangements of the forwarder in two ways: prepaid and collect basis. A prepaid basis shipment means the buyer will pay the freight charges before the shipment occurs. For collect basis shipments buyers can pay the forwarders in his country after goods arrive at the port and they have been notified of the shipment.
For CNF, CAD, and CIF shipments, suppliers of the goods are held responsible for all freight-related charges. The only significant operational difference is that with CNF the buyers of goods secure the insurance. There is a difference in the risks associated with each of these arrangements though. CNF and CIF are more secure than CAD. With CAD the buyer may deny the goods when they reach his port of discharge or destination. This is rare but the possibility still exists. This arrangement is only used when both parties, the supplier and the buyer, have a strong relationship. The issue of which shipping line to use depends on the shipment terms.
Shipping lines run the carriers and are that transport containers. These are generally termed mother vessels which need a certain level of sea water underneath them to travel around the globe. These ships only dock in deep sea ports. So, there is a secondary type of ship called a feeder vessel that carries goods from mainland to a deep sea port and loads the goods onto the mother vessel. Feeder vessels are not built to move in the deep sea, which is only possible by mother vessels. A number of feeder vessels from a global region deposit their loads onto a single mother vessel. This is a complex process by which goods are shipped overseas. Shipping lines do not take excuses for delays and have the right to unload any container in order to save their vessel at any point, whether for a storm or technical issue. Thus it is important to secure insurance on goods.
FAQs
There are two major terms of shipment widely used round the globe. These are freight on board (FOB) and cost net freight (CNF). Other terms such as cost net insured (CIF) and cash against document/delivery (CAD) are also used.
What does CIF and FOB mean in shipping terms? ›
CIF (Cost, Insurance, and Freight) and FOB (Free On Board) are both shipping terms, used to define the responsibilities and obligations of the buyer and seller when trading goods internationally.
What does CIF mean in international shipping? ›
Cost, insurance, and freight (CIF) is an international shipping agreement used when freight is shipped via sea or waterway. Under CIF, the seller is responsible for covering the costs, insurance, and freight of the buyer's shipment while in transit.
What does FOB mean in international shipping? ›
Key Takeaways. Free on Board (FOB) indicates when the ownership of goods transfers from buyer to seller and who is liable for goods damaged or destroyed during shipping. FOB Origin means the buyer assumes all risk once the seller ships the product.
Who pays freight in CNF? ›
Under CNF terms, the seller pays for all the costs (including freight) to bring the goods to the port of destination. However, once the goods reach the destination port, the responsibility shifts to the buyer, including risks and additional costs associated with unloading, customs clearance, and onward transportation.
What does CNF mean in shipping? ›
CNF stands for Cost and Freight. This means the supplier of goods is responsible for the freight-related charges. The buyer of the products is responsible for organising and paying the insurance on the goods. CNF is also known as C&F and CFR. All terms have the same meaning.
Which is better, FOB or CIF? ›
Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF. FOB provides greater control and saves buyers money, but CIF helps sellers maintain a higher profit. The caveat being that new buyers would be better advised to use CIF until they get accustomed to the import process.
What are the 11 Incoterms? ›
List of Incoterms explained. Incoterms are categorized into two main groups to facilitate understanding and application in international trade: 7 rules for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU, DDP). 4 rules for sea and inland waterway transport (FAS, FOB, CFR, CIF).
Does CIF include customs clearance? ›
No, it's the buyer's responsibility. CIF does not include any import duties, VAT, or taxes. It does include all export requirements. Under CIF, the seller must export and pay the costs to ship to your destination port, but you must import and pay all costs associated with the importation.
Does FOB include insurance? ›
Under FOB contracts, the buyer is responsible for shipping and other costs, as well as insurance as soon as the goods are loaded onto the vessel and during the voyage. FOB contracts are generally more cost-effective because buyers have more control over shipping and insurance.
With CIF, risk is transferred only when the goods are loaded on board the ship at origin. This makes CIF unsuitable for containerized cargo, which is usually dropped off at terminal days prior to loading. This creates a grey area during which cargo could unknowingly suffer damages.
What is the FOB price? ›
FOB Price Meaning: Without transportation costs included in COGS, orders are referred to as freight on board (FOB). FOB pricing refers to when the retailer/buyer is responsible for the shipping costs from the seller's warehouse to the retailer's/buyer's destination.
Who pays for a shipment if it is FOB shipping? ›
Traditionally with FOB shipping point, the seller pays the transportation cost and fees until the cargo is delivered to the port of origin. Once on the ship, the buyer is responsible financially for transportation costs, customs clearance, fees, and taxes.
Who pays customs on FOB? ›
Import Duty, Taxes & Customs Clearance: The buyer is responsible for all taxes and fees associated with customs clearance. In the event of dunnage, penalties, or delays, the buyer must cover the charges and risks associated with it.
Who owns FOB shipping? ›
In a FOB shipping point agreement, ownership transfers from the seller to the buyer once the goods are delivered to the point of origin. At this shipping point, the buyer becomes the owner and bears the risk during transit. Alternatively, FOB destination places the delivery responsibility on the seller.
Is CNF the same as CIF? ›
What is the difference between CNF and CIF? In CIF, the cost includes sea freight and insurance to deliver the items to the buyer's closest port. The buyer then has to take responsibility for the package from that point forward. CNF is similar to CIF, except insurance is not included.
Should I sell CIF or FOB? ›
With FOB, title possession and liability usually shift when the shipment leaves the point of origin. With CIF, responsibility moves to the buyer once the goods reach the point of destination. Simply put, on the whole it's recommended that buyers use FOB, and sellers use CIF.
What is CNF in airline terms? ›
CNF on your ticket means CONFIRMED. That is ,depending on your class of travel,your seat or your berth is confirmed.
Is CIF freight collect or prepaid? ›
Freight Prepaid is the agreement in case of incoterms such as C&F, CIF, CFR, DDU, whereas Freight Collect is seen in the case of EXW and FOB.
