CIF, CFR, and FOB are common terms used in international trade, each representing different delivery methods and responsibilities. Here’s a detailed comparison of these terms to help you understand their differences and the key considerations:
1. CIF (Cost, Insurance, and Freight)
Definition: CIF stands for Cost, Insurance, and Freight. It means the seller is responsible for the cost of goods, insurance, and freight until the goods reach the designated port.
Responsibilities:
- Seller: Pays for the cost of goods, insurance, and freight to the destination port. The seller also handles export duties and ensures the goods are loaded onto the ship.
- Buyer: Takes over the responsibility once the goods are loaded onto the ship. The buyer handles import duties, unloading costs, and inland transportation to the final destination.
Risk Transfer: The risk transfers from the seller to the buyer as soon as the goods are loaded onto the ship at the port of origin.
Note: If the CIF price includes all taxable freight charges, no need to report these separately. If not, additional charges like fuel surcharges or demurrage fees should be reported under miscellaneous fees on the customs declaration.
2. CFR (Cost and Freight)
Definition: CFR stands for Cost and Freight. The seller covers the cost and freight to the destination port but does not provide insurance.
Responsibilities:
- Seller: Pays for the cost of goods and freight to the destination port. The seller also handles export duties and loading.
- Buyer: Takes responsibility for the goods once they are loaded onto the ship. The buyer covers insurance, import duties, unloading, and inland transportation.
Risk Transfer: The risk transfers from the seller to the buyer once the goods are loaded onto the ship at the port of origin.
Note: If CFR prices include all taxable freight charges, there is no need to report these separately. If not, report additional freight-related charges under miscellaneous fees on the customs declaration.
3. FOB (Free on Board)
Definition: FOB stands for Free on Board. The seller’s responsibility is to load the goods onto the ship. After that, the buyer assumes all responsibilities.
Responsibilities:
- Seller: Handles the cost of goods and export duties, and ensures the goods are loaded onto the ship.
- Buyer: Takes over after the goods are on board. The buyer pays for freight, insurance, import duties, unloading, and inland transportation.
Risk Transfer: The risk transfers from the seller to the buyer once the goods are loaded onto the ship at the port of origin.
Note: As FOB prices do not include freight, report all transportation costs up to the unloading point in the freight column on the customs declaration. Report any taxable transport-related fees under miscellaneous fees.
Key Differences
- CIF: Seller covers cost, insurance, and freight. Highest responsibility on the seller.
- CFR: Seller covers cost and freight, but not insurance. Moderate responsibility on the seller.
- FOB: Seller covers only the cost until the goods are on board. Least responsibility on the seller.
Choosing the Right Term
The choice between CIF, CFR, and FOB depends on various factors like cost distribution, risk management, and control over the shipping process. Carefully consider your trade requirements, including who will handle insurance, and the extent of risk each party is willing to bear.