POSTED BY: CCA TEAM
If the question of freight is the one who pays the freight, then it is necessary to know the meaning of the Incoterms CIF (Cost, Insurance and Freight) and FOB (Free On Board).
These are expressions that originated in foreign trade practices and were incorporated into the day-to-day logistics professionals, buyers and transporters. Let's look at the definitions:
We can translate CIF as Cost, Insurance and Freight and is usually called freight paid at the origin. It means that transportation responsibilities, including risks, are from the supplier of the product. The operating costs are included in the value of the merchandise and so, most of the time they are not described in the invoice.
Already the acronym FOB, which stands for Onboard, means freight to pay at the destination. In this case, the responsibility of the transport is borne by the buyer after the supplier has made the merchandise available.
It is worth mentioning here, mainly for a control of professional buyers, that the law provides that the cost of acquiring goods for resale comprises transportation costs as well, then the acquisition value in the FOB condition will be different from the CIF condition when the cost is paid by the supplier.
And what are Incoterms?
Incoterms (International Commercial terms) are international trade rules created to facilitate contracts between companies from different countries. We know that at the beginning of the twentieth century there was a significant increase in international trade and therefore a need for rules to ensure a common understanding. This happened in 1936, by the International Chamber of Commerce - CCI, based in Paris. After studying various contractual forms, the Incoterms were consolidated and since then it has undergone several revisions - 1953, 1967, 1976, 1980, 1990, 2000 - and the last one in 2010.
In all 11 Incoterms are divided into 04 categories:
Ex E Category (Departure - Minimum obligation for the exporter)
1 – INCOTERM EXW
EX WORKS (named place of delivery): NA ORIGIN (named place of delivery)
The cargo or product is available to the buyer at the seller's establishment or at a pre-established location. The buyer is responsible for clearance for export and loading on the collection vehicle;
This Incoterm ensures the minimum of responsibility on the part of the selling company;
Costs and risks of the operation are the responsibility of the buyer and can be used in any mode of transportation.
F Category F (Principal Transportation Not Paid By Exporter)
The buyer indicates a carrier and the seller company is responsible for delivering at the named location.
2 – INCOTERM FCA
FREE CARRIER (named place of delivery): FREE ON CARRIER (named place of delivery)
The seller is responsible for the delivery of the merchandise, already cleared for export, in a pre-established place and in the care of a carrier that must be indicated by the buyer.
From this moment, the buyer assumes responsibility for any expenses or damages that may occur.
In this case it is worth emphasizing the importance of the chosen place: if the delivery occurs in the establishment of the seller, this one responds by the loading in the vehicle of collection of the buyer; if the delivery happens in any other place combined, the seller is not responsible for the unloading operation;
The buyer may also nominate another person, other than the carrier, to receive the goods. In this case, the responsibility of the seller ends when he delivers the goods to the person previously indicated;
This Incoterm can be used all modes of transport.
3 – INCOTERM FAS
FREE ALONGSIDE SHIP (named port of shipment): FREE BESIDE SHIP (named port of shipment)
The seller shall be responsible for the delivery of the goods alongside the carrier vessel or on vessels used for loading at the specified port of embarkation;
From that moment, the buyer assumes all risks and costs with loading, freight, insurance and other expenses;
The seller is responsible for the clearance of the merchandise for export;
This Incoterm can only be used for waterway transport: river or lake.
4 – INCOTERM FOB
FREE ON BOARD (named port of shipment): FREE ON BOARD (named port of shipment)
The seller shall be liable for the goods until the ship's rail is transposed at the specified port of embarkation and thereafter the risks, losses and damages shall be borne by the buyer;
The responsibility for the clearance of the merchandise for export is from the seller;
This Incoterm should only be used for waterway transport: sea, river or lake.
Cost or Carriage Category C (Principal Transportation Paid by the Exporter)
The seller is responsible for hiring the carrier, but does not assume the risk for loss or damage to the goods or additional costs after shipment and dispatch.
