Cost, Insurance and Freight

GLOSSARY

CIF (Cost, Insurance and Freight)

Cost, insurance, and freight (CIF) is an Incoterm used to represent that the seller delivers their part of the contract when the goods pass the ship’s rail in the port of shipment. The seller pays the costs and freight necessary to bring the goods to the named port of destination. The risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer.

What is CIF(Cost, Insurance and Freight)?

Cost, insurance, and freight (CIF) is an Incoterm used to represent that the seller delivers their part of the contract when the goods pass the ship’s rail in the port of shipment. The seller pays the costs and freight necessary to bring the goods to the named port of destination. The risk of loss or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer.

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Key takeaways:

In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods.

Use of this rule is restricted to goods transported by sea or inland waterway.

For containerised goods, consider ‘Carriage and Insurance Paid CIP’ instead.

Seller arranges and pays for transport to named port. Seller delivers goods, cleared for export, loaded on board the vessel.

However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place.

Seller also arranges and pays for insurance for the goods for carriage to the named port.

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Seller's obligations under the CIF Incoterm:

Goods, commercial invoice and documentation

Export packaging and marking

Export licenses and customs formalities

Pre-carriage and delivery

Loading charges

Delivery at named port of destination

Proof of delivery

Cost of pre-shipment inspection

Minimum insurance coverage

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Buyer's obligations under the CIF Incoterm:

Payment for goods as specified in sales contract

Discharge and onward carriage

Import formalities and duties

Cost of import clearance pre-shipment inspection

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The difference between CFR (Cost and freight) and CIF (Cost, insurance, and freight):

Cost and freight (CFR) is a trade term that requires the seller to transport goods by sea to a required port. Cost, insurance, and freight (CIF) is what a seller pays to cover the cost of shipping, as well as the insurance to protect against the potential damage of loss to a buyer's order.

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The difference between FOB (Free on Board) and CIF (Cost, insurance, and freight):

The main differences between CIF and FOB lie in who assumes responsibility for the goods during transit. Under a CIF agreement, the seller assumes the costs and risks associated with transport until delivery, which is when the buyer assumes responsibility. With a FOB agreement, the seller transfers all of the risk and costs to the buyer once the shipment is loaded onto the shipping vessel.

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Notes:

Seller only arranges for offloading and transportation to the end destination. The largest part of the costs are controlled by the buyer, so there is a risk of overcharging. Seller may also select options for transportation that are more costly than the buyer would have.

CIF can be used for transportation over water, both overseas and inland. It is used for bulk cargo, oils, and oversized goods. CIF should be used in cases where the seller has direct access to the vessel for loading. In the case of containerized goods, it is better to use Carriage and Insurance Paid (CIP)

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Related Articles:

Related Terms:

CFR