CIF vs. FOB: Implications for Buyers and Sellers in Global Trade

This report provides a comprehensive analysis of the differences between Cost, Insurance, and Freight (CIF) and Free On Board (FOB) in the context of international trade. It highlights that CIF places the responsibility on the seller to transport and insure the goods until they reach the buyer, while FOB requires the seller to only deliver the goods on board a ship, after which the buyer assumes responsibility. The report explores the advantages and disadvantages of both CIF and FOB for buyers and sellers, noting that CIF can be more convenient for buyers new to international shipping, while FOB offers buyers more control over costs and logistics. Ultimately, the report suggests that CIF contracts are often more attractive to both parties, despite FOB contracts potentially offering sellers an opportunity to inflate costs. Desklib offers this and many other solved assignments for students.

Running head: International marketing
International marketing

International marketing
Table of Contents
Introduction.................................................................................................................................................3
Difference between CIF and FOB...............................................................................................................3
Conclusion...................................................................................................................................................5
References...................................................................................................................................................6
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International marketing
Introduction
The report discusses the difference between CIF and FOB. CIF and FOB are two variable used in
international shipping process for selling and buying of goods overseas. Both have similarities
but also differ from each other at a wider level. Hence, the report presents those differences that
are generally seen between CIF and FOB. The report covers all the major differences seen
between CIF and FOB. It carries the idea of how sellers and buyers carry out their business and
what charges they have to pay during the process of selling and buying. The paper explains about
the process of working overseas which also involves hidden charges that are generally seen in
these areas.
Difference between CIF and FOB
CIF stands for Cost, Insurance, and Freight whereas FOB stands for Free On Board. Both the
terms deal with international pricing where the transaction takes place between the seller and the
buyer. But both the terms differ in much variety than each other. CIF and FOB provide a vast
difference in understanding about how international pricing is assigned to the goods and services.
In the agreements made under CIP, it is the responsibility of the seller to transport the goods,
board the goods for shipment and provide them to the buyer. Whereas, FOB is comparatively
convenient for the seller as they are relieved from their duty after transporting the goods on the
board. After the goods have been board they are taken care by the buyer and everything is under
buyer’s responsibility (Feenstra and Romalis, 2014).
Cost, Insurance, and Freight agreement is an expensive method of doing business over the
transporting of goods and services than Free On Board agreement. For the seller, it is beneficial
to prefer CIF and buyers usually prefer CIF whereas FOB enables the sellers to put their cost and
imply their charges over the goods where the buyers end up paying the extra fees than needed. In
FOB, the buyer can manage the supply of goods on his condition. Hence, CIF can benefit the
sellers than buyers. The seller has the chance to make extra money while transporting as the
buyer end up paying for charges like dock service, customs clearance fees, etc. Both the terms
work on a legal basis, but the workings of FOB are also hidden contracts and sellers have to
waste a lot of illegal money during the business.
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International marketing
FOB is typically the most practical choice for purchasers. Purchasers do not need to pay a high
charge to their dealers as they have to with CIF. Purchasers additionally have more control over
the cargo timing and cost, since they can pick their cargo forwarder. On the off chance that
anything happens to the products, they hold the title and duty, so they can better access data and
explain the concerns (Papież and Śmiech, 2013). On the other hand, CIF is generally more
convenient for the buyer. In CIF the buyer does not go through any claims, issues or concerns
related to freight. This is generally beneficial for those who are new to the business of
transporting overseas (Crozet, Lalanne and Poncet, 2013).
CIF includes many formalities like paying charges for freight, costs in terms of fees such as dock
fees, courier service fees and also the insurance. FOB, on the other hand, is comparatively an
easy process of purchasing goods by loading them directly on the board (Pettersen Strandenes,
2013).
In other words, the buyer is responsible for paying the shipment in FOB whereas the seller is
responsible for paying the shipment in CIF. The sellers are the old members and they know how
to carry out extra cost from the business. These sellers prefer to go with FOB as it provides them
charging the extra cost of income. CIF provides less of work for the buyers, whereas FOB
creates more work for the sellers (Wilmsmeier, 2016).
FOB is designed in such a way that sellers generally do need to go here and there to get the work
done. It is a single and long-term process for the contracted companies. On the other hand, CIF
buyers have to deal with many other transport companies to get their work done. This creates
hustle and issue in the work and makes it difficult for the buyers in sea shipments. But if we look
it from a different angle, it suggests that getting in touch with different companies is a good
method of increasing contacts. This can be helpful for the buyers as they can carry out their work
from other companies by negotiating (Itxsolutions, 2018).
CIF contracts are more attractive to both buyers and the sellers, which is generally not in the case
of FOB. This implies that the buyers and sellers generally prefer CIF contracts than the FOB
contracts. Purchasing stock under CIF can result in low and aggressive costs and regularly much
lower than costs under the FOB contacts (Berger et al, 2012).
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International marketing
FOB can help in controlling the agents involved in the business. This will help the buyers to
negotiate with them for lowering the prices. This is not possible in CIF. The buyer has to pay the
considered amount to the agents involved in managing the import export.
The FOB additionally enables the purchaser to acquire better protection costs, not like CIF,
which just covers the payload transport from the goal post to the purchaser's offices. One is able
to make out a difference between what causes a seller to choose FOB and what causes a buyer to
choose CIF while working on the contracts. The difference between both gives an insight into the
efficiency that leads to the transportation of the products (Yilmazkuday, 2016).
Conclusion
The report highlights the fact that CIF contracts are generally much more significant than the
FOB contracts. Many sellers although prefer to work under FOB contracts as it provides them an
easy method of loading the goods on boards from where the goods are then taken care by the
buyers. The report clearly shows the benefits of CIF contracts over FOB contracts. CIF and FOB
are two variables that give a platform to transport goods at overseas. Hence, the report shows
how a buyer has wide chances to transport its goods.
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International marketing
References
Berger, D., Faust, J., Rogers, J.H. and Steverson, K., 2012. Border prices and retail
prices. Journal of international Economics, 88(1), pp.62-73.
Crozet, M., Lalanne, G. and Poncet, S., 2013. Wholesalers in international trade. European
Economic Review, 58, pp.1-17.
Feenstra, R.C. and Romalis, J., 2014. International prices and endogenous quality. The Quarterly
Journal of Economics, 129(2), pp.477-527.
Itxsolutions.2018.What is the difference between FOB and CIF[Online], Available from
http://ltxsolutions.com/difference-fob-cif/, [Retrieved from 27th May 2018].
Papież, M. and Śmiech, S., 2013. Causality-in-mean and causality-in-variance within the
international steam coal market. Energy Economics, 36, pp.594-604.
Pettersen Strandenes, S., 2013. Freight transport pricing models. In Freight Transport
Modelling (pp. 319-331). Emerald Group Publishing Limited.
Wilmsmeier, G., 2016. International Maritime Transport Costs: Market Structures and Network
Configurations. Routledge.
Yilmazkuday, H., 2016. Constant versus variable markups: Implications for the Law of one
price. International Review of Economics & Finance, 44, pp.154-168.
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