Trade Knowledge

What is Document Against Payment/Bill of Exchange (D/P) ?

If use D/P as payment method, the exporter ships the goods, and then gives the documents (including the bill of lading necessary to claim the goods at the foreign port) to his bank, which will forward them to a bank in the buyer's country, along with instructions on how to collect the money from the buyer. When the foreign bank receives the documents, they will contact the buyer and provide documents to the buyer only when the buyer pays. And the risk is mostly on the seller side.

What is CIF?

CIF means Cost, Insurance, and Freight. CIF is used when the supplier must pay the costs, freight, and insurance to ship the goods to the named port of destination.

What is FOB?

FOB means Free On Board or Freight On Board. FOB specifies which party (buyer or seller) pays for shipment and loading costs, and/or where responsibility for the goods is transferred. Buyer bears risk including payment of all transportation and insurance cost once delivered on board the ship by the seller. It's used for sea or inland waterway transportation.

What is the difference between CIF & FOB?

CIF named supplier will afford "product Cost + Insurance fee + Freight cost (sea freight or air freight)"

FOB means Free on Board that supplier will afford " product cost + inland delivery cost", lack of insurance and freight cost than CIF.

Cost, Insurance and Freight (CIF) and Free on Board (FOB) are international shipping agreements used in the transportation of goods between a buyer and a seller. The specific definitions are different for every country, but CIF and FOB have similar uses. They differ in who assumes responsibility for the goods during transit. Both contracts specify origin and destination information that is used to determine where liability officially begins and ends.

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. Goods are not considered to be delivered until they are in the buyer's possession.

FOB contracts relieve the seller of responsibility once the goods are shipped. Once goods have passed the ship's rail, they are considered to be delivered into the control of the buyer. When shipping to the buyer begins, the buyer then assumes all liability.

What is an Export License?

An Export License is a document secured from a government, authorizing a shipper to export a specific quantity of a particular commodity to a certain country. An export license is often required when a government places restrictions upon exports. It's necessary to have the export license if you want to export out of your own country.