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.
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.
Charges in CIF
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.
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.
Even controllable costs incurred after the goods have left the possession of the exporter are to be borne by the exporter. Demurrage delay expenses, unloading fees etc are to be borne by the exporter if delays have been caused due to a lack of preparedness from the exporter's side.
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. 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. If the buyer fails to instruct the seller regarding destination port, the damage and loss is borne by him.
Destination of Delivery under CIF
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.
CIF destination is the nominated harbor that can be a commonly acknowledged place by both parties. The seller must carry out the freight proceedings till the destination port. He is also accountable to provide all the mandatory documents to the buyer.
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
Who pays freight in CIF?
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.
CIF Incoterm & Insurance
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 charges for insurance to cover for risk or damage to goods while in transit. For transit from destination port to the buyer's location, buyer has to pay for insurance himself. But he can 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.
Customs Proceedings under CIF
In CIF, the seller is responsible for paying off any duties and clearing the goods for customs when the goods are being shipped from his country. Buyer is responsible for 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.
CIF - 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 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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