Question

Briefly discuss the shipping terms FOB, FAS, CIF and CFR. Then discuss which one you would prefer if you are the SELLER of goods being shipped and which one you would prefer if you are the BUYER of goods being shipped and why.

Answer 1

Answer

FOB means Free on Board

FOB refers to a shipping arrangement where the seller or shipper is only responsible for providing for transportation of the goods sold to a designated main shipping origin point. FOB contracts relieve the seller of responsibility once the goods are shipped.

CFR means Cost and Freight

In CFR, the sellerr has a larger responsibility for arranging and paying for transportation. For goods shipped CFR, the shipper is responsible for arranging and paying for transportation all the way to the destination port specified by the receiver.

CIF means Cost, Insurance and Freight

In CIF agreements, insurance and other costs are assumed by the seller, with liability and costs associated with successful transit paid by the seller up until the goods are received by the buyer. The responsibilities of the seller include transporting the goods to the nearest port, loading them on a vessel and paying for the insurance and freight.

FAS means Free Alongside Ship

FAS means that The seller must deliver the goods alongside a ship, designated by the buyer. Upon delivering the goods alongside the ship, the risks and costs are transferred. The seller must arrange the clearance of goods.

I would prefer FOB - Free on Board if I am the SELLER of goods being shipped. It is because FOB contracts relieve the seller of responsibility once the goods are shipped. So there is not much responsibility in the case of FOB transactions.

I would prefer CIF - Cost, Insurance and Freight if I am the BUYER of goods being shipped. It is because in CIF contracts, the seller must pay the costs for delivering the goods to its destination. The risk however is transferred upon loading the goods on the ship and insurance is also included in this contract. It has to be borne by the seller. Here the responsibility of the buyer is less.