FOB or CIF: Which one is better for importers?

Incoterms 2010 defines 11 delivery terms, 4 of which designed to be used in only sea shipments, whereas 7 of which could be used with any mode of transport.

The most frequently used two Incoterms, FOB and CIF, are restricted to be used in sea shipment only. They are so popular that, their usage most probably surpass remaining 9 Incoterms' usage.

But, the main question remains: Which one is better when importing goods into one country? FOB or CIF.

On this article, I will try to explain whether FOB or CIF is a better option for importers.

Delivery places on a multimodal bill of lading

Multimodal bill of lading (MBL) is a transport document, which is used in international trade transactions where at least two different modes of transport have been practiced in order to complete the shipment.

A transport document can only be accepted as a multimodal bill of lading, multimodal transport document or combined transport document, however named, only if it is possible to understand on the face of the document that at least two different modes of transport have been utilized.

For example if a transport document evidencing multiple modes of transport such as road and sea shipments, road and air shipments or road and rails shipments etc, then it is a multimodal transport document.

In order to determine whether or not multiple modes of transport have been used in a particular transport document, you should understand different aspects of delivery places.

In a typical multimodal bill of lading following delivery places are expected to be shown: Place of receipt, port of loading, port of discharge and place of delivery.

Today I want to explain how these places should be completed on a multimodal bill of lading.

After reading this page you should be able to understand basic concepts regarding place of receipt, port of loading, port of discharge and place of delivery stated on a multimodal bill of lading.

What are the differences between CIF and CIP Incoterms?

So far on this website, I have explained the differences between EXW and FCA as per Incoterms 2010 rules, the differences between FOB and FCA as per Incoterms 2010 and the differences between CIF and FOB. 

Today I want to mention the differences between CIF Incoterms and CIP Incoterms according to latest ICC rules of international commercial terms.

CIF and CIP are the only incoterms, which regulates the insurance coverage of the transaction. 

Under these two incoterms, exporters obligated to supply an insurance policy to importers.

What are the differences between CIF and FOB?

So far on advancedontrade.com, I have explained the differences between EXW and FCA as per Incoterms 2010 rules and the differences between FOB and FCA as per Incoterms 2010 .

Today I want to mention the differences between CIF Incoterms and FOB Incoterms according to latest ICC rules of international commercial terms.

First of all let me make the definitions of both trade terms according to current incoterms rules:

• Definition of FOB according to Incoterms 2010: “Free on Board” means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered.
• Definition of CIF according to Incoterms 2010: “Cost, Insurance and Freight” means that the seller delivers the goods on board the vessel or procures the goods already so delivered.

Once you read above definitions, which are taken from Incoterms 2010, you should be amazed like myself, as both definitions are the same. No I did not make any mistake. These are the real definitions of FOB and CIF from Incoterms 2010.

How to calculate minimum insurance cover under CIF deliveries?

CIF means "Cost, Insurance and Freight" in international commercial terms terminology.

CIF is one of the most frequently used incoterms in foreign trade transactions, but it is widely misunderstood and misused by the practitioners.

For example CIF term is commonly used with land or air shipments, whereas CIF can only be used with sea shipments according to ICC Incoterms 2010 rules.

Additionally, under CIF trade term risk passes from exporter to importer when the goods are shipped on board a vessel at the port of loading. 

But many exporters believe that their risk will not be over until goods are being discharged at the port of destination. 

Above I have defined two major misunderstandings regarding the mode of transport usage and delivery responsibility of the CIF incoterms. 

Now I would like to focus on the insurance coverage of the CIF incoterms.

Is it possible to use CIF incoterms with air shipments?

Incoterms 2010 is the newest set of rules, which regulates international trade terms. 

There are 11 different trade terms defined in Incoterms 2010 rules. 

Each trade term defined in incoterms 2010 rule have a unique characteristics. 

As a result an exporter or importer must understand the differences between trade terms in detail.

What does CIF trade terms mean according to Incoterms 2010 rules and what are the key characteristics of CIF incoterms?

CIF means "Cost, Insurance and Freight" according to Incoterms 2010 rules. “Cost, Insurance and Freight” means that the exporter delivers the goods on board the vessel at the port of loading as determined by the sales contract.

Alternatively exporter can procures the goods already shipped on board a vessel as per CIF trade terms. 

This is a common practice in crude oil market.