Based on the principle of “taking the seaport terminal as the reference point”, the unique pricing method and price terms of international trade have been generated:
1. Taking the port of export (Loading Port) as the reference point: FOB (Free on Bord).
To be more precise, the reference point of the FOB pricing method is the ship’s side of the cargo ship at the export port. After the goods arrive at the dock, they need to be hoisted onto the cargo ship. FOB uses the hook crossing the ship’s side as the precise dividing point. In other words, all the costs before the hook crosses the ship’s side are the costs included in the FOB pricing method. Therefore, FOB is also translated as “ship’s side delivery price”. Conversely, for the buyer, this price is the delivery price at the “foreign port”, so it is also translated as “offshore price” based on the English “Offshore”.
2. Taking the destination port (Desitination Port) as the reference point: CNF and CIF.
CNF (cost and freight) is also called C&F, which means cost (free on shore price) plus freight. Similarly, for the buyer, this is the price after arriving at the destination port, so it is called “CIF price”. CNF adds an insurance premium to become CIF (cost, insurance, freight).
As mentioned earlier, in addition to the value of the goods, the prices of FOB, CNF, and CIF also include miscellaneous fees such as commodity inspection, customs declaration, dock, insurance, etc. It is not difficult to understand that since these fees have to be paid, these procedures must be handled naturally. Therefore, these price terms are both a pricing method and the basis for the division of responsibilities and risks between buyers and sellers.
For example, under FOB conditions, the seller is responsible for export commodity inspection and customs declaration, and any damage to the goods before they cross the ship’s side at the export port must be borne. After the goods are loaded, the buyer must be notified in time so that the buyer can handle insurance matters; the buyer needs to charter a ship and book a space and notify the seller of the shipping date, etc. – usually operated by the buyer’s freight forwarder, so “buyer-designated freight forwarder” has also become a synonym for FOB.
Under CNF/CIF terms, in addition to what the seller does under FOB terms, he must also bear the corresponding booking, insurance and other matters, and bear all risks before the goods arrive at the destination port. The buyer is much more relaxed, just wait for the goods to arrive intact, pick up the goods and go through the import procedures.
In order to help everyone understand the “risk responsibility division” of different price terms, there is often such a humorous case in textbooks: when the export port terminal was hoisting the goods, the hook accidentally loosened, causing the goods to collide and fall into the sea. The terminal is certainly responsible, but who should take the blame and argue with the terminal? The answer depends on the price terms and whether the goods have crossed the ship’s side at the moment they fell into the sea. If it is FOB, and it has crossed the side, the buyer will consider himself unlucky; otherwise, the seller will pay the bill. There are special expressions for price terms, in the format of “currency unit + amount + term + port name”, such as USD50 FOB Ningbo means “unit price is 50 US dollars, delivered at Ningbo port”; another example is USD90 CIF Newyork, which means “unit price is 90 US dollars, delivered at New York port, insurance has been arranged”.
In the expression, the port name is very important and should be specific. If FOB CHINA PORT (delivery at China port) is incorrect, because China has a vast territory and different ports have very different inland freight costs. In actual operation, there are also general terms, such as CIF EMP (Europe main port). European main port is a term for foreign trade, referring to several famous large ports in Europe such as Rotterdam and Hamburg. Because the freight and miscellaneous fees from China to these large ports are similar, in order to facilitate quotation and customer selection, there is also such a way to express the price, that is, “delivery at European main port, insurance has been arranged”. However, this is not very precise after all, and it is not recommended to use it casually.