Understanding FOB and CIF in Used Car Exports
- . Understanding FOB and CIF in Used Car Exports
- 1. What do FOB and CIF mean when shipping?
- 2. What is CNF in shipping?
- 3. Who created these FOB and CIF terms?
- 4. What to expect with FOB in the car export industry
- 5. When is FOB used in Japanese used car exports?
- 6. Benefits and disadvantage of FOB in Japan used car exports.
- 7. What to expect with CIF in the car export industry
- 8. When is CIF used in Japanese used car exports?
- 9. Benefits and disadvantages of CIF in Japan used car export.
- 10. Watch out for a costly FOB!
- 11. FOB charges at Provide Cars.
- 12. Q&A
What do FOB and CIF mean when shipping?
FOB stands for “Free On Board” which means that the seller's responsibility for the goods ends when they are on the shipping vessel.
- The seller is responsible for everything up to the port of departure. This means the seller is responsible for transporting goods to the port and loading them to the ship. As soon as goods are on the ship, the responsibility is no longer on the seller.
- The buyer is Not responsible for the loading but takes responsibility for the goods as soon as they are on the ship. The buyer is responsible for the freight journey and marine insurance. Responsible in the case being payment on arrival.
CIF stands for “Cost, Insurance, and Freight.” This means the seller is responsible for the goods carried during the freight until they arrive at the destination port. Of course, as “insurance” is included in the term, this is also the seller’s responsibility.
What is CNF in shipping?
CNF stands for “Cost and Freight.” If you notice that the word “Insurance” is missing, you’ve noticed well. For this reason, it is sometimes described as “Cost, No-insurance, Freight.” The seller is responsible for the goods carried during the freight until they arrive at the destination port. However, the decision to insure the goods during the freight is all up to the clients.
Who created these FOB and CIF terms?
The International Chamber of Commerce (ICC) created the terms FOB and CIF. When trading goods overseas, someone must be responsible for the property while it is halfway across the ocean between countries. The clarification is so important that it is integrated into trading law to protect the responsibility of seller and buyer.
Used car exporting companies in Japan, like Provide Cars, need to clarify this with customers, both in payment and responsibility terms. So, what is included in FOB when you purchase a car from Japan and intend to export it to your country?
What to expect with FOB in the car export industry
When you purchase a car from a car exporter in Japan, the FOB term represents the sum of all of the vehicle’s costs until it is on the ship. This includes every cost in Japan. The actual cost of the car, the documentation and service fee, the transport fee, the loading fee, and all other expenses required or charged until the car goes onto the ship.
Coverage of FOB in the context of used car exports:
- The Vehicle price
- The service fee
- Any extra cost
- Domestic transportation fee
- Any inspection fees
- Yard fees.
When is FOB used in Japanese used car exports?
FOB is an easier and simpler calculation for most exporting companies. Once the car is on the boat, the exporting company does not have responsibility to pay for the freight or the insurance.
This very much depends on the shipping line, some prefer to use FOB, and others CIF.
For example, most RORO shipping from Japan to New Zealand or Australia is FOB.
Benefits and disadvantage of FOB in Japan used car exports.
The advantages and disadvantages of using FOB in used car exporting may differ slightly depending on the company you buy from.
Pros
- FOB payment is the most cost-effective option, as the freight is not included.
- You have more control over the choice and method of shipping.
- Paying the shipping yourself means there are no hidden service costs on the freight.
- Payment for freight on an FOB basis only has to be done before the boat arrives, helping your cashflow.
Cons
- The responsibility for risks involved during the transit is on the buyer.
- Most of the time, buyers organise and pay for marine insurance.
- The buyer is accountable for handling customs clearance and covering any import duties and taxes.
What to expect with CIF in the car export industry
When you purchase a car from a car exporter in Japan, the CIF term represents the sum of all costs, until the vehicle ARRIVES at the destinated port. The easiest way to remember, is FOB + Freight + marine insurance.
Coverage of CIF in the context of used car exports:
- The vehicle price
- The service fee
- Any extra cost
- Domestic transportation fee
- Yard fees
- Freight
- Marine insurance
When is CIF used in Japanese used car exports?
CIF is a convenient and straightforward method for the buyer since freight and insurance is organised by the exporter.
However, this is also considered an expensive option. The expensive part is not solely for the freight and insurance costs. Often, hidden service charges are added to CIF when buyers are invoiced. Although you can estimate the correctness of charges, ambiguity is part of the nature of CIF.
