Article Content

What is the difference between CIF and FOB freight?

Logistics should be seen as a strategic element in an organization. Poor management and lack of monitoring of transport can bring high costs to your process, in addition to delays in receiving the goods. 

Negotiating the incoterm is part of the commercial agreement between the importer and exporter. For this, it is essential to know the particularities that each incoterm has.

CIF and FOB are among the most used in foreign trade operations, so it is essential to understand the main differences to identify the best option for your business. 

What is CIF freight?

The acronym CIF refers to the English term Cost, Insurance and Freight, translating into Portuguese: cost, insurance and freight.

In this modality, the seller is responsible for contracting the freight and paying the costs to the port of destination, in addition to being responsible for the process of clearing the goods at export. This incoterm also includes insurance that must be contracted by the exporter.

Upon arrival at the port, responsibilities such as risks and expenses pass to the buyer. In this case, all port movement, handling, storage and freight between the port of destination and the warehouse are the responsibility of the importer.

It is important to emphasize, that this incoterm can be used only for the waterway modal, being maritime, fluvial or lacustrine.

How is CIF freight billed?

The cost of freight and insurance must be paid by the exporter at origin. On the other hand, these costs are included in the sale price of the merchandise and must be highlighted in the Commercial Invoice. In this modality, freight and insurance are paid according to the sales conditions established with the supplier, stated in this document.

The other costs at destination are the responsibility of the importer. If expenses occur at the destination, they must be paid directly to the shipowner or cargo agent, depending on the exporter's negotiation.  

What are the advantages of CIF freight?

In many cases, the exporter obtains a more competitive freight value due to its export volume. Many exporters have direct negotiation with shipowners, with better prices, transit time and other conditions that end up benefiting the importer.

Another benefit would be the exporter's primary responsibility for all international transport. In this case, any damage until arrival at the port of destination is under the responsibility of the seller, who will have to trigger the insurance or the shipping company.

For small companies or companies that do not have a specialized sector in international logistics, using CIF freight can be advantageous, as the entire negotiation will be handled by the exporter.

What is FOB freight?

The incoterm FOB means Free on Board, or “free on board” translated into Portuguese. In this case, the role is reversed and the responsibility for contracting international freight and insurance passes to the importer.

The exporter's responsibility ends when the goods pass over the ship's rail. From then on, all risks and expenses are the responsibility of the importer.

Payment for freight is generally made after the goods arrive at the port. This negotiation will have deadlines established according to each negotiation between the importer and cargo agents or shipowner.

This incoterm can also be used only for the waterway modal, being maritime, fluvial or lacustrine.

What are the advantages of FOB shipping?

This type of modality has the advantage of negotiating the cost of international freight, in addition to other fees and conditions, such as the free time of stay of the container (free time) and extra daily cost (per diem) if demurrage is incurred.

Some types of cargo have longer deadlines for customs clearance. Therefore, the costs of demurrage, when not negotiated, can cause serious inconvenience and even make an import unfeasible.

Another advantage is in the monitoring of the load. The importer will receive all transport information from the port of origin to arrival at the final port, updated directly of by the shipowner or freight forwarder.

Anyway, what is the difference between CIF freight and FOB freight?

The main difference lies in the responsibility for contracting international freight. Consequently, also in assuming the risks and costs involved until arrival at the destination.

The CIF incoterm must necessarily come with a contracted insurance. Often, being a contract with only basic coverage,. In this case, the importer must pay attention and, if necessary, contract a more complete insurance.

Shipment monitoring and must also be aligned with the exporter. In a CIF negotiation, the exporter holds all information from delivery at the port of origin to arrival at the to the destination country. This prior alignment is necessary and essential to avoid possible delays or unforeseen events.

Another important aspect to be highlighted is the way in which insurance and freight are paid in different modalities. Having this notion when negotiating the incoterm can help and provide better cash flow control.

In the FOB incoterm, the international freight is paid at the destination, together with the other fees and international insurance (if contracted), converted at the Ptax rate of the day with an increase previously agreed with the freight collect agent or shipowner (freight collect).

In turn, in the CIF incoterm, given that the exporter has already added the costs of international freight and insurance to the Commercial Invoice, payment will occur after completion of the exchange closing, with the values ​​quoted based on the commercial quotation of the foreign currency, being paid at origin by the exporter (freight pre-paid).

Depending on the international route, many shipments may be transshipped at other ports., In this case, due to port congestion or logistical obstacles at the transshipment terminal, the goods may arrive after the initial deadline established. This exchange of information needs to occur throughout the journey.

Regardless of the incoterm negotiated, the importer must always pay attention to the details, because, no matter how small, they can make all the difference at the end of the operation.

latest news

How to import and export Mercosur products?

Brazil currently has several international agreements, from neighboring countries to countries on other continents. These international agreements help economically in the development of new