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What is the difference between CIF and FOB shipping terms?

The difference between CIF and FOB shipping terms and which you should use. An import guide for e-commerce start ups and soloprenuers.

What are incoterms?

The wonderful world of incoterms, something that’s often overlooked by first time shippers and early empire builders.

So what do they mean, which are best and how can you use them to your advantage? Incoterms are international rules, they are designed to make trade easier by having a clear structure that is used by every manufacturer, freight forwarder and importer in the world.

Believe it or not, incoterms can apply to almost every single movement of goods in the world. Which one (there are currently 11 in use) describes who is responsible for the cargo and transport costs at each point in the journey. And most importantly the point at which the risk passes from the seller to the buyer.

Boring. Google could have told you that. Wikipedia has a pretty decent page if you want to get really into it. Or give me a call – I’m pretty proud of my knowledge of incoterms and waiting for that pub quiz question to be asked.

Anyway, if your a busy solopreneur, home-based e-commerce guru or part-time laptop empire builder you don’t need to know everything about this stuff.

You need to know which ones you want to use to avoid any “surprise” arrival charges. I put surprise in “”s because there shouldn’t be any surprises, there is enough info out there and people like me to help to avoid an unwanted £200 import handling fee – what even is that.

So here we go, my simple take on how to arrange your air and sea import shipments.

FOB – Free On Board

If your shipping by sea and using your own forwarder, work with FOB – free on board. It works for FCL (Full Container Loads) and LCL (Less Container Load – anything that travels by sea but isn’t enough for a full container), leaves the more complicated export clearance and movements in the hands of your supplier or manufacturer and gives your forwarder (and you) more control over the shipment. Responsibility of the goods passes to you when the stuff is loaded onto the vessel.

Make sure your forwarder has included all arrival/import/destination charges in their shipping quote to avoid a CIF heart-attack.

CIF – Cost, Insurance, Freight

A CIF heart-attack. So your supplier on the other side of the planet has offered to arrange the shipping for you, terms are CIF and the goods will arrive into the UK at Felixstowe port on such and such a date. And it was only a little more expensive than the cost of the goods. If you’re shipping full containers, CIF cannot apply. It’s primarily used for LCL shipments which is why first time shippers are often caught out,

Sounds good. Easy – you don’t want to get involved in shipping really. They do it all the time right? Take some time, some advice and avoid if possible.

Like FOB, by shipping CIF the manufacturer does take care of the local formalities and gets the goods onto a ship. Great. However, the term only means that the shipping is covered UPTO ARRIVAL to your port (Felixstowe/Southampton etc). It does not cover a host of other charges (here’s your bonus £200 cost) and you’ll likely be contacted by another freight company demanding payment (of what you thought had already been covered) before they release your products.

All very unnecessary and stress inducing.

So in conclusion, it may sound like your getting shipping included in your CIF price, and you are, but not the whole way home. Take control early, understand your costs from the start and getting shipping, get selling and build your empire.

Alex’s Key Advice

  • Define the terms early.
  • Be specific. Ask the supplier for an FOB and CIF price – don’t say shipping only.
  • Engage a UK freight forwarder early, if only for advice.
***Depending on your product it’s value and where in the world it’s coming from, you’ll likely be liable for UK import duty and VAT when the goods arrive in the UK. I’ll cover more about this on another entry.

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