Introduction
One of the significant advantages of the 21st century is that everyone from everywhere has access to the Internet. Then, it makes the process of gathering information very easy.
Providing products for every business is a significant challenge, and after that, shipping will create many challenges for businessmen and businesswomen.
Knowing the rules and the terms used in this part will help them choose the best freight forwarding way.
This article aims to talk about “CIF VS EXW.” After finishing this article, you will have enough information.
In this article, DDPCH provides a detailed analysis of CIF vs. EXW, offering key insights to aid businesses in making informed decisions. Our goal is to equip you with the necessary knowledge to select the best terms for your specific business scenario, ultimately driving successful and efficient international trade operations.
What are incoterms?
Before we talk about CIF VS EXW, it is better to be familiar with incoterms. It is the abbreviation of “International Commercial Terms”, and the “International Chamber of Commerce” has designed it.
This term is used to distinguish costs and responsibilities between sellers and buyers. This term also covers matters such as the following:
- Transportation of goods
- Clearance of goods
- Importing and exporting of goods
- Who is responsible for payment
- Who is responsible for the risk of moving and transferring goods at different stages
And other matters related to freight forwarding from sellers to buyers.
By this definition, we can say that this term is about all international trading rules for selling and transporting goods.
When you want to import or export; you need to refer to these rules.
CIF vs EXW: Understanding Incoterms in 2023
In the world of international trade, the choice between CIF (Cost, Insurance and Freight) and EXW (Ex Works) is pivotal in determining the responsibilities and costs borne by the sellers and buyers. Understanding these Incoterms, or International Commercial Terms, is crucial for businesses aiming to streamline their shipping and logistic operations while mitigating potential risks.
As we proceed further into 2023, the intricacies of CIF vs EXW continue to hold substantial implications for businesses operating globally. CIF implies that the seller assumes responsibility for the goods until they reach the destination port, including shipping and insurance costs. In contrast, under EXW terms, the seller’s obligations are limited to making the goods available at their premises, with the buyer taking over responsibility for transportation and insurance from there. Hence, a thorough understanding of these terms and their impact on your business operations is fundamental for decision-making in international trade.
How CIF and EXW Affect Import and Export Responsibilities
CIF (Cost, Insurance, and Freight) and EXW (Ex Works) Incoterms significantly influence import and export responsibilities in international trade. In a CIF agreement, the seller covers all costs, including freight and insurance, to transport the goods to the destination port, also taking care of export duties, taxes, and customs formalities in the country of origin. Once the goods reach the destination port, the buyer assumes responsibility for unloading, customs duties, taxes, and any subsequent transportation.
Contrarily, under EXW, the seller’s duties are minimal, extending only to making the goods available at their premises. From that point, the buyer takes on all responsibilities for exporting the goods from the seller’s country, including transportation, insurance, export customs clearance, and associated costs. Additionally, the buyer handles all import duties, taxes, and customs formalities in the destination country. Hence, the choice between CIF and EXW significantly affects how import and export responsibilities are allocated in international trade.
CIF VS EXW
For CIF VS EXW (Incoterms), at first, you should know these terms.
CIF is the abbreviation for “Cost, Insurance and Freight.”
EXW is as follows:
- The Seller must provide the goods to the buyer at his workplace or another designated place.
- The Seller’s delivery of the goods does not require loading it on the means of transport, nor is clearance of the goods for export if this necessary.
- The parties are well aware that they must specify the place of delivery of the goods as clearly as possible because all costs and risks up to that point are the responsibility of the Seller.
Now, it is time to talk about CIF VS EXW.
CIF
In CIF VS EXW, we, firstly, talk about the CIF term. It may come to the mind that what does the price of CIF mean?!
The exact answer to this question is, “The price paid by the buyer in the port is called the CIF price.”
CIF price is calculated in this way “value of goods + customs cost + shipping to port + THC + bill of lading + port costs + insurance cost + shipping cost to the destination port.”
As you know, the Seller and the buyer have some tasks that may differ in some ways in CIF VS EXW.
In CIF, The Seller concludes an insurance contract for the buyer to cover the risk of loss or damage to the goods during transport.
