Cost Insurance and Freight (CIF) Explained: What Does Cost Insurance and Freight (CIF) Incoterm Mean?
Cost insurance and freight (CIF) is an Incoterm used in international trade, where the seller is responsible for getting products from their country of origin to the port of destination and paying for them.
Shipping and insurance costs are already built into the price, but the buyer is responsible if they get lost or broken. CIF is often used in maritime trade, where products are sent from one place to another by boat.
What Are Incoterms?
Incoterms are a group of international business terms that tell buyers and sellers what their responsibilities are in international trade. They were created by the International Chamber of Commerce (ICC) in 1936 and have been updated from time to time to keep up with changes in how business is done around the world.
Incoterms are a standard set of rules for how products should be delivered, how risk should be transferred, and how costs should be split between buyers and sellers.
They are meant to stop misunderstandings and disagreements that can happen in international trade by making it clear what each party’s duties and responsibilities are.
At the moment, there are 11 Incoterms, each of which has a three-letter code. EXW (Ex Works), FOB (Free on Board), CIF (Cost, Insurance, and Freight), and DDP are the most common Incoterms (Delivered Duty Paid).
What Does Cost Insurance and Freight (CIF) Mean?
CIF is an Incoterm that is used in international trade. It stands for “Cost, Insurance, and Freight.” CIF is a deal between a buyer and a seller in which the seller is responsible for getting the products from their country of origin to the port of destination named by the buyer and paying for them.
In a CIF contract, it is also the seller’s job to get and pay for sea insurance to cover the products while they are being shipped. The insurance coverage is usually at least the minimum level required by the Institute Cargo Clauses (ICC), which are a standard set of insurance terms used in international trade.
Shipping and insurance costs are already built into the price that the buyer pays for the goods. Once the goods are put on the ship, the buyer is responsible if they get lost or broken.
CIF is often used in maritime trade, where products are sent from one place to another by boat. But it’s important to remember that CIF only pays for shipping and insurance costs up to the port of destination.
The buyer is in charge of getting the products through customs, paying any import duties and taxes, and making sure they get from the port to their final destination.
What Is the Seller’s Responsibility for Cost Insurance and Freight (CIF)?
Under the Cost Insurance and Freight (CIF) Incoterm, the seller has several responsibilities, including:
Delivery of goods
The seller is in charge of getting the goods to the shipping port, which is usually in the seller’s own country. The goods must be packed and put on the ship in the right way.
Payment of freight
The products must be shipped from the port of shipment to the port of destination, which is named by the buyer. The seller must pay for the freight costs. Most of the time, the cost of shipping is built into the price of the goods that the buyer pays.
Procurement of insurance
The goods must be covered by marine insurance, which the seller must get and pay for. Institute Cargo Clauses say that the insurance policy must cover at least the minimum amount (ICC).
Export clearance
The seller is in charge of getting any export licenses or permits and taking care of any customs paperwork needed for the goods to leave the country.
Documentation
The seller must give the buyer the necessary shipping documents, such as a bill of lading, an insurance policy, and a commercial invoice, so that the buyer can take possession of the goods when they arrive at the port of destination.
What Is the Buyer’s Responsibility for Cost Insurance and Freight (CIF)?
It’s important to note that the buyer’s responsibility begins once the goods are loaded onto the shipping vessel and ends once the goods have been cleared through customs and delivered to their final destination. Under the Cost Insurance and Freight (CIF) Incoterm, the buyer has several responsibilities, including:
Payment of the price
The price of the goods, which includes the cost of the goods, shipping, and insurance, must be paid to the seller by the buyer. Most often, the price is paid before the products are sent.
Payment of destination charges
The buyer is responsible for paying any charges that occur after the goods arrive at the port of destination. This may include customs duties, taxes, and other charges related to the import of the goods.
Taking delivery of the goods
The buyer must take ownership of the items at the port of destination and make plans for any storage, handling, or transport of the goods from the port to their final destination.
Inspection of the goods
When the goods arrive at the port of destination, it is the buyer’s job to check them over and let the seller know about any damage or problems.
Completion of customs formalities
The buyer must take care of any customs paperwork needed to bring the goods into the country. This includes getting any licenses or permits that are needed.
Incoterms and Cost Insurance and Freight (CIF)
Cost Insurance and Freight (CIF) and Free On Board (FOB)
CIF, which stands for “Cost, Insurance, and Freight,” and FOB, which stands for “Free on Board,” are both Incoterms that are used in international trade to figure out what buyers and sellers have to do. The main difference between the two is when the buyer becomes responsible for the goods and the seller is no longer responsible for them.
Under CIF, the seller is in charge of setting up and paying for shipping to the port of destination chosen by the buyer. The seller is also responsible for getting and paying for marine insurance to cover the goods while they are in transit.
Once the goods have been loaded onto the ship at the port of origin, the buyer is responsible for them and takes on the risk of loss or damage to the goods while they are in transit. Once the goods are on the ship, the seller is no longer responsible for them.
Under FOB, the seller is responsible for getting the goods to the port of shipment. Once the goods are loaded onto the ship at the port of origin, the buyer is responsible for them. The buyer is responsible for paying for freight, insurance, and any other costs related to getting the goods to the port of destination.
The buyer is also responsible for any costs that come up after the goods get to the port of destination. Once the goods are on the ship, the seller is no longer responsible for them.
In other words, under CIF, the costs of shipping and insurance are covered by the seller until the goods reach their final destination port. Under FOB, the costs of shipping and insurance are covered by the buyer once the goods are loaded onto the ship.
Who Should Use Cost Insurance And Freight (CIF)?
Cost insurance and freight, or CIF, is a term that is often used in international trade when the seller wants to give the buyer a full package of goods and transportation. CIF is often used in industries like bulk commodities, oil and gas, and international transportation where goods are shipped by sea.
CIF can be a good choice for buyers who want to reduce the chance that the goods will be lost or damaged during shipping. Since it is up to the seller to set up and pay for marine insurance to cover the goods while they are in transit, the buyer can rest easy knowing that their investment is safe.
CIF can also be a good choice for buyers who don’t want to deal with setting up and paying for their own shipping and insurance.
On the other hand, CIF might not be the best option for buyers who want to have more control over how the goods are shipped and insured.
Since the seller is in charge of setting up shipping and insurance, the buyer may have less freedom to choose the shipping or insurance company. Also, the price of the goods may include the cost of shipping and insurance, which could make the price higher than if the buyer had set up these services on their own.
In the end, the choice of which Incoterm to use in a trade transaction depends on the needs and preferences of each party. Before making a choice, it’s important to think carefully about the risks and costs of each option.
Which Incoterm Is Best For Your Business?
You should know the most common Incoterms used in international shipping contracts if you want to know what your responsibilities are and avoid taking unnecessary risks. But if you’re still not sure what you need to start doing business around the world, you can always ask Forceget for help.
Forceget tells exporters and importers that they should choose the Incoterm that best fits their needs because they are experts in international shipping.