5 – INCOTERM CFR
COST AND FREIGHT (named port of destination): COST AND FREIGHT (named port of destination)
The seller is responsible for the costs necessary to place the goods on board the ship, including the payment of the freight to the port determined and the clearance for export;
In that case, the risks and any other additional costs are transferred from the seller to the buyer at the moment when the goods trans- port the ship's rail;
The buyer can, as a precaution, take out merchandise insurance;
This Incoterm is used, exclusively, in the modal of water transport: maritime, fluvial or lacustrine;
6 – INCOTERM CIF
COST, INSURANCE AND FREIGHT (named port of destination): COST, INSURANCE AND FREIGHT (named port of destination)
The seller shall be responsible for the goods up to the moment of transposition of the ship's rail at the port of shipment. After this operation, the buyer assumes responsibility and risks.
Payment of the costs and freight necessary to take the goods to the port of destination shall be borne by the seller and the buyer assumes after receiving it at the port.
The seller is responsible for clearing the goods for export and must hire and pay the premium insurance premium. This insurance has minimum coverage, so if there is a need for supplementary insurance, it is the responsibility of the buyer.
This Incoterm is used, exclusively, in the waterway transport: maritime, fluvial or lacustrine.
7 – INCOTERM CPT
CARRIAGE PAID TO (named place of destination): CARRIAGE PAID TO (named place of destination)
In this case the seller is responsible for the payment of the freight that will take the goods to the determined place of destination;
From the delivery of the goods to the care of the carrier, the risks of loss and damage are transferred from the seller to the buyer, including possible additional costs;
The responsibility for the clearance of the goods for export shall be borne by the seller;
This Incoterm can be used in all transport modes.
8 – INCOTERM CIP
CARRIAGE AND INSURANCE PAID TO: TRANSPORT AND INSURANCE PAID TO (named place of destination)
When deciding on this modality, the seller responds for the same obligations of the CPT, plus the contracting and payment of insurance to the destination;
From the moment the goods are delivered to the carrier, the risks, losses and damages are transferred from the seller to the buyer, including possible additional costs that may be incurred;
Also in this case the insurance paid by the seller has minimum coverage and if there is need, the buyer can contract supplementary insurance;
The use of this Incoterm covers all transport modes.
Delivery Category D (Arrival - Maximum obligation for the exporter)
9 – INCOTERM DAT
DELIVERED AT TERMINAL (named terminal at port or place of destination): DELIVERED AT TERMINAL (terminal named at port or place of destination)
The seller is liable when the goods are placed at the disposal of the buyer, at the pre-established date, at the specified place (wharf, container terminal or warehouse), unloaded from the carrier vehicle, but not cleared for importation.
10 – INCOTERM DAP
DELIVERED AT PLACE (named place of destination): DELIVERED AT LOCAL (named place of destination)
The seller shall have his obligations terminated when the goods are available to the buyer on the agreed date at an indicated place of destination other than a terminal, ready to be unloaded from the carrier vehicle and not cleared for importation.
This Incoterm can be used in any mode of transportation.
11 – INCOTERM DDP
DELIVERED DUTY PAID (named place of destination): DELIVERED WITH PAYMENT RIGHTS (named place of destination)
The seller delivers the goods to the buyer, cleared for importation at the pre-established location;
It is the condition that provides greater commitment to the seller, as it assumes all risks and costs of transportation, fees and charges, as well as the delivery of the goods at the place of destination determined;
Its use covers all transport modes.
We then note that the acronym CIF or FOB is international in scope and just as all 11 Incoterms, when incorporated into the purchase and sale contracts, have legal force and guarantee a precise and determined legal interpretation.
National carriers and carriers have already incorporated the CIF and FOB terms and their use is frequent, but we emphasize that regardless of choice, the most important is that the cargo is monitored and tracked. Every year dozens of carriers open and close and so trust is just another ingredient in this relationship. Even when the responsibility of the freight is from the seller (CIF), it is important to follow the operation from the beginning because, after all, everyone is affected.
Keep your carrier performance analysis up-to-date so that continuous improvement can reach the entire supply chain.
FLOGISTICA COMÉRCIO INTERNACIONAL LTDA.