What does the incoterm Free on Board (FOB) mean?
FOB stands for “Free on Board,” and it is a trade term used in international shipping to determine the obligations, risks, and costs associated with the transportation of goods. FOB means that the seller is responsible for delivering the goods to the shipping port and loading them onto the vessel. Once the goods are on board, the risk, and responsibility are transferred to the buyer. FOB does not include the cost of shipping, insurance, or any other fees associated with the transportation of goods beyond the shipping port.
Obligations
Under FOB, the seller is responsible for loading the goods onto the shipping vessel and completing all export customs formalities. They are also responsible for obtaining all necessary permits and licenses and ensuring that the goods comply with all relevant regulations and standards.
Risks
The risk of loss or damage to the goods transfers from the seller to the buyer once the goods are loaded onto the shipping vessel. This means that if the goods are lost or damaged during transit, the buyer bears the risk and must file any claims with their insurance provider.
Costs
Under FOB, the seller is responsible for all costs associated with loading the goods onto the shipping vessel, including handling fees, stevedoring charges, and terminal costs. The buyer is responsible for all costs associated with transporting the goods from the port of origin to their final destination, including freight charges, insurance, and import customs formalities.
What does the incoterm Cost, Insurance and Freight (CIF) mean?
CIF stands for “Cost, Insurance, and Freight,” and it is another trade term used in international shipping. CIF means that the seller is responsible for delivering the goods to the shipping port and loading them onto the vessel, as well as paying for the cost of shipping and insurance. The risk and responsibility are transferred to the buyer once the goods are on board. CIF includes the cost of shipping, insurance, and other fees associated with the transportation of goods beyond the shipping port.
Obligation
The seller is obliged to provide insurance covering the risk of loss or damage to the goods during transport to the port of destination. In addition, the seller is responsible for organizing and paying for the transport of the goods to the port of destination. However, once the goods have arrived at the port of destination, the buyer is responsible for all costs and risks associated with the goods.
Risk
Under CIF terms, the risk of loss or damage to the goods passes from the seller to the buyer once the goods have been loaded onto the vessel. This means that if the goods are lost or damaged during sea transport, the buyer assumes the risk and responsibility.
Cost
CIF terms include the cost of the goods, insurance, and freight to transport the goods from the port of origin to the port of destination. This means that the seller is responsible for paying these costs until the goods arrive at the port of destination. However, it is important to note that CIF terms do not cover additional costs such as customs duties, taxes, and other fees that may be charged on arrival.
Why is it important to understand the difference?
These terms help ensure compliance with international trade regulations and can simplify the shipment of goods. By making informed decisions when transporting goods internationally, businesses can reduce risks, save costs, and ensure successful deliveries.
It's important to note that FOB and CIF trade terms can vary depending on the specific agreement between the buyer and seller, and it's essential to have a clear understanding of the terms outlined in the contract to avoid any misunderstandings or disputes.
At DocShipper, we have a team of experts who can help you navigate the complexities of international trade, including FOB and CIF trade terms, to ensure that your goods are transported safely and efficiently by sea freight.
