Understanding International Shipping Terms: CIF, FOB, and More

When you’re managing exports for your business-and all the paperwork that comes with them-having a handle on all the terminology involved can go a long way in ensuring compliance. There are a lot of acronyms, usually surrounding paperwork and payment, and Chamber Export Partnership is here to help you navigate every part of shipping. Read through our helpful guide regarding common shipping terms to get started.

What Are Incoterms?

Incoterms are international rules that establish what buyers and sellers each need to handle and provide throughout every export transaction. There are eleven different types of incoterms, each categorized into four groups-E, F, C, and D. These rule sets define who is responsible for payment of different aspects of an export order, insurance and documentation requirements, customs processes, and more. You have responsibilities, whether you are a buyer or seller in an export transaction.

For example, the seller must provide goods and an invoice that aligns with the terms of the sale, and the buyer must provide payment; who is responsible for the payment for the movement of goods, the cargo insurance, and cargo handling will differ based on the terms of each deal. However, incoterms don’t articulate all the potential terms and conditions of a sale.

Understanding International Shipping Terms

When you’re navigating compliance with incoterms, you will come across shipping terms such as CIP, CIF, FOB, and others. Gain a deeper understanding of the terms so you can easily manage your obligations.

Free on Board (FOB)

Free on Board (FOB) designations establish who is responsible if goods are damaged, destroyed, or lost during the shipping process. There are two main FOB designations:

  • FOB Origin: Once the seller ships the goods and they leave the seller’s hands, the buyer assumes all responsibility for breakage and losses. This can also be called “FOB Shipping Point.” The seller is not responsible for any damage during the transportation stage.
  • FOB Destination: The seller is responsible for the goods throughout the shipping process until they reach the buyer.

The FOB terms are typically located on the export purchase order. Once FOB terms are established, they determine other factors, such as transportation costs and insurance responsibilities.

Cost, Insurance, and Freight (CIF)

This term only applies to exports being shipped internationally across the ocean or another waterway. Under CIF terms, the seller handles the cost, insurance, and freight factors of exporting an order. While the seller handles the costs, the buyer assumes all responsibility once the goods are loaded on the ship.

That means if the goods are damaged or lost, the buyer must file a claim under the seller’s insurance provider. It also means that the buyer takes on the cost of importing and delivering the goods once they reach the port. While the responsibilities of the two parties may seem to overlap here, the CIF terms should clearly identify where the liability of the buyers and sellers end.

Carriage and Insurance Paid To (CIP)

Under the terms of a CIP arrangement, the seller pays freight and insurance in order to ship the order to a third-party location, and insurance must be for 110% of the contract value. Once the goods reach the pre-determined third party, the seller no longer has responsibility for any damages or losses, and the buyer assumes all responsibility.

Delivered at Place (DAP)

In Delivered at Place (DAP) deals, the seller is responsible for both the cost of transporting the goods and any potential damage done to the shipment. However, the buyer or importer must pay local taxes, customs duty, tariffs, and any costs associated with unloading the goods.

Chamber Export Partnership: Your Trusted Partner for International Shipping Document Exportation

Establishing those terms on your export documentation is vital to ensuring every order moves smoothly through the shipping and import/export process. At Chamber Export Partnership, we specialize in helping businesses get the paperwork they need in a fraction of the time of conventional paper processes. Reach out today to get started with your next export.

Image Credit: Panchenko Vladimir, Shutterstock

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