UNIVERSITI KUALA LUMPUR

MALAYSIA INSTITUTE OF MARINE ENGINEERING TECHNOLOGY

ASSIGMENT 2

SATISHWARAAN SANDRAKANDAN
(56280112170)

LECTURER NAME : MUNA NORKHAIRUNNISAK BINTI USTADI

SUBJECT

: INTERNATIONAL LOGISTICS (LOB30503)

a) Briefly explain the THREE DIFFERENT PAYMENT OPTION for each F.O.B
Price and Terms of Sales and Responsibilities
First of all, F.O.B. stands for Free On Board and indicates the price for goods
including delivery at the sellers expense to a specified point. In the purchasing world,
F.O.B. is also used with an identified physical location to determine:
a) the responsibility for the payment of the freight charges
b) the point at which title for the shipment passes from the seller to the buyer.
In other words, F.O.B. is a purchasing term that is used between suppliers and
customers. Every vendor and customer should have the F.O.B. requirements specified.
F.O.B. terms identify:
1) whos paying for the freight
2) who owns it at which point.

Below are four different ways in which F.O.B. terms are used in a purchasing agreement:
1) F.O.B. Origin, Freight Collect
2) F.O.B. Origin, Freight Prepaid
3) F.O.B. Destination, Freight Collect
4) F.O.B. Destination, Freight Prepaid

Explanation of Each F.O.B. Term

F.O.B. Origin, Freight Collect: The origin part means that the buyer assumes
title of the goods the moment the freight carrier picks up and signs the bill of lading at the
origin pick-up location. The buyer also assumes risk of transportation, and therefore is

responsible for filing claims in the case of loss or damage. The freight collect part
means the buyer is responsible for the freight charges.
F.O.B. Origin, Freight Prepaid: The origin part means the same as above, but
the freight prepaid part means the seller is responsible for the freight charges.
F.O.B. Destination, Freight Collect: The destination part means the seller
retains title and control of the goods until they are delivered. The seller selects the carrier
and is responsible for the risk of transportation and filing claims in case of loss or
damage. The freight collect part means the buyer is responsible for the freight charges.
F.O.B. Destination, Freight Prepaid: The destination part means the same as
above and the freight prepaid part means the seller is responsible for the freight
charges.
b.

Briefly explain the PAYMENT OPTION for F.O.C Terms of Sales and
Responsibilities.
Goods may be supplied 'free of charge' (value for customs purposes only) for a
variety of reasons (for example gifts, samples, promotional items). Such goods may be
shipped separately or as part of a larger consignment. 'FOC' goods are often of low value.
However, capital equipment, especially 'used' machinery, may also be shipped 'free of
charge' in particular by a head office to a branch or a parent company to a subsidiary. The
equipment concerned may be of high value. The valuation of FOC goods should not be
confused with 'assists' that is, goods supplied 'free of charge' by the buyer for use in the
production of the imported goods.

Replacement goods in the same shipment

With certain types of goods it is trade practice for the sellers to include in their
shipments a quantity of items 'free of charge' as replacements for items which experience

shows are likely to be defective or damaged in transit. Similarly materials somewhat in

excess of the ordered measurements may be sent, for example because the edges are known
to be liable to damage in transit.

In these cases the sale price is to be regarded as covering the total quantity shipped.
No attempt is to be made to value separately the 'free replacements' or to take account of
the additional quantity for valuation purposes.

In a subsequent shipment, where replacement goods are sent 'free of charge' and it
is clear from the contractual arrangements that this shipment is in fulfilment of the original
transaction, the customs value is to be based on the unit price in that transaction. An
adjustment to the customs value of the original shipment is to be considered separately.

Where replacement goods are invoiced at the original unit prices, those prices would
form the basis for determination of the customs value. Any arrangements regarding credit
for the original goods would need to be considered separately.

3.

Briefly explain the PAYMENT OPTION for C.I.F Terms of Sales and

Responsibilities.

The seller, or exporter, is responsible for delivering the goods onto the vessel of
transport and clearing customs in the country of export. The exporter also is responsible
for purchasing insurance, with the buyer (importer) named as the beneficiary.

Risk of loss transfers to buyer as the goods cross the ship's rail. If these goods are
damaged or stolen during international transport, the buyer owns the goods and must file a

claim based on insurance procured by the seller. The buyer must clear customs in the
country of import and pay for all other transport and insurance in the country of import.
CIF can be used as an Incoterm only when the international transport of goods is at
least partially by water. If FOB is the customs valuation basis, the international insurance
and freight costs must be deducted from the CIF price. A CIF transaction will read CIF,
port of destination.

For example, assuming that goods are exported to the Port of Los Angeles, a CIF
transaction would read "CIF Los Angeles."