Difference between CIF and FOB in Apparel Industry

Incoterms is the term given to a set of eleven internationally recognized rules that state the responsibilities of sellers and buyers. They specify who needs to be held accountable for paying and managing the shipment, insurance, documentation, customs clearance, and other logistical activities. Understanding CIF incoterms meaning and what FOB is, is important before understanding the difference between CIF and FOB. CIF is 'cost, insurance, and freight, and FOB incoterm mean 'free onboard.' These two are international shipping agreements used during the trade of goods between a buyer and a seller.

Incoterms have been issued by the ICC, i.e., the International Chamber of Commerce. It is responsible for establishing international trade rules and guidelines. 

Difference between CIF and FOB-

CIF means that the goods on board are delivered by the seller or the seller procures the goods that are already delivered. 

When the goods are on board the vessel, the risk of loss or damage to the goods passes. However, to bring the goods to the given port of destination, the seller must contract and pay the cost and freight necessary.

The seller must also contract for insurance against the buyer's risk of damage or loss to the goods during transportation. Under CIF, the seller needs to obtain insurance only on minimum cover. This is required to be noted by the buyer. If the buyer wants to have more insurance protection, they need to make their own extra insurance arrangements or agree expressly with the seller.

Under FOB, the responsibility to deliver cleared goods on the vessel at the named departure port lies with the seller. However, if there is any other shipping expense and risk from that moment onwards, it has to be borne by the buyer.

The buyer pays any amount concerning transport, insurance, other transport expenses, unloading charges, and bill of lading fees.

As the goods are loaded on the vessel at the port of departure, their risk is transferred from the seller to the buyer. If the goods are lost, damaged, or destroyed during the transportation, the buyer is held accountable and not the seller. This intercom is famous amongst Chinese suppliers of pipes and pipe fittings.

The main difference between CIF and FOB is that with CIF agreements, the seller has a larger responsibility towards transportation of the goods to a remote place. On the other hand, under FOB, the seller is liable to deliver the goods cleared for export at a departure port. 

Conclusion 

Understanding the regulations of incoterms is important before engaging in any trade. There are companies like Tazapay that ensure both parties fulfill their responsibilities before payment is released. Thousands of trade transactions happen on a daily basis under these guidelines set by the ICC.