The buyer should note that the Seller is only required to provide the minimum insurance coverage under the term CIF.
If the buyer wants more insurance coverage, he must explicitly agree with the Seller to provide the excess insurance.
When the terms CFR, CIP, CPT, or CIF are used, the Seller’s duty ends with delivering the goods to the designated carrier in the specified way contracted before. It is not about when the goods arrive at the destination.
The Seller’s general duties are that he/she must prepare the goods, inventory and any other documents under the contract.
And General duties of the buyer is that he/ she must pay the price of the goods in the order provided in the sales contract.
An insurance contract in CIF
An insurance contract is essential in CIF VS EXW. In CIF, this contract is divided into two parts, as follows:
A) Shipping contract
The shipper or the Seller must conclude or prepare a contract for the carriage of goods from the agreed delivery point, if present at the place of delivery to the designated destination or, if approved, to any point in the said port.
The contract of carriage must be arranged according to the usual conditions at the Seller‘s expense, and the carriage must be of the regular routes used by ship.
B) Insurance contract
At its own expense, the Consignee must provide cargo in accordance with the minimum insurance coverage, provided by the Institute and Cargo Insurance (London Insurers Institute), or any insurance coverage with similar conditions.
The insurance contract must be concluded by the insurer or a reputable (reputable) insurance company so that the buyer or any other person who has an insurance interest in the goods can claim damages directly from the insurer.
Where is not CIF appropriate?
The term CIF in international shipping methods is not appropriate in cases where the goods are delivered to the carrier at a point other than the ship’s deck, for example, goods loaded in a container, which is usually delivered at the terminal. In such cases, the term CIP is used.
If agreed upon by the parties, the electronic equivalent of documents can replace all documents.
Now, you have enough information about CIF, and for completing the CIF VS EXW discussion, it is time to talk about EXW.
EXW
The general task in for the buyer in EXW is as the following:
- The buyer must pay the price of the goods in the order specified in the contract of sale.
- The buyer must obtain at her own expense and, if necessary, any import and export licenses or other official permits, including security clearances, and perform all customs formalities to export goods.
- The buyer accepts all risks arising from the loss or damage to the goods from when the goods are delivered.
- The buyer must pay all costs related to the goods from the time of delivery and any additional costs resulting from his failure to deliver the goods.
- The buyer must pay all duties, taxes, and other costs and expenses incurring customs formalities for the export of goods, as the case may be
- The buyer shall reimburse all costs and expenses incurred by the Seller for assistance.
- The buyer must pay for any pre-shipment inspections, including inspections ordered by the issuing country’s authorities.
In the CIF VS EXW, the task of the Seller is essential, that they are as following:
- The Seller must prepare the goods and the business list under the sales contract and provide any other proof of compliance that may be required by the contract.
- The Seller must assist the buyer in obtaining any export license or other official permits as are necessary for the export of the goods, depending on the case, at the buyer’s request, risk, and cost.
- The Seller must deliver the goods at the agreed point and if there is no such point, at the designated place, without loading on the means of transport.
Navigating the Cost Aspects of CIF and EXW in International Trade
In international trade, understanding the cost implications associated with different Incoterms like CIF (Cost, Insurance, and Freight) and EXW (Ex Works) is vital for optimizing your business transactions. Each of these terms denotes a different allocation of costs and risks between the buyer and seller, and thus directly impacts the total cost of a trade operation.
When operating under CIF, the seller is responsible for all costs (including shipping and insurance) up until the goods reach the destination port. This can often result in a higher quoted price for the goods, but it also provides the buyer with the assurance that they are not liable for any costs or risks during transit. On the other hand, with EXW, the seller’s obligations are limited to making the goods available at their premises, and the buyer assumes all costs and risks related to the transportation of goods from that point onwards. While EXW might appear to provide a cheaper upfront cost for the buyer, it may also involve additional costs like local logistics, customs charges, and insurance, all of which need to be factored in by the buyer. Thus, navigating the cost aspects of CIF and EXW requires a comprehensive understanding of these terms and a careful analysis of the potential cost impacts on the trade operation.
