Bahria University, Islamabad Campus Department of Law Midterm Examination Fall 2020

Q03. Briefly explain FOB and CIF Contract? (03Marks)

Answer:

The abbreviation CIF stands for "cost, insurance and freight," and FOB means "free on board." These are terms are utilized in international trade reference to shipping, where goods need to be delivered from one destination to a different through maritime shipping. The terms also are used for inland and air shipments. CIF is taken into account a far better thanks to buy goods for those that are new international trade. it'd even be a far better option for brand spanking new traders who have small cargos. In CIF, the vendor is liable for transporting goods to the closest port, loading the products on the ship and paying freight for the products to be delivered to a port chosen by the customer. The vendor is additionally liable for paying insurance for the products.
It is better to shop for FOB for those that are already conversant in international trade. These traders have their own forwarding agents and logistic agents in situ at the port where the customer loads the products to be imported. In FOB trading, the vendor is merely liable for taking the products to the closest port on his or her end. This location is indicated after FOB, and it's important to accountants, as goods become assets to the customer on the day they reach that location. the products are considered delivered once they cross the ship’s rail. the customer is therefore liable for paying the ship’s freight and insurance. The advantage of shopping for FOB is that the customer can recover deals on freight services, unlike in CIF where the customer has got to believe the freight services chosen by the vendor. This is often because the vendor could be looking to form take advantage of the freight services. the customer therefore makes take advantage of buying FOB.
The major difference between FOB and CIF is when liability and ownership transfer. In most cases of FOB, liability and title possession shifts when the shipment leaves the purpose of origin. With CIF, responsibility transfers to the customer when the products reach the purpose of destination. In most cases, we recommend FOB for buyers and CIF for sellers. FOB saves buyers money and provides control, but CIF helps sellers have a better profit. However, we recommend that new buyers use CIF as they get familiar with the import process.