CIF stands for Cost, Insurance and Freight, a commercial rule under incoterms 2020 wherein the expenses are borne by the seller -- from delivering goods and bearing settlement charges for carriage and insurance till the designated port. CIF Incoterm cannot be used for air, rail and road transit.
CIF cannot be used for air transport. The use of CIF is restrained to sea and inland water transportation, and it is generally used in the case of bulk cargo and non-containerised goods, or when the seller has direct access to the vessel for loading the goods.
Under CIF shipping terms, the seller stays responsible till the goods are loaded onto the shipping vessel; post that the risk and responsibility moves from the seller to the buyer.
What are the CIF Shipping Terms?
Terms in a CIF arrangement are as follows:-
- In the CIF terms, the place of destination is acknowledged by both parties.
- The seller is responsible for transit and freight till the importing country’s port.
- The loading of goods at the terminal port is the seller’s responsibility.
- The processing duty after the goods reach the destination port rests with the buyer.
Transportation The seller is responsible for transporting the goods to the importing country’s port.
Delivery Terms In CIF, the seller is responsible for delivering goods cleared for export and onboard the shipping vessel at the port of shipment. They are liable to contract the freight needed to bring the cargo to the named destination port.
Loading/Unloading The loading of goods at the terminal port is the seller's responsibility. The seller has to bear the fees for loading and shipping goods to the port.
Documents The seller has to provide the buyer with the following documents:
- Bill of Lading
- Commercial Invoice
- Insurance Certificate
- Packing List
- Export License
- Ocean Bill of Lading
Costs borne by Seller The seller is liable for payment charges such as maintenance of goods, inland transit, agent’s fees for handling the logistics division, terminal charges, loading charges, custom clearing charges, coverage charges, ocean freight charges, and damages.
Customs Clearance The seller is responsible for paying off any duties and clearing the goods for customs when they are shipped from its country.
Freight Charges The seller is responsible for the freight charges as they provide the freight necessary to bring the consignment to the named destination port.
Insurance The seller bears the premium charges for insurance to cover for risk or damage to goods while in transit.
Transfer of Risk As the transit process is carried out by the seller, from the point of origin to the target port, the risk of goods resides with the seller for this duration.
Transportation The buyer is responsible for arranging the cargo's transportation to the destination.
Delivery Terms The buyer has to arrange for inland transit to take the goods to his warehouse or factory from the port.
Loading/Unloading The buyer is responsible for unloading the goods at the place of destination.
Documents The seller provides all the necessary documents, and the buyer pays in exchange for a bill of lading which provides information on products to be sold, insurance policy, etc.
Costs borne by Buyer The buyer assumes all responsibilities after the goods reach the destination port, so the cost-bearing aspect for the buyer comes at this stage. Charges for import duty and taxes, unloading, and transferring to owned site rest with the buyer. Also, if the buyer has requested the seller to contribute his assistance in import proceedings/documentation, then the buyer has to refund the value to the seller.
Customs Clearance The buyer is responsible for customs clearance at the destination port. Thus, he is also accountable for import duties and charges. the insurance policy -- at their choice, they can either take the insurance coverage and security measures for goods from the destination port till his owned location or ask the seller to arrange for insurance for the entire process and later refund him for the part of charges that weren’t a part of his responsibility.
Freight Charges The buyer has no obligation to the seller to take responsibility for freight from the point of origin to the place of destination. The buyer's responsibility begins from the destination port and only then has to bear all charges and freight-related responsibilities.
Insurance For transit from the destination port to the buyer's location, the buyer has to pay for insurance themselves. However, they can ask the seller to arrange for insurance for the entire process and later give them a refund for the charges that weren’t the seller’s responsibility.
Transfer of Risk Once the seller loads the goods on the shipping vessel bound for the importer’s country, the risk is transferred to the buyer from that time onward. If the buyer fails to instruct the seller regarding the destination port, the buyer bears the damage and loss.
When to use CIF Incoterm?
A seller should use CIF when he holds expertise in local customs and can handle the charges incurred in CIF for freight and insurance at more economic rates as compared to the buyer. In retrospect, a buyer should not use CIF if it is more expensive than making the shipping arrangements through a freight forwarder of his choice.
Example of CIF Incoterms
An exporter, company A from Texas signs a contract with the importer company B in Finland, to ship their goods from the US to Finland. The nominated place of shipment from both parties is the port of Houston. A delivers the goods cleared for export onboard the vessel at the Houston port. A must pay for the transportation and arrange for insurance coverage of the consignment till the voyage to the nominated port. From there, the risk is transferred to company B.
Key Differences with other Incoterms
CIF vs FOB
Under CIF the seller is responsible till the goods are loaded onboard the vessel and he also pays for the freight and insurance charges, while in incoterms FOB the seller is only responsible for getting the goods loaded onto the vessel and is not responsible for freight and insurance charges.
CIF vs CIP
CIF and CIP are quite similar, except for one key difference which is that CIF can only be used for goods shipped via ocean freight and CIP can be used for all modes of transport. Also, under CIP the risk of goods gets transferred at any agreed upon location at the place of shipment (in the country of origin) and under CIF the risk transfers after the goods are loaded onto the vessel.
CIF vs CFR
The key difference between CIF and CFR is, under CIF the seller is required to pay for the cost of marine insurance which provides protection against any damage to the goods being shipped, rest everything remains the same.
FAQs on CIF Incoterms
Is CIF for sea freight only?
Yes, The CIF Incoterm is only used for sea freight. It not used in case of air/rail/road transit.
Who pays for unloading under CIF?
As per the rules under CIF, the seller will pay for all the unloading and loading charges till the nominated place of port and the buyer will remain liable for the unloading charges at the terminal port & costs thereafter.
What is CIF value?
CIF value is the total cost incurred by the seller which he should consider when he quotes his price to the buyer under a CIF trade deal. While calculating CIF value or cost, a seller should consider the cost of making or processing the goods, maintaining and packaging as well as the cost which will be incurred in covering the insurance and freight for shipping and unloading the goods.
What is CIF delivery?
CIF delivery is a shipping term under CIF according to which the seller is accountable for delivering the goods till the destination port and the buyer has to arrange for inland transit to take the goods to his warehouse or factory from the port.
Does CIF include duty?
CIF includes duty and charges, where the seller assumes responsibility for export customs proceeding and the buyer for import customs.
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