An insurance contract in EXW
An insurance contract is essential in CIF VS EXW. In EXW, it is as following:
A) Shipping contract
The buyer has no obligation to the Seller to conclude the contract of carriage. And the Seller has no obligation to the buyer to terminate the contract of carriage.
B) Insurance contract
The buyer has no obligation to the Seller to conclude the insurance contract. And the Seller has no obligation to the buyer to complete the insurance contract. However, the seller may be willing to provide the buyer with the information he needs to terminate the insurance contract.
Comparative Analysis of CIF and EXW Incoterms
| Incoterms | CIF (Cost, Insurance, and Freight) | EXW (Ex Works) |
|---|---|---|
| Responsibility for Shipping Costs | Seller | Buyer |
| Responsibility for Insurance | Seller | Buyer |
| Control Over Logistics | Seller | Buyer |
| Point of Delivery | Destination Port | Seller's Premises |
| Risk Transfer Point | Destination Port | Seller's Premises |
| Customs Clearance (Export) | Seller | Buyer |
| Customs Clearance (Import) | Buyer | Buyer |
| Transportation to Buyer's Premises | Not Included | Buyer |
| Pre-shipment Inspection | Seller (if required by country of export) | Buyer |
| Ease of Control Over Costs | Moderate (As costs are bundled) | High (As costs are separately incurred by buyer) |
The Role of Customs Clearance in CIF and EXW Transactions
Customs clearance is a pivotal element in CIF (Cost, Insurance, and Freight) and EXW (Ex Works) transactions as it directly influences the responsibilities of the buyer and seller. In CIF agreements, the seller manages all export customs formalities, including documentation, customs duties, and taxes in the country of origin. However, once the goods arrive at the destination port, the buyer assumes responsibility for all import customs duties, taxes, and formalities as required by the importing country.
Conversely, under EXW, the buyer bears full responsibility for all customs formalities, both for exporting from the seller’s country and importing into their own. This includes arranging all necessary documentation, settling any export and import duties and taxes, and ensuring compliance with all regulations. Thus, the customs clearance role in CIF and EXW transactions significantly influences the risk, cost, and logistics associated with international shipping.
Impact of CIF and EXW on International Shipping Operations in 2023
In 2023, the Incoterms CIF (Cost, Insurance, and Freight) and EXW (Ex Works) continue to significantly impact global shipping operations. CIF dictates that the seller is responsible for shipping the goods to the destination port, including insurance, thus placing a substantial logistical burden on them. It offers assurance to buyers as they don’t have to manage any additional responsibilities during transit.
On the other hand, under EXW, the buyer assumes the responsibility of transportation, insurance, and handling of goods right from the seller’s premises. While this offers buyers greater control over logistics, it also necessitates they invest more resources in managing these operations. In sum, CIF and EXW shape the operational landscape of international shipping, and businesses need to select the appropriate term based on their logistics management capabilities and risk and cost absorption abilities.
Pros and Cons of CIF and EXW for Global Businesses
CIF (Cost, Insurance, and Freight):
- Pros:
- The seller assumes all responsibilities until the goods are at the destination port, reducing risks for the buyer.
- It provides a sense of security to buyers as insurance for the goods in transit is covered by the seller.
CIF simplifies logistics for the buyer since the seller handles all arrangements for transport. - Buyers can plan their costs better as most of the cost components are factored into the initial price.
Cons:
- The seller might choose a carrier or insurance that may not be the most cost-effective or reliable, given that their responsibility ends at the port of destination.
- CIF can potentially lead to higher prices as sellers may factor in a margin for handling transport and insurance.
- Lack of control over logistics for the buyer could lead to potential delays if the seller doesn’t manage the shipping process effectively.
EXW (Ex Works):
Pros:
- The seller has minimal responsibility, which can reduce administrative overhead.
- The buyer has full control over the shipping process, which can allow for better logistics management and potentially lower costs.
- There are no obligations on the seller to load the goods on the collecting vehicle, reducing their labor and potential damage risks.
- Buyers can choose the type and extent of insurance they want for their goods, providing flexibility.
Cons:
- Buyers bear all risks and costs once the goods have been made available at the seller’s premises, which can potentially increase their liabilities.