CIF is also dependent on shipping companies. Like FOB, some shipping companies only accept CIF, such as most vessels going from Japan to Africa. The theory is that shipping companies do this to secure the payment by making the exporter responsible for the freight. If in any case, the buyer disappears, or shipping is cancelled after the departure by the buyer, there is no need for shipping companies to chase up on the importer. By making the freight only CIF, they are ensuring that when such problems arise, it is the exporter’s financial responsibility.
Container shipping is often completed in CIF also since there are a lot of processes that need to happen before being shipped, such as vanning, Drayage, and THC, on top of the container costs and freight charges. It is much easier for the exporter to add all expenses to a CIF invice than to divide every little costing to create an FOB invoice.
Benefits and disadvantages of CIF in Japan used car export.
PROS:
- The responsibility for risks involved during shipping is on the seller.
- The vehicle is already insured.
Cons:
- More costly up-front, a financial burden on the shipper.
- The shipping lines love the extra cash flow!
- Freight calculations are usually done in US$, so prone to exchange rate fluctuations
- Container CIF rates change monthly, again prone to fluctuations.
- Potential hidden service charges
Watch out for a costly FOB!
A cheaper service fee should result in cheaper FOB, right? – WRONG!
This is the exact marketing trap many used car companies use, so read carefully and avoid these traps!
Have you noticed that any extra cost was highlighted in red above? Because this is the game changer.
If you are looking for someone to mow your lawns, hiring someone who does the same job for less damage to your wallet makes sense.
But it’s not that simple in the car exporting market… There are many steps involved in purchasing a car from auctions in Japan and receiving it. This means a lot of GREY areas where things can be tweaked to look good.
Some car export companies offer very cheap “looking” service fees. Most of the time, many hidden charges are added on top of these, which all add up. Some of these costs are genuine while others are either made up or bloated to take more money from you. Additionally, the “generally required” charges can also get shady, as they charge you much more than the actual cost. This is to compensate for the cheap service fee advertised.
To give you examples of “extra costs” to watch out for: auction house fee, bidding fee, or export custom clearance fees….
Sales Tax: If you buy from the auctions, ensure your exporter does not charge you the 10% consumption tax. If they are a legitimate exporter, they get this consumption tax refunded after the car has been exported. So there is no reason for you to be charged for this.
Now that you know what to look for, you can research companies in Japan that offer transparency and reasonable pricing.
If you are already working with a company in Japan and happy with the services, great! You do deserve transparent and honest interactions with the company. If you are still searching, why not check out Provide Cars? We are one of the companies that prioritises transparency and honesty.
FOB charges at Provide Cars.
At Provide Cars, the pricing is inclusive and transparent; we don’t have hidden fees. We also try to keep our fee structure as simple as possible. So for a standard export, there are just three parts to the final FOB charge:
- The cost of the car itself.
- The internal transport cost - to get the car from the auction to the port. (6,000 to 55,000 Yen, depending on where the car is and where it needs to go.)
- Our commission* = (car cost at auction 5%) + 90,000 Yen.
No hidden charges or creeping expenses.
The commission varies depending on how many cars you buy from us. Please check out our service and commission page for more details!
Q&A
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What do FOB and CIF mean in car exports?
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FOB ("Free On Board") means the seller's responsibility ends once the car is on the ship, while CIF ("Cost, Insurance, and Freight") means the seller remains responsible until the car arrives at the destination port, including freight and insurance coverage.
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How does CNF differ from CIF?
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CNF ("Cost and Freight") includes shipping to the destination port but excludes insurance. This leaves the buyer responsible for insuring the vehicle during transit if they wish.
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Why might a buyer choose FOB over CIF?
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FOB can be more cost-effective and allows the buyer to control shipping choices, although it also makes them responsible for arranging insurance and paying freight on arrival.
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What hidden fees should buyers watch out for in car exports?
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Buyers should ensure they aren’t charged for unnecessary fees like consumption tax, hidden service fees, or inflated transport costs. Transparent exporters will outline all costs upfront.
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How does Provide Cars handle FOB charges?
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Provide Cars offers a straightforward fee structure with three main charges: the vehicle cost, domestic transport to the port, and a commission fee of (car cost * 5%) + 90,000 Yen, with no hidden fees. (Fees differ in relation to the volume of cars sent)
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