Do you already know the differences between CIF freight and FOB freight? It is very important to know how each type of freight works because it is based on the differences between each mode that your business will get. optimized results in business operations. The terms CAF and FOB are contained in the Terms of International Trade – INCOTERMS, which represent the set of rules that best guide trade negotiations, applicable on a global scale.
O CIF freight applies to B2C sales contexts, where the company sells directly to the end customer. In this way, the company will be responsible for delivering the product safely to the customer’s address, also assuming all operating costs.
already the FOB freight is best suited for B2B sales, where one company supplies a greater volume of goods to another company.. With the difference that the one who assumes the risks during the transport journey is the recipient of the order. This means that the responsibility for the cargo, on the part of the supplier company, extends to the shipment of the products.
But not only that: there are still differences in how to calculate the value of each of these freight modalities, in addition to the advantages of choosing CIF freight or FOB freight in a business transaction. To clarify any doubts, the Freight Center has prepared this post to help managers optimize the use of freight resources and achieve more efficient results in transport businesses. To verify!
In practice, what is CAF freight and FOB freight?
CIF Freight – which stands for Cost, Insurance and Freight, is the type of freight with payment at origin i.e. who bears the cost is the supplier of the goods. Its price is already included in the value of the products the customer has purchased. In the invoice there is the payment of the Tax on the Circulation of Goods and Services – ICMS, which can be inserted directly in the invoice or in a specific field to indicate the amount related to the tax.
FOB shipping means free on board. Unlike CIF shipping, it is paid by the consumer, who is also responsible for contracting and negotiating. By leaving the supplier for delivery, the customer bears the cost of the freight service. Since the value of the FOB freight is not added to the price of the goods, it must be specified on the invoice and included in the tax base, including PIS, COFINS, ICMS and IPI.
Read also: Calculate shipping costs: how to get the best price?
How to choose between CIF and FOB?
To choose between CAF freight and FOB freight, It is important to analyze the advantages and disadvantages of each of them., because from there it is possible to establish a more efficient analysis parameter. CIF freight is an advantage for the customer, as it is more convenient, as it does not need to deal with the bureaucratic procedures related to its operation. In this sense, FOB freight has advantages for buyers who have a logistics structure to assume the transport with more security.
From another point of view, CIF freight is of little benefit to the seller, who must have an appropriate logistics structure and take responsibility for delivering the goods to the customer. From this perspective, FOB freight is more beneficial for the seller, as their responsibility to send the order is concluded right after the goods have been shipped.
Who is responsible for the products?
Knowing the differences between CAF freight and FOB freight, the question remains of product liability in each of these categories. In CIF freight, the responsibility for the risks and safety of the cargo lies with the shipper. This responsibility does not end until the cargo has been delivered to the address requested by the customer.
In the case of FOB freight, the situation is reversed and the customer or consignee of the cargo must assume the risks associated with the transport of the order. From the moment of loading the cargo until the moment of delivery to the final destination, the customer assumes all consequences that occur in the transport process.
Also read: Content declaration: what is it and how to do it?
How much does each type cost?
Several factors influence the freight calculation. When calculating CAF freight, it is essential to take into account the load characteristics, like weight and shape. Cargoes sent by CIF freight are more varied, as they are used for the transport of products to the final consumer. Another problem is the distance between the supplier and the customer, which will determine the expenses with fuel and tolls. The mode of transport will also influence the final value of the freight, as the more expensive it is, the higher the cost.
To calculate the FOB freight, the weight of the commodity, its value and the distance traveled on the route may increase or decrease the value corresponding to the freight. In addition, the modal used for transportation and other costs, such as taxes and tolls, are also associated.
In both shipping methods, the urgency of the customer for the delivery of the products must be respected., an aspect which further increases transport costs. Remembering that if the freight calculation is carried out manually, there is a risk of errors in the analysis, causing losses for the shipper or the customer. Therefore, it is recommended to do the calculation using automated spreadsheets, which will provide greater security and accuracy in setting the shipping amount.
How is the follow-up done?
To ensure that the transport of goods runs smoothly, it is essential to carry out monitoring throughout the route to be covered. Provide the customer with access to order tracking, for real-time monitoring, is also essential, as it demonstrates transparency and increases business reliability.
Currently, load monitoring can be performed using technological tools, which take you to the section where the command is located in a few moments. In addition to computers and smartphones with Internet access, equipment such as GPS, barcode scanners and photo capture are used. Thus, the cargo will be secure during transit between the sender and the recipient.
Why is it important to know the differences?
It is important to know the differences between CIF freight and FOB freight so that the responsibilities of the supplier and the customer are well defined and clear to both parties. With this, it is possible to avoid the occurrence of problems, for example by assuming who should bear the costs of an unforeseen event.
Decision-making must take into account the strategic analysis of options for action. By knowing the characteristics, as well as the differences for CIF freight and FOB freight, the manager has better vision to act strategically. The company that offers the transportation service with this knowledge is better prepared to meet the needs of its customers, just as it is more likely to survive market turbulence.
Tip: Delivery logistics: Learn how to optimize the process
Provides a competitive advantage
When the company knows exactly the differences between CIF freight and FOB freight, it gains a competitive advantage in the market. Indeed, for the end customer, understanding all the differences of each modality and what the implications are when selecting one of them can be more complex and time consuming. Thus, when analyzing the best delivery alternative for each customer, the transport company generates more than buyer satisfaction. Can still do the better use of available resources.
Mistakes can represent learning opportunities, but when it comes to CAF freight and FOB freight, they can be more harmful than you might think. CIF freight is better suited for deliveries to the end customer, as it has a smaller volume of goods than a business. On the other hand, FOB freight is more suitable for companies that buy in large quantities, because they also have the necessary logistics structure to bear the transport costs.
Thus, offering FOB freight to an end customer is an error that generates undesirable effects, ranging from dissatisfaction to the compromise of the company’s image in the market. Not to mention the fees, which must be paid by the company that made the mistake.
Read also: Cubagem: understand how the calculation is done
The best CAF or FOB solution is at the Shipping Center:
Once you know the differences between CIF freight and FOB freight, it is important to apply that knowledge to the day-to-day operations of your business. The Freight Center provides shippers with the best technological solution for freight management. With an agile system, you can calculate the amount of shipping on different carriers in a few minutes.
You can also compare prices and define the most suitable type of freight for the transport service you need. We also offer the contract the service and the facility to pay, all in one and the same environment. O Goods tracking can be tracked in real time, from a computer, tablet or smartphone with Internet access. Don’t waste time and come and discover the best solutions in CAF and FOB with the Shipping Center!