CIF contract is that when the seller has delivered the goods or provides them afloat, He has to perform the contract by tendering conforming documents to the buyer. The significant feature of a CIF contract is that performance of bargain is to be fulfilled by delivery of documents and not by actual physical delivery of goods by the seller.
As for FOB contract, it can be described as a flexible instrument. Because, the buyer has to nominate a ship and the seller has to put the goods on board of vessel for account of the buyer and procuring a bill of lading.
The important difference between FOB and CIF contract is that, FOB contract specifies the port of loading; however CIF contract specifies the port of arrival.
Duties of Seller and Buyer
Seller's Rights and Duties
1. The main duty of the seller under the FOB contract is loading. The seller must deliver the goods on board the vessel, at a place where the buyer has already identified as the port of loading and within the period of shipment which the parties indicated in the contract of sale. Name of the port in a FOB contract is a condition.
For instance, the seller sends the goods to the other port from the port where it has been identified in the contract of sale. The seller commits a breach of a condition, so the buyer is entitled to refuse the delivery of the goods.
Under the CIF contact, the seller is required to deliver the goods on board of the vessel at the agreed port of delivery. However, in contrast to an FOB contract, the seller can also procure the goods afloat which are already shipped.
2. Under the FOB contract, the seller has to bear all cost such as the payment of handling, transferring the goods to the ship and loading. Furthermore the seller has to make all necessary arrangements for the buyer’s account such as making a contract of carriage by sea and insuring the goods under an insurance contract. Moreover, the seller is not responsible to pay the freight and cannot be force to provide “freight pre-paid bill of lading” from the carrier. This is because; the contract of carriage and the freight are made between the carrier and the buyer.
According to the CIF contract, the seller has to bear all costs relating to the goods until delivery of the goods on board the vessel. However, under the CIF contract, the seller’ duty to provide a contract of carriage and has to insure the goods under the insurance contract. Moreover, the insurance policy has to protect to the buyer. Otherwise, the seller commits to breach of the contract
3. Under the English Law, there is no general rule to obtain an export licence. It depends on the contract, which the party, who has the best position to obtain it. According to Brandt &co. case is that, “….. both seller and buyer were British traders albeit that the buyer was securing goods from an overseas merchant so he has to apply for the export licence, because he alone knows full facts regarding the destination of the goods.”On the other hand, if the seller is in a better position than the buyer, he is responsible to provide a licence.
Under the CIF contract, it is also seller’s responsibility to provide an export licence.
4. Under the FOB contract, unless otherwise agreed, the seller has to provide the documents such as bills of lading, which is necessary for the buyer to obtain a possession of the goods. These documents have to deliver to the buyer in return for payment.
Compared with the FOB contract, CIF seller has to provide a commercial invoice in order to get a payment. These documents must include the full description of the goods, the parties, price, shipping mark and numbers, the part of loading, route, and the port of discharging. The seller must tender the documents to the buyer.
5. The seller must give notice to the buyer that this notice may enable him insure the goods during the sea transit. The notice must be given without delay. Any fail to give notice, makes the seller still liable on the goods during the sea transit.
According to the CIF contract, the seller has also to give the buyer sufficient notice that the goods have been delivered on board the vessel.
Buyer’s Rights and Duties
1. Under the FOB contract, the buyer’s duty is identify to the port of shipment. If it is not clean in the contract of sale, three different alternatives can be choose: First, the seller can choose the port of shipment, second the buyer can choose it, and third the contract is left for ambiguously. The buyer has also provided a suitable ship for loading. He has to determine a shipping period, place and also must give notice to the buyer of readiness to the vessel. Nomination of vessel is a condition of the contract. When the seller failure to nominate vessel, the buyer can refuse the contract and claim damages. Unless otherwise agreed, the buyer can also make a second nomination within a shipment period, if the first one is insufficient.
By comparison with the FOB contract, under the CIF contract the buyer has no under obligation to procure a ship, place, and shipping time. On the other hand, the buyer main duty is to accept the documents, which will be explained in detail later, if these documents are in conformity with the contract of sale.
2. The buyer’s duty under the FOB contract, to pay the price is determined by the contract. However, there is no such a time in the contract; the buyer must pay the price in due as soon as the seller delivered the goods according to the contract. In contrast to the FOB contract, when a CIF buyer has accepted the documents; he must pay the full price of the goods. Furthermore, the buyer must take delivery of the goods at the agreed destination and has to bear all unloading costs.
3. Under the FOB contract, the buyers must pay all cost to the goods, when the goods passed the ship’s rail.
According to the CIF contract, the buyer has only to pay any customs or other duties, which may impose in a CIF contract. For instance, payment of the freight is the buyer’s duty and also it is a condition of the contract.
This is basically what I wanted to share about CIF and FOB contracts from an article I came across and hope everyone will know better about CIF and FOB contracts through this post
References:
http://www.pierobon.org/export/ch11/cifr.htm
http://www.pierobon.org/export/ch11/fobr.htm
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