Difference between CIF and FOB contracts

Even-though both of them are used in commercial law, CIF and FOB contractcs have few distinguishing characteristics. CIF contract is that when the seller has delivered the goods or provides them afloat. The significant feature of a CIF contract is that performance of bargain is to be fulfilled by delivery of documents and not by actual physical delivery of goods by the seller. On the other hand FOB contract can be described as a flexible instrument. Because, the buyer has to nominate a ship and the seller has to put the goods on board of vessel for account of the buyer and procuring a bill of lading.

The important differences between FOB and CIF contract is that, FOB contract specifies the port of loading, however CIF contract specifies the port of arrival. Under the FOB contract the main duty of the seller is loading. The seller must   deliver the goods on board of the vessel, at a place where the buyer has  already identified as the port of loading and within the period of shipment which the parties indicated in the contract of sale. Name of the port in a FOB contract is a condition.

Under the CIF contact, the seller is required to deliver the goods on board of the vessel at the agreed port of delivery. However, in contrast to an FOB contract, the seller can also procure the goods afloat which are already shipped.

Under the FOB contract, the seller has to bear all cost such as the payment of handling transferring the goods to the ship and loading.

 

According to the CIF contract, the seller has to bear all costs relating to the goods until delivery of the goods on board the vessel.

Under the English Law, there is no general rule to obtain an export licence. It depends on the contract, which the party, who has the best position to obtain it.  Under the CIF contract, it is also seller’s responsibility to  provide an export licence.

                         

Unless otherwise agreed, under the FOB contract, the seller has to provide the documents such as bills of lading. These documents have to deliver to the buyer in return for payment.Compared with the FOB contract, CIF seller has to provide a commercial invoice in order to get a payment. The seller must tender the documents to the buyer.

The buyer’s duty under the FOB contract, to pay the price is determined by the contract. In contrast to the FOB contract, when a CIF buyer has accepted the documents; he must pay the full price of the goods. .

Under the FOB contract, the buyers must pay all cost to the goods, when the goods passed the ship’s  rail. According to the CIF contract, the buyer has only to pay any customs or other duties,which may impose in a CIF contract.

Under the FOB contract, risk passes on shipment.Under the CIF contract, risk passes on shipment to the buyer while property in them passed, or as from shipment.

To conclude, CIF and FOB contracts are the most important contracts in the field of International Trade. Both of them resemblance each other. However, CIF contract has a very significant difference from FOB contract. Mainly, under the CIF contract, the parties have to deal with delivery of documents and not actual physical delivery of goods by the seller. As a matter of fact, FOB contract is known as a flexible instrument which could be useful to International Trade companies while on the other hand, CIF contract is in demand much more than FOB contracts by companies in the field of International Trade.