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CIF Incoterms | Cost, Insurance and Freight

In this article, you will understand what CIF Incoterms is and all the aspects it affects, including responsibilities and costs.
CIF Incoterms, cargo ship

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One of the most significant aspects of international trade is the establishment of defined obligations when export a product internationally. When it comes to deliveries over oceans or other big bodies of water, the exporter will define and sign a CIF agreement.

CIF stands for cost, insurance, and freight!

These are specified the duties for the buyer and the seller. You can better use CIF agreement if you are aware of the circumstances under which you are making the deal. It means, you need to be aware of the roles and responsibilities of seller and buyer under CIF. It will help you book more profits.

Let’s dive in to learn more!

What are CIF Incoterms?

CIF Incoterms stands for Cost, Insurance, and Freight.

It is a set of rules made and published by the International Chamber of Commerce (ICC). It is used in international trade to clarify the responsibilities of buyers and sellers involved in the shipping process.

Under CIF terms, the seller delivers goods on board a ship and pays for the freight to transport the goods to the designated destination.

Additionally, the seller must have insurance pay for minimum insurance coverage for the goods during transit.

CIF is designed explicitly for non-containerized sea or waterway transport cases. If you are a buyer or a seller, you need to understand the basics of CIF. This is because CIF determines who bears the costs, risks, and responsibilities from the point of origin to the destination.

Buyer’s Responsibilities under Incoterms CIF

Buyers have more responsibility than sellers in the CIF agreement. Once the goods are shipped, the responsibility of the buyer kicks in.

You must pay the price of the goods as per the sales contract. Your role includes additional insurance if the minimum coverage does not satisfy your needs. It is required if the insurance the seller covers only meets the basic requirements.

It is your responsibility to unload the goods once they reach the port. You have to cover the customs duties per your country’s rules and regulations.

Moreover, you must arrange to transport the goods from the port to your destination.

Seller’s Responsibilities under Incoterms CIF

In a CIF contract, as a buyer, you are responsible for transferring the goods to the port or shipping yard. You are also accountable until the goods are loaded onto the shipping vessel.

This step involves the commercial invoices you must produce during loading, logistics, goods loading, and other legalities. You need to ensure that goods are freighted.

One of the primary duties of a seller is to provide satisfactory insurance. You must obtain insurance against the risk of loss or damage to the goods. You must also provide the buyer with the necessary documents and information to receive the goods from the carrier.

It includes a bill of lading. This bill acts as a receipt of shipment when the goods are delivered to the agreed destination.

What is the difference between FOB and CIF?

If you are involved in international trade, it is essential to understand the difference between FOB (Free On Board) and CIF.

Free on board (FOB) determines the roles of the seller or the buyer. It determines who is liable for the damage during shipping. In international trade, the seller is responsible for transporting the goods to the port and the cost of loading. On the other hand, the buyer is responsible for the costs of ocean freight, insurance, unloading, and transportation from the arrival port to the final destination. Simply put, the seller passes the risk to the buyer when the goods are loaded at the port.

On the other hand, in the CIF agreement, the seller is responsible for paying the cost and freight of shipping the goods to the buyer’s port. Exporters often use this method as they have direct access to ships.

What are the advantages and disadvantages of CIF Incoterms?

There are advantages and disadvantages of every incoterm in international trade. You have to study and find the one that suits you the most.

CIF is no different, as it has its advantages and disadvantages. You need to understand these differences to equip yourself to make better decisions.

Advantages:

  • As a buyer, you do not have to arrange for the shipping or insurance of the goods.
  • The seller is responsible for the goods until loaded onto the ship.
  • The seller also covers insurance.
  • Reduced the risk and effort for the buyer.
  • Predicting the total cost of importing goods is more accessible as the seller is responsible for shipping and insurance.

Disadvantages:

  • Higher costs for buyers
  • Minimal control over shipping as a buyer.
  • You are dependent on the seller’s insurance choices.

When to Use a CIF Agreement?

You must consider several factors before deciding whether you want to use a CIF agreement. These factors include the nature of the goods, specific needs/requirements on both ends, the shipping cost, etc.

Here are a few points you should consider for a CIF agreement:

  • The seller provides freight and insurance, which benefits routers with higher risks due to weather or political instability.
  • If you are an inexperienced buyer, you can go for a CIF agreement, as it puts the least responsibility on buyers.
  • CIF agreement if beneficial when the goods are in bulk or large quantity.

Conclusion

CIF offers a balanced approach to managing the safe transportation of goods from one point to another at international routes. This agreement tilts a bit towards buyers as sellers cover insurance and freight.

However, you need to consider all the points and consult someone who knows better before reaching the final decision.

When you go for CIF, it is essential to outline all the terms and conditions, leaving no room for loopholes or legal complications.

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