Several parties are involved in international shipment. But the main decision requiring active involvement of all parties is shipments. There are two major terms of shipment widely used round the globe. These are freight on board (FOB) and cost net freight (CNF). Other terms such as cost net insured (CIF) and cash against document/delivery (CAD) are also used. Based on the relationship between business entities, the terms are set. What these terms outline is the cost the supplier or buyer pays for shipments.
On FOB shipments suppliers are kept free of their responsibilities and finish when they hand over their goods to the nominated forwarders of their buyer. Suppliers will simply get their goods ready, make an invoice and packing list, and prepare the shipment booking sheet for the forwarder. Once the goods are handed over to the forwarder, it’s now the forwarder’s responsibility to contact the shipping line and get the insurance for the goods. In these cases, the buyer of the goods settles the arrangements of the forwarder in two ways: prepaid and collect basis. A prepaid basis shipment means the buyer will pay the freight charges before the shipment occurs. For collect basis shipments buyers can pay the forwarders in his country after goods arrive at the port and they have been notified of the shipment.
For CNF, CAD, and CIF shipments, suppliers of the goods are held responsible for all freight-related charges. The only significant operational difference is that with CNF the buyers of goods secure the insurance. There is a difference in the risks associated with each of these arrangements though. CNF and CIF are more secure than CAD. With CAD the buyer may deny the goods when they reach his port of discharge or destination. This is rare but the possibility still exists. This arrangement is only used when both parties, the supplier and the buyer, have a strong relationship. The issue of which shipping line to use depends on the shipment terms.
Shipping lines run the carriers and are that transport containers. These are generally termed mother vessels which need a certain level of sea water underneath them to travel around the globe. These ships only dock in deep sea ports. So, there is a secondary type of ship called a feeder vessel that carries goods from mainland to a deep sea port and loads the goods onto the mother vessel. Feeder vessels are not built to move in the deep sea, which is only possible by mother vessels. A number of feeder vessels from a global region deposit their loads onto a single mother vessel. This is a complex process by which goods are shipped overseas. Shipping lines do not take excuses for delays and have the right to unload any container in order to save their vessel at any point, whether for a storm or technical issue. Thus it is important to secure insurance on goods.
FAQs
There are two major terms of shipment widely used round the globe. These are freight on board (FOB) and cost net freight (CNF). Other terms such as cost net insured (CIF) and cash against document/delivery (CAD) are also used. Based on the relationship between business entities, the terms are set.
What is FOB and CIF in international trade? ›
CIF requires the seller to cover the total cost of the goods, freight and insurance. Whereas FOB only requires the seller to cover the cost of loading the goods onto the vessel; the buyer then pays to transport and insure the goods (as well as any other charges incurred once the goods are on board).
What is CIF in international shipping? ›
What Does CIF Mean in Shipping Terms? Cost, insurance, and freight (CIF) is an international shipping agreement used when freight is shipped via sea or waterway. Under CIF, the seller is responsible for covering the costs, insurance, and freight of the buyer's shipment while in transit.
What does CNF mean in shipping? ›
CNF stands for Cost and Freight. This means the supplier of goods is responsible for the freight-related charges. The buyer of the products is responsible for organising and paying the insurance on the goods. CNF is also known as C&F and CFR. All terms have the same meaning.
How do I know if I have CIF or FOB? ›
Under FOB, both the cost and the risk transfer at the point of export. Under CIF, the seller's responsibility for the goods ends at the port of destination, but their risk for the goods ends when they are loaded on the vessel at the port of export.
Who pays freight in CNF? ›
Under CNF terms, the seller pays for all the costs (including freight) to bring the goods to the port of destination. However, once the goods reach the destination port, the responsibility shifts to the buyer, including risks and additional costs associated with unloading, customs clearance, and onward transportation.
Who pays freight on CIF? ›
Cost, Insurance, and Freight (CIF)
The seller covers the cost of shipping, and insurance. The seller also obtains the necessary documentation, licenses, and inspections that may be required. The buyer assumes full responsibility for the goods as soon as they reach the destination port under a CIF agreement.
What does FOB mean in international shipping? ›
FOB stands for “free on board” or “freight on board” and is a designation that is used to indicate when liability and ownership of goods is transferred from a seller to a buyer. Free on Board: Free on board indicates whether the seller or the buyer is liable for goods that are damaged or destroyed during shipping.
Does CIF include customs clearance? ›
CIF does not include any import duties, VAT, or taxes. It does include all export requirements. Under CIF, the seller must export and pay the costs to ship to your destination port, but you must import and pay all costs associated with the importation.
What is the difference between CNF and CIF? ›
What is the difference between CNF and CIF? In CIF, the cost includes sea freight and insurance to deliver the items to the buyer's closest port. The buyer then has to take responsibility for the package from that point forward. CNF is similar to CIF, except insurance is not included.
CIF Example
Imagine that you're a manufacturer who is responsible for arranging transportation for a shipment of goods from China to the United States. The buyer has agreed to use the CIF incoterm, which means that your company is responsible for paying for shipping, insurance, and freight costs.
How to find CIF number? ›
Chequebook: Just like the passbook, you can find your CIF number on the first page of your chequebook. The CIF number is however NOT printed on the cheques, which only include the IFSC, MICR, and cheque number. Customer Care: You can call your bank's customer support centre for information regarding your CIF number.
What is CNF vs CIF vs CFR? ›
CIF (Cost, Insurance and Freight) and CFR (Cost and Freight, sometimes called C&F or CNF) are widely used international shipping terms or Incoterms. They are identical apart from an additional marine insurance policy paid for by the seller.
What is this CNF? ›
CNF: CNF stands for Confirmed. It means that the passengers' seats are confirmed.
What is the difference between CNF and DDP? ›
As we know, CIF or CNF means your supplier would arrange the cargo to your destination port or airport, while DAP or DDP means to your destination place. The supplier told you the logistics cost, and you paid it.
Can I use CIF for air freight? ›
CIF cannot be used for air freight. CIF is only designated for ocean freight and waterway shipments. Buyers and sellers wishing to use CIF for air shipments can substitute CIF for CIP, which stands for carriage insurance paid to the destination.
