The Difference Between FOB, FAS, CFR and CIF


The use of trade terms in international trade commodity transaction quotations can clearly define the responsibilities, costs and risks that both parties should bear in the delivery of goods, explain the price composition of the goods, thereby simplifying the transaction negotiation procedures, shortening the transaction time, and contributing to the vigorous development of international trade. This article introduces the common trade terms for sea shipping.

The Difference Between FOB, FAS, CFR and CIF

FOB, or Free On Board, is one of the commonly used trade terms in international trade. It means that the seller loads the contracted goods onto the ship designated by the buyer at the port of shipment and within the time limit specified in the contract, and bears all costs and risks until the goods are loaded on board. The buyer shall arrange the transportation and insurance to the port of destination by himself, and bear the freight and insurance premiums. Risk division is when the goods are loaded on board, the risk is transferred from the seller to the buyer.

Features

  • Cost bearing: The seller bears all costs from the factory to the port of shipment (such as transportation costs, loading costs).
  • Risk transfer: The seller’s risk is not transferred until the goods are loaded on board.

Applicable to situations where the buyer wants to control the mode of transportation and transportation costs by himself

What is FAS

FOB, or Free Alongside Ship, means that the seller is responsible for delivering the goods to the side of the ship designated by the buyer at the port terminal. When the ship cannot dock at the terminal and needs to be transshipped, it is delivered to the barge. The seller’s risks, responsibilities and expenses are limited to this point, and all risks and expenses will be borne by the buyer in the future.

Features

  • Cost bearing: The seller bears the cost of transporting the goods to the side of the ship.
  • Risk transfer: The risk is transferred to the buyer when the goods arrive at the side of the ship.

Applicable to situations where the seller has special difficulties in loading or is unwilling to bear the actual export responsibility

What is CFR

CFR, or Cost and Freight, means that the seller delivers the goods to the ship designated by the buyer and pays the transportation costs to the buyer’s port of destination. The buyer bears part of the costs and risks from the time the goods are delivered to the buyer’s factory

Features

  • Cost bearing: The seller bears the freight and all costs during transportation until the port of destination.
  • Risk transfer: The risk is transferred to the buyer when the goods are loaded on board.

Applicable to situations where the seller is willing to bear the transportation costs but is unwilling to bear the insurance costs

What is CIF

CIF, which stands for Cost, Insurance and Freight, means delivery on board the ship at the port of shipment. The seller needs to pay the cost of transporting the goods to the designated destination port. However, the risk of the goods is transferred when the goods are delivered on board the ship at the port of shipment.

Features

  • Cost bearing: The seller bears the freight and insurance premiums.
  • Risk transfer: The risk is transferred to the buyer when the goods are shipped.

Applicable to situations where the buyer wants to simplify the transaction process and reduce operational risks

What are FOB, FAS, CFR and CIFWhat are FOB, FAS, CFR and CIF

The Difference Between FOB, FAS, CFR and CIF

Place of delivery and risk transfer

  • FOB: The seller delivers the goods to the ship designated by the buyer at the designated port of shipment, and the risk is transferred from the seller to the buyer when the goods cross the ship’s rail.
  • FAS: The seller delivers the goods to the ship’s side (or barge) at the designated port of shipment, and the risk is transferred from the seller to the buyer when the goods are delivered to the ship’s side.
  • CFR: The seller is responsible for transporting the goods to the designated port of destination and paying the freight, and the risk is transferred to the buyer when the goods are loaded on the ship at the port of shipment.
  • CIF: In addition to the obligations of CFR, the seller must also purchase transportation insurance for the goods. The risk is also transferred to the buyer when the goods are loaded on the ship at the port of shipment, but the seller must bear the insurance liability during transportation.

Expenses

  • FOB: The buyer is responsible for chartering a ship, booking a space, paying freight and arranging insurance, and the seller must bear all costs before the goods are loaded on the ship.
  • FAS: The buyer bears all costs and risks from the ship’s side, including freight and insurance. The seller must bear the costs before the goods are delivered to the ship’s side and the export customs clearance costs.
  • CFR: The seller is responsible for paying the freight to the designated port of destination, and the buyer is responsible for insurance and other expenses.
  • CIF: The seller is responsible for paying the freight and insurance to the designated port of destination, and the buyer bears other expenses except freight and insurance.

Insurance liability

  • FOB and FAS: The buyer is responsible for insurance and the cost is borne by the buyer.
  • CFR: The buyer is responsible for insurance, but the seller should clearly inform the buyer of the relevant matters of insurance when signing the contract.
  • CIF: The seller is responsible for purchasing transportation insurance for the goods and bears the insurance premium.

Document provision

  • FOB and FAS: The seller needs to provide documents that comply with the contract, such as commercial invoice, packing list, and transportation documents.
  • CFR and CIF: In addition to commercial invoice, packing list, and transportation documents. , the seller also needs to provide freight invoice and insurance policy.

Learn more:

The Difference Between DDP And DAP In Trade Terms

The 15 Most Common Terms For International Shipping

The Difference Between DDP, DDU And DAP Trade Terms

The four trade terms FOB, FAS, CFR and CIF each have their own unique application scenarios and advantages and disadvantages in international trade. Sellers and buyers should make comprehensive considerations based on their own circumstances, transportation conditions and market demand when choosing to reach the best transaction plan. I hope that through this article, you can correctly understand and use these terms to ensure the smooth progress of transactions.





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