Within the concept of CIF (Cost, Insurance, and Freight), the seller is responsible for delivering the goods that have been cleared for export along with paying for the transport of goods from the port to the destination. In addition to this, the seller also receives and pays for minimum insurance coverage on the products during their journey from the given port.
During the entire process, the buyer can assume all risks once the goods are on board the main carriage for transportation. However, the buyer is not expected to bear any costs until the freight arrives at the destination port.
CIF is known to apply only to inland waterways or