What to Expect when Making Waterborne Exports

When products are exported through maritime transportation, there are some international commerce terms that the two sides may choose to add to their contracts. These terms dictate which side is liable for the safety and the logistical procedures regarding the traded products, as well as for all costs that come with them, at each point in the supply chain. Two of the most widely used terms as such are CIF (which stands for “Cost, Insurance and Freight”) and FOB (“Free on Transportation”).

CIF contracts are drawn in cases where the seller has direct access to the loading vessel. They dictate that the seller is responsible for arranging and paying for transport to the port, acquiring all essential export paperwork, and potentially needed inspections. They are also liable for making payment for a restricted insurance coverage that protects against potential damage or loss of goods during the journey from the port of arrival to the port of destination. Once the products have been unloaded onto the destination port, all risks are passed to the buyer, which is responsible for organizing and paying for import documentation. The latter also take upon themselves the unloading costs and any further transportation costs to the final destination. 

As for FOB contracts, they come in two types that establish different points in the supply chain where the buyer or seller becomes responsible for the goods being transported. “FOB Origin” states that the buyer takes total responsibility for the products once they get shipped by the seller, up until they reach their final destination. This implies that the responsibility is transferred upon delivering the products to the initial transporter in the sequence, either it is a loading vessel or a transportation company named by the buyer that undertakes transferring the products to the port of arrival). On the other hand, “FOB Destination” means that the seller undertakes that liability. 

The previous clearly underlines the differences between CIF and FOB: in the agreements dictated by the former, the responsibility assumed by the seller may only last until the products reach the port of destination (or the first carrier for CPT contracts). On the other hand, FOB agreements assign liability to the buyer and the seller up to the transportation of goods to their final destination.