Ever heard of the terms on the title? If you are into shipping, you are bound to encounter these 3 words. What do they represent? Check out the information below:

Terms of shipment

Common trading terms used in shipping goods internationally include:

  • Freight on board, or free on board (FOB) - the exporter delivers the goods at the specified location (and on board the vessel). Costs paid by the exporter include load and lash, including securing cargo not to move in the ships hold, protecting the cargo from contact with the double bottom to prevent slipping, and protection against damage from condensation. For example, “FOB Kunming Airport” means that the exporter delivers the goods to the airport, and pays for the cargo to be loaded and secured on the plane. The exporter is bound to deliver the goods at his cost and expense. In this case, the freight and other expenses for outbound traffic are borne by the importer.
  • Cost and freight (C&F, CFR, CNF): Insurance is payable by the importer, and the exporter pays the ocean shipping/air freight costs to the specified location. For example, C&F Los Angeles (the exporter pays the ocean shipping/air freight costs to Los Angeles). Many of the shipping carriers (such as UPS, DHL, FedEx) offer guarantees on their delivery times. These are known as GSR guarantees or “guaranteed service refunds”; if the parcels are not delivered on time, the customer is entitled to a refund.
  • Cost, insurance, and freight (CIF): Insurance and freight are all paid by the exporter to the specified location. For example, at CIF Los Angeles, the exporter pays the ocean shipping/air freight costs to Los Angeles including the insurance.
  • The term “best way” generally implies that the shipper will choose the carrier who offers the lowest rate (to the shipper) for the shipment. In some cases, however, other factors, such as better insurance or faster transit time will cause the shipper to choose an option other than the lowest bidder.

In case you don’t understand a gibberish about what’s said above, here’s an extreme-simplified version:

FOB = Free on Board. Exporter does not pay the freight costs, he/she only brings the cargo to the port and perhaps pay loading fees. Buyer actually pays the freight costs.

CNF = Cost & Freight. Exporter pays for almost everything, except insurance. (Anything wrong happened, don’t blame exporter on CNF terms!)

CIF = Last but not least, Cost, Insurance & Freight. Exporter pays everything. Buyer just needs to pay one lump sum to the exporter. Simple, quick, happy. Of course though, buyer will have to pay extra hidden costs. Exporter most likely will mark up the shipping prices and forward the fees to the customer, earning some extra profit.