FOB and CIF. For that to become effective any kind of trade, it is necessary to take into account the shipping costs of the goods. If this transfer is done by waterway, the buyer and seller must decide the type of shipping most suitable for the business transaction.
In international trade, there are different modalities of payment of freight and among them are: FOB and CIF; two of the options of payment of freight for transportation on waterways of the goods.
The meaning of FOB and CIF
FOB (Free on board)
In the payment of FOB (translated into Portuguese, the expression means the Free on board) the buyer assumes the costs and risks that involve the carriage of the goods from the time of shipment. The responsibility of the exporter for the goods ends when it exceeds the ship’s rail. In this case, the values relating to freight and transport insurance are not included in the purchase value; they are paid separately.
CIF (Cost, Insurance and Freight)
In the cases in which makes the option by the freight CIF (in Portuguese, Cost, Insurance and Freight), the freight is paid at source, which means that the seller is responsible for the risks and costs of transport until the moment the goods arrive at the port of destination (the transport from the port to the final destination is the responsibility of the buyer). The freight enters the cost structure of the supplier company.
Who is responsible for the freight?
The difference between the modalities FOB and CIF is in who bears the cost of freight and with the responsibility for the goods.
FOB and CIF are contained in the Incoterms (International Commercial Terms , or Terms of International Trade), which are the guidelines set by the International Chamber of Commerce, the body that regulates the trade between different countries.