Table of Contents
- What Is Cost, Insurance, and Freight (CIF)?
- Key Takeaways
- How Cost, Insurance, and Freight (CIF) Works
- Seller's Responsibilities
- Buyer's Responsibilities
- Transfer of Risk
- Special Considerations
- CIF and the ICC
- Incoterms 2020
- Cost, Insurance, and Freight (CIF) vs. Free on Board (FOB)
- Free on Board (FOB)
- Example of CIF
- What Does CIF Mean in Shipping Terms?
- Does CIF Include Duty?
- When Should I Use CIF?
- The Bottom Line
What Is Cost, Insurance, and Freight (CIF)?
Let me explain Cost, Insurance, and Freight (CIF) directly: it's a shipping agreement where the seller handles the costs, insurance, and freight for your order when cargo moves via waterway, sea, or ocean. Once the goods are loaded onto the vessel, the risk of loss or damage shifts from the seller to you, the buyer. But the seller still pays for insurance and freight.
Key Takeaways
Under CIF, you as the buyer take on import costs and final delivery once goods hit your destination port. If cargo gets damaged in transit, you file the claim with the seller's insurance company. CIF resembles Carriage and Insurance Paid To (CIP), but CIP applies to any transport mode, like trucks or autos, not just water.
How Cost, Insurance, and Freight (CIF) Works
The terms in a CIF contract set when the seller's liability ends and yours begins. You use CIF only for overseas shipping or via waterways. The seller pays for the cost and freight to get goods to your port. Exporters with ship access often choose CIF, but you have duties too, which I'll outline.
Seller's Responsibilities
As the seller under CIF, you cover export licenses, product inspections, shipping and loading fees to your port, packaging for export, customs clearance, duties, and taxes for exporting. You also pay for shipping via sea or waterway to the buyer's port, insure the shipment up to that point, and cover any damage or destruction costs. Deliver the goods to the ship on time and provide proof of delivery and loading.
Buyer's Responsibilities
Once goods arrive at your destination port, you handle importing and delivery costs. This includes unloading at the terminal, transferring within the terminal to the delivery site, custom duties for importing, and charges for transporting, unloading, and delivering to the final spot.
Transfer of Risk
In international shipping, risk and cost transfer points vary by agreement. Under CIF, risk transfers differently from costs. The contract details dictate when liability shifts. Costs transfer when goods arrive at your port since the seller pays shipping, freight, and insurance. But risk moves to you when goods load onto the vessel. You own the goods then, and if damaged, you claim with the seller's insurance, even though they bought it.
Special Considerations
CIF might not suit all situations, like containerized cargo that sits waiting before loading. You'd bear the risk without insurance during that wait, so avoid CIF for such shipments. Remember, CIF differs from Cost and Freight (CFR), where sellers don't insure goods in transit.
CIF and the ICC
CIF is an Incoterm from the International Chamber of Commerce (ICC), established in 1936 to govern international trade responsibilities. These terms resemble domestic ones like the U.S. Uniform Commercial Code but apply globally. Contracts must specify governing law. ICC limits CIF to inland waterways or sea. Their definition: the seller delivers goods on board or procures them so, risk passes on board, seller pays costs and freight to destination, and contracts for insurance against buyer's risk. Buyers note minimum cover; arrange more if needed.
Incoterms 2020
The ICC updated rules in 2020, adjusting security and insurance for CIF. Sellers now need higher-level insurance than under 2010 rules. There are seven Incoterms for any transport and four for sea/inland waterways.
Cost, Insurance, and Freight (CIF) vs. Free on Board (FOB)
CIF and FOB are international agreements, but they fit different scenarios based on your trade experience. In CIF, the seller covers cost, insurance, and freight for sea shipments. Possession transfers to you on loading, but seller handles insurance and freight charges until your port, including export customs, duties, and taxes. You pay import fees, taxes, customs, transportation, inspection, and licensing to final location.
Free on Board (FOB)
Under FOB, the seller delivers and loads onto the ship, covering those costs. Responsibilities shift to you on loading. Seller handles packaging, loading to port, export taxes, duties, and loading charges. You cover freight from seller's to your port, optional insurance, unloading, delivery to final spot, import duties, taxes, and customs. FOB types vary, and insurance can be negotiated.
Example of CIF
Say Best Buy orders 1,000 TVs from Sony via CIF to Kobe. Sony loads them on the ship, transferring risk to Best Buy. Sony pays insurance and freight to destination. If a fire damages them en route, Best Buy claims on Sony's insurance.
What Does CIF Mean in Shipping Terms?
CIF is for sea or waterway freight: seller covers costs, insurance, and freight in transit; you handle costs after arrival at your port.
Does CIF Include Duty?
Seller pays export duties from their port; you pay import duties at your port.
When Should I Use CIF?
Use CIF for ocean or waterway shipping if you want to avoid insurance, freight, and full responsibility hassles.
The Bottom Line
CIF outlines seller's duties for shipping costs, freight, and insurance via ocean or waterway, protecting you from damages until your port, where you take over. It differs from CFR (no insurance) and others like FOB. Understand these terms fully before international trade.
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