Insight of CIF - FOB (Disadvantages & Advantages)

1. Comparison CIF-FOB Shipping Terms
This study is conducted especially for Indian importers who face challenges while importing, wherein
cost of importing goods into India are much costlier for them in comparison with other importers. The
main motto of this study is also to spread awareness in trade that how they can control the legal
matter keeping full control on import expenditure & processes. The study also supports importers to
understand the basics and minute differences of International trade using specific trade terms. The
importers who majorly transact on LC terms with CIF buyings face challenges on movement of
shipments; thereby end up paying more than the estimated cost. During this case study we had also
observed that in practical how an importer has lost almost 75% of the total cost adding more to their
basic cost where they were using CIF trade term. (As they were literly being forced to pay detention /
demmurages and additional shipping line charges due to legal identities were exposed to those who
were not directly in control of buyer & are unaware of specific customer’s process)
As a major advantage FOB shipping term supports importers to restrict foreign exchange outflow
from the country. Basically in case of CIF, importers are forced to pay the entire amount in foreign
currency which will also have a cap of money transfer charges charged by the bank who charge it to
remit the funds to foreign supplier’s; at the same time bank also freezes the money from importers
account immediately on issuance of Letter of credit (LC), the same can be sighted as the very moment
LC is being issued or submitted to bank the cost and other charges related to shipment will be freezed
from importers account. Wherein, in the case of buying FOB, term supports them to pay all such
charges other than cost of goods locally on arrival of shipment at final port of entry. It further allows
importer directly to deal with local forwarders working in their best interest, the complete serivce
cost is payable in Indian Rupee with a little & nominal amount of such as charges collect fee (CC Fee)
and currency adjustment factor (CAF). Another good part of buying FOB is service tax payable to
government of India; In case of CIF, majority of services are being billed overseas and doesn’t attract
any Indian tax policies, whereas in India the services billed attract tax on service charges which are
payable to government of india by the executer… adds more to the growth of country.
Recommendation to Trade by writer: Buy CIF only when it is required to be or mandatory… start
using more FOB trade in international logistics to gain more out of lesser volumes. START SMART
BUYING TO GAIN WIN-WIN FOR YOU AND NATION BOTH…

2. 1 Cost, Insurance and Freight (CIF) -
1.1 An international trade term of sale in which, for the quoted price, the seller/exporter/manufacturer clears
the goods past the ship’s rail at the port of shipment (not destination). The seller is also responsible for paying
for the costs associated with transport of the goods to the named port at destination. However, once the
goods pass the ship’s rail at the port of shipment, the buyer assumes responsibility for risk of loss or damage as
well as any additional transport costs. The seller is also responsible for procuring and paying for marine
insurance in the buyer’s name for the shipment. The Cost and Freight term is used only for ocean or inland
waterway transport.
1.1.1 Why CIF is being used?
1.1.2 Generally speaking, importers prefer CIF terms when either they’re new to international trade or they
have relatively very little freight volume. These importers often find CIF simpler in that their suppliers are
responsible for arranging freight and insurance details. Under these terms the importer relinquishes control of
choosing freight carriers, routing and other shipping specifics. For these companies, convenience outweighs
the need for enhanced shipment control and associated freight savings. Shipping CIF grows increasingly
difficult as companies increase their number of overseas suppliers and overall freight volume. The greater the
number of CIF shipments, the more problems can occur with obtaining accurate shipment information.
Overseas suppliers are not well positioned to handle service issues that develop in-transit. What’s more, they
are not required to arrange anything past the port of destination, so final delivery concerns, monitoring of
penalty situations such as demurrages, etc. are all the responsibility of the importer. Regular importers quickly
adopped & tired of the hassle of relying on suppliers and their freight agents for shipment information.
2 Free On Board (FOB) -
2.1 An international trade term of sale in which, for the quoted price, the seller/exporter/manufacturer clears
the goods for export and is responsible for the costs and risks of delivering the goods past the ship’s rail at the
named port of shipment. The Free On Board term is used only for ocean or inland waterway transport.
2.1.1 Why ship FOB?

3. 2.1.1.1 Buying Free on Board has two major benefits over CIF · More competitive freight rates · Enhanced
shipment control. When shipping CIF, companies must be careful that their shipping rates are competitive
since overseas suppliers are always inclined to mark up their freight cost for the extra service provided in
arranging shipments. Smart importers quickly learned that they can obtain very competitive shipping rates
even with small to medium freight volumes. While cost is always important, there are other major reasons for
buying FOB. Increased supply chain visibility and control is a critical FOB benefit. By taking title to the goods as
they cross the ship’s rail at the overseas port of shipment, importers are better able to obtain accurate and
timely shipment information by working with the third-party logistics provider of their choice. In this way, they
are assured their freight partner is working in their best interest, and not for their supplier’s. More on to this,
consignee can have more savings in terms of fund planning’s as in case of CIF consignee need to pay freight &
other charges alongwith cost of goods to go forward, wherein they loose interest till the time shipment arrives
at the final destination port but in case of FOB terms they need to pay freight & other components of freight
only after arrival of goods at final destination port. This is the major factor which benefits consignee to gain an
edge on competition for cost-controlled movements. Adding more to controls for the cargo movements,
majority for those importers who avail any duty or other related benefits, in such case using own freight
forwarder for movements can control the shipment schedule according to preparation such as site / relevant
licenses / exemption certificates / regulatory etc. Importer saves on part of un-necessary demurrages &
detentions using FOB controlled movements as they by pass all such hinderance; which concerns to the cost of
product.