- The responsibility for completing all export documentation and formalities lies with the buyer, which can increase their administrative tasks.
- Any delays or issues in transportation affect the buyer directly.
- The lack of obligation for the seller to load the goods might increase the workload and responsibilities for the buyer.
How CIF and EXW Determine the Fate of Your Shipment
CIF (Cost, Insurance, and Freight) and EXW (Ex Works) are two Incoterms that significantly influence the trajectory of your shipment in international commerce. In CIF, the seller assumes all costs, including insurance and freight, until the goods arrive at the destination port. This Incoterm tends to offer more predictability in terms of costs and timing because the seller manages most of the logistics and bears the risk of loss or damage during transport.
Conversely, with EXW, the buyer shoulders almost all responsibilities, risks, and potential logistical hurdles. The seller’s role is primarily to make the goods available at their location. Thereafter, the buyer must oversee all logistics, including loading, transportation, insurance, and customs clearances, all the way to the final delivery point. Although this gives the buyer greater control over the shipping process, it also exposes them to increased risks and logistical complexities. Therefore, choosing between CIF and EXW can fundamentally impact the outcome of your shipment in terms of costs, risks, and control over logistics.
Concluding remarks
In this article, we tried to provide all vital information for you to know CIF VS EXW. For more and detailed information, you can consult with professionals in this field.
Understanding the intricacies of CIF (Cost, Insurance, and Freight) and EXW (Ex Works) is instrumental in successful international trading. This article aimed to provide a comprehensive overview of these key terms, their implications, and their impact on costs, responsibilities, and shipping operations in global business.
DDPCH
Dear customers
If you need an impressive rate and competitive offer for Door to Door Rail and Trucking service from China to European countries, please contact our Sale Team.
What is the difference between EXW and CIF?
CIF or CRF import freight terms are more expensive than EX works or FOB.
This statement can generally be considered accurate as CIF (Cost, Insurance, and Freight) or CFR (Cost and Freight) terms usually entail more costs for the buyer compared to EXW (Ex Works) or FOB (Free On Board). This is primarily because under CIF or CFR terms, the seller is responsible for arranging and paying for the transportation of goods all the way to the destination port, including the cost of insurance in the case of CIF.
These costs, understandably, are factored into the final price charged by the seller to the buyer, making CIF or CFR more expensive upfront. Additionally, there may be other costs like port charges and terminal handling fees at the destination port under CIF or CFR that may not be immediately visible to the buyer, adding to the total cost.
CIF stands for “Cost, Insurance, and Freight,” which means that the seller is responsible for costs, insurance, and freight to the destination port.
The main difference between CIF and EXW lies in the division of responsibilities: CIF requires the seller to handle costs, insurance, and freight to the port of destination, while under EXW, the buyer assumes all responsibilities from the point of pickup at the seller’s premises.
In CIF, the seller is obliged to arrange a shipping contract at their expense. In EXW, neither the buyer nor the seller is obligated to arrange a shipping contract, but the buyer will usually do so to facilitate transport.
The buyer has more control under EXW as they handle shipping and customs duties, while the seller has more control under CIF as they manage transport to the destination port.
CIF can potentially have hidden costs due to port charges and terminal handling fees at the destination. EXW usually does not have hidden costs as the buyer is in control of the shipping process.
No, under EXW terms, the buyer arranges and pays for shipping.
Under CIF, the seller is responsible for damage until the goods have been loaded onto the ship. Under EXW, the seller’s responsibility ends once the goods are available for pickup at their premises.
CIF costs are less transparent due to additional charges like port fees and terminal handling charges at the destination. EXW costs are more predictable since the buyer controls the entire shipping process.
CIF can potentially have hidden costs due to port charges and terminal handling fees at the destination. EXW usually does not have hidden costs as the buyer is in control of the shipping process.
In a CIF agreement, the seller bears all risks until the goods are loaded on the ship at the port of origin. The buyer then assumes all risks from that point onward.
The buyer has more control under EXW as they handle shipping and customs duties, while the seller has more control under CIF as they manage transport to the destination port.