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Do you regularly take part in international trade or deal with foreign entities? There are lots of rules and regulations that surround what you can ship, how you can ship it, and where you can ship it to. The two are part of a larger group of international trade rules known as Incoterms. These global guidelines for traders were devised by the International Chamber of Commerce (ICC), with the first version published in 1936.

It is one of the many terms included in the Incoterms rules established by the International Chamber of Commerce (ICC). In this article, we will provide an in-depth understanding of CIF, including its definition, how it works, its advantages, and considerations for international trade. CIF (Cost, Insurance, and Freight) requires the seller to cover cost, insurance, and freight to the destination port, whereas the DDP (Delivered Duty Paid) includes all fees, risks, and duties until the goods reach the buyer’s premises. As also highlighted above, they delineate the responsibilities and risks between purchasers and merchants during the transportation of goods across the sea or inland waterways.

• The seller not only covers the cost of goods, freight, and insurance but also handles all import duties, taxes, and delivery to the final destination.
• In both cases—CIF and CIP—the insurance should cover, at a minimum, 110% of the value of the goods as provided in the sales contract.
• This means the supplier pays for the transportation of the goods across the ocean, including insurance to protect against loss or damage to the cargo until it reaches the port specified in the sales contract.
• Also, any transportation, inspection, and licensing costs as well as the cost to transport the goods to their final location are the buyer’s responsibility.
• The transport document must cover the contracted goods within the agreed period for shipment.
• There are 11 Incoterms® rules in total, and CIF – standing for cost, insurance and freight – is one of four that relate only to waterbound transportation.

This means that while the merchant arranges and pays for transportation and insurance, the importer assumes responsibility for the goods once they are aboard the ship. If damage occurs during transit, the buyer will initiate an insurance claim with the seller’s insurance company. Cost, Insurance, and Freight (CIF) is an international trade term that denotes the seller’s responsibilities in the shipping process. Under a CIF agreement, the seller is obligated to arrange and pay for the transportation of goods by sea and procure insurance coverage against the buyer’s risk of loss or damage during transport.

What is Cost, Insurance and Freight (CIF) Shipping Incoterm?

CIF is different from cost and freight provision (CFR) whereby sellers are not required to insure goods in transit. CIF transactions are subject to various laws and regulations, both domestic and international. These laws govern the obligations of the buyer and seller, the terms of the insurance contract, and the carriage of goods. The freight cost depends on various factors, including the mode of transport (sea, air, rail, or road), the type of goods, and the distance between the ports.

Over the years, the International Chamber of Commerce (ICC) has made changes to the terms and guidelines for international trade. In 2020, the ICC made adjustments to the rules, (called Incoterms 2020), which in part, made changes to security requirements for shipments. Moreover, CIF is unsuitable for all modes of transport; it is designed primarily for sea and inland waterway transport. CIP relates to the carriage and insurance that’s paid up until the port of destination.

In a CIF agreement, the seller is responsible for arranging and paying for the transportation of the cost insurance and freight meaning goods from their location to the specified port of destination. This includes selecting the mode of transport, securing necessary documentation, and covering the costs involved. Additionally, the seller is responsible for purchasing insurance coverage for the goods during transit, protecting both parties in case of unforeseen events. The seller is responsible for arranging and paying for transportation to the port of destination. While the seller pays for transportation and insurance to the port of destination, the risk for the cargo transfers to the buyer the moment the shipment is loaded on the vessel. The seller is responsible for all costs related to exporting the shipment from the country of origin.

Under a Cost, Insurance, and Freight (CIF) agreement, who is responsible for insurance?

CIF is an international trade term used to denote the responsibilities of parties involved in shipping goods. It is one of the Incoterms (International Commercial Terms) established by the International Chamber of Commerce. Under CIF, the additional stipulations require that Company A purchase insurance for the goods being transferred. The insurance is to cover the loss or damage to the goods during the carriage.

Customs Support

At the destination port, the buyer assumes the handling and customs costs. The CIF shipping term means that the seller is obligated to cover the cost, insurance and freight transport of goods to the named port of destination. The seller is responsible for clearing the goods for export, providing any type of documents or export licenses required for transport and packing the goods for transport. The buyer is responsible for unloading the goods at the port of destination, as well as for clearing the goods for import. Cost, insurance, and freight (CIF) is an international shipping agreement used when freight is shipped via sea or waterway.

Comparing CIF with Other Incoterms

For instance, in the case of containerised or bulk cargo shipping, there could be a delay between when goods are prepared for shipment and when they are actually loaded onto ocean freight or inland waterway transport. Incoterms® (or International Commercial Terms) are essential terms of international trade that define the rules and responsibilities of sellers and buyers. Understanding which Incoterms® rule to use for shipping your cargo is crucial to avoid unforeseen costs or unnecessary risks. Learn more about the meaning of Cost, Insurance, and Freight (CIF), when to use it – and when not to use it. In this example, the CIF price includes the cost of goods, freight charges, and insurance costs. The total landed cost is calculated by adding import duties, taxes, and handling fees to the CIF price.

CIF is similar to carriage and insurance paid to (CIP), but CIF is used for only sea and waterway shipments, while CIP can be used for any mode of transport, such as by truck. For instance, the seller may agree to bear all costs until the goods reach the destination port, while the buyer may agree to pay upon receipt of the shipping documents. It offers limited flexibility for buyers with little control over the insurance and shipping arrangements. There may also be potential hidden costs, such as high insurance premiums or freight charges.

• CIF should be used when the seller has direct access to the vessel for loading, including non-containerised goods.
• In this, a seller will need to arrange and pay for expenses for the transportation of goods to the export port mentioned in the sales contract.
• The extra shipping fees between the seller and the buyer can be minimized by using the CIF method.
• This includes any extra paperwork required for customs or inspections or any rerouting that must be done during transport.
• Once the goods are loaded onto the vessel, the risk of loss or damage is transferred from the seller to the buyer.
• The added responsibility for insurance places a significant burden on the seller, and misunderstandings or oversights in the agreement can lead to disputes and financial complications.

A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. CIF transactions require careful documentation, including commercial invoices, bills of lading, and certificates of insurance. Furthermore, CIF streamlines documentation, as the seller is responsible for providing all necessary documents.

The buyer bears all risks of loss or damage to the goods once the seller has delivered them as described in A2. Let’s use an example where an electronics retailer orders 1,000 computers. They order from a manufacturer utilizing a CIF agreement to be delivered to a foreign port.