What is the difference between cfr and fob

Sellers may prefer to ship CIF because they can generate higher margins. Nevertheless, ownership of the goods in transit places additional risk on sellers. Often, sellers will invoice buyers for their costs of shipping and insurance. They may even add in additional fees to make a larger profit. In this way, buyers end up paying more for shipping than they would with a FOB agreement.

Basically, buyers are paying a premium for convenience. Moreover, buyers are relinquishing control over their shipment. Furthermore, buyers have to rely on the seller to provide the Importer Security Filing document; if buyers file this late, there are serious fines and penalties.

This reliance on the seller can put buyers in a vulnerable position. Insurance can also be interesting to navigate with CIF. Most often, the seller is the beneficiary of the insurance, because they own the insurance policy and the goods while in transit.

This means that if something happens to the goods during shipment, the seller receives the payout. Likely, the buyer has already made some form of payment to the seller for those goods. And in the second term, the seller delivers goods on the board. The seller should pay all the cost of freight transportation to the port.

In both methods, some tasks are assigned to the seller, and they have some differences as the following:. Like the previous section, in both methods, the buyer must do some tasks , and they have some differences as the following:. In both methods, depending on the case, requires the seller to clear the goods for export. However, the seller has no obligation to do clearance the goods for import, pay any import duties, or perform any customs formalities for import. The FOB is not appropriate when the goods are delivered to the carrier before being loaded on the ship, for example, goods loaded in a container, which is usually delivered at the terminal.

In such cases, the term FCA should be used. In such cases, the CPT Incoterm should be used. If you need a special rate and competitive offer for Door to Door Rail and Trucking service from China to European countries, please contact our Sale Team. List of Partners vendors. The primary difference between using cost and freight CFR and free on board FOB shipping lies in who must pay for various shipping or freight costs—the buyer or the seller.

The terms also specify who is responsible for which costs. Both cost and freight and free on board are legal terms in international trade. You will see these terms as part of the International Chamber of Commerce ICC 's collection of global commerce terms, known as Incoterms. These terms govern shipping responsibilities for international trade.

This standardization allows for easy understanding of responsibility, regardless of the language spoken. Under a cost and freight CFR agreement, the seller has a weightier responsibility for arranging and paying for transportation the ordered products.

For goods shipped CFR, the shipper is responsible for organizing and paying for the shipping of the products by sea to the destination port, as specified by the receiver. Also, under CFR, the seller must provide the buyer with the documents necessary to obtain them from a carrier. Usually, this includes providing the required customs forms to clear the cargo through the customs inspection process. However, using CFR, the seller doesn't have to buy marine insurance against the risk of loss or damage to the cargo during transit.

Responsibility for the goods only transfers to the buyer or receiver when the ship reaches the designated destination port. The buyer is then responsible for unloading costs and any further transportation costs to the final destination. Free on board refers to a shipping arrangement in which the seller or shipper retains ownership and responsibility for the product only until they are loaded on board a shipping a vessel.

Once they are on the ship, or "over-the-rail," the obligation transfers to the buyer. The supplier is only responsible for providing transportation of the goods sold to a designated main shipping origin point.

This point is typically a port, since Incoterms are most commonly used for international trade where goods are transported by sea. Delivery is considered to be accomplished, and responsibility for the goods transferred from the shipper to the buyer or receiver , at the point when goods are loaded aboard the ship at the designated port of origin.

The receiver is responsible for arranging and paying for the actual shipping cost from the port of origin to the destination port and for arranging and paying for transportation to any further destination.

The shipper is, thus, free of responsibility once the goods are on board the ship. FOB destination is another form of this contract type. In this case, it indicates the onus for the goods remains with the seller until the product reaches the specified port. International Trade Administration.