CIF stands for Cost, Insurance and Freight, wherein the expenses are borne by the seller, from delivering goods and carrying settlement charges for carriage and insurance till the designated port. CIF cannot be used for air, rail and road transit.
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.
Also Read : Incoterms 2020, Importance in International Trade and Changes
CIF Shipping Terms
Process for CIF Incoterms is 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.
Seller’s Responsibilities
Cost
Under the incoterm CIF -- 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 & so on & so forth -- these are the costs included in CIF for the seller.
Risk Transfer
As the transit process is carried out by the seller, from the point of origin to the target port, the CIF risk of goods resides with the seller for this duration. Once the seller loads the goods on the shipping vessel bound for the importer’s country, from that time itself the risk is transferred to the buyer.
Destination
CIF destination is the nominated harbor that can be a commonly acknowledged place by both parties. Mostly, it’s the port of the importer’s country. The seller, at his own worth, must carry out the freight proceedings till the destination port. Likewise, the seller is accountable to provide all the mandatory documents to the buyer.
Documents
The seller has to provide the buyer with following documents:
- Bill of Lading
- Commercial Invoice
- Insurance Certificate
- Packing List
- Export License
- Ocean Bill of Lading
Freight
The freight rule in CIF specifically states that the seller handles the responsibility for freight. The process starts from loading of goods in the truck, taking them till the port, looking after customs clearances and carrying out the ocean freight shipping process, and lastly loading the goods onto the shipping vessel bound for the importer's province. The seller pays for all freight charges incurred during this entire process in CIF.
Duty & Insurance
Ubder CIF the seller pays for insurance of goods and He also handles duty charges and export customs proceedings. The seller, at his own expense, has to carry out the shipping process and bear all the charges for licensing and security permits. In CIF export business, the seller has to insure the goods during transit as the liability of goods stays with him, but at the buyer’s request for insuring goods after, he can free himself of getting insurance at the nominated port after handing over all the necessary documents.
Buyer’s Responsibilities
Cost
In CIF, 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 and unloading and transferring to owned site rests with the buyer. Also, if the buyer has requested the seller to contribute his assistance in import proceedings/documentations, then the buyer has to refund the value to the seller.
Risk Transfer
The risk of goods is transferred from the seller to the buyer once the goods are loaded onboard by the seller, i.e., after carriage. The damage uncertainty and duty of goods thus move to the buyer. If the buyer fails to instruct the seller regarding destination port, the damage and loss is borne by him.
Destination
As discussed, the CIF destination port being the importer's country’s port, the buyer will be liable for charges at the place of destination. The buyer must educate the seller with all the necessary details about the port, and the seller must hand over all the transport and shipping documents to the buyer.
Documents
The buyer must acquire the documents provided by the seller at the destination port.
Freight
Under the cost insurance & freight rule, the buyer has no obligation to the seller to take responsibility for freight from the point of origin to the place of destination. Only once the responsibility of the buyer begins, from the destination port, does the buyer have to bear all charges and freight related responsibilities.
Duty & Insurance
CIF does include import duty -- wherein the buyer is responsible for customs clearance at the destination port, thus he is also accountable for import duties and charges. Again, the insurance policy -- at his choice he 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.
Difference between CIP, CIF, CFR, and FOB
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.
Does CIF include insurance?
Since the incoterm itself is - Cost Insurance Freight, this means that insurance coverage is an important aspect of a trade deal under CIF. For a seller, CIF does include bearing premium chaarges for insurance to cover for risk or damage to goods while in 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, mantaining and packaging as well as the cost which will be incurred in covering the insurane and freight for shipping and unloading the goods.
What is CIF delivery?
CIF delivery is a sipping 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.
What does CIF destination mean?
CIF destination is the destination port or importer's country's port where the risk of goods is moved from the seller to the buyer.
Vanita D'souzaJun 9, 20207 min read