Many supply chains range from buyers in Germany to all over the world. Internationally applicable trade clauses, so-called Incoterms, ensure legal security among the partners. Which ones are cheaper for local buyers? CIF Incoterms or FOB Incoterms? The answer is in the details.
Fair trade in goods is based on rules that the partners involved agree on and adhere to. When it comes to cross-border trade, we speak of International Commercial Terms, or Incoterms for short. They were first established in 1936 by the International Chamber of Commerce (ICC). They are now revised and updated every ten years. The most recent reform came into force on January 1, 2020. Incoterm contracts are not mandatory, but are concluded on a voluntary basis. But then they are binding.
There are a total of eleven Incoterms, two of which are particularly important for maritime transport. That is why they play a major role in doing business with Chinese suppliers, for example . This refers to the Incoterms CIF for Cost, Insurance and Freight and FOB for Free On Board. They describe which obligations buyers and sellers have to fulfill in which phase of trading.
In essence, it is about the question of who is responsible for the goods until they arrive at the port of destination (transfer of risk). This concerns the takeover of:
According to the CIF Incoterms, the seller, i.e. the supplier, is largely responsible for the freight and the resulting costs. In detail, he has the following obligations until the ship has entered the port of destination of the buyer:
The transfer of risk from the seller to the buyer takes place upon arrival at the port of destination. He is responsible for:
Compared to the CIF Incoterms, the FOB Incoterms partially shift the responsibilities between the purchaser and the supplier. Accordingly, the obligations for the seller are as follows:
This results in the following responsibilities for the buyer:
The difference between CIF Incoterms and FOB Incoterms: Under FOB terms, responsibility for the international delivery of ocean freight is transferred from the seller to the buyer. This means that he bears the transport costs and risks and is responsible for the transport modalities，For example, you plan to import a batch of electric toothbrushes from China, and when the goods arrive at your designated port, you will need to pay for the goods, in addition to customs and other fees. Therefore, from a procurement perspective, the CIF Incoterms may appear simpler and more practical. And at first glance, they are often cheaper too. Nevertheless, FOB Incoterms can be more beneficial for the procurer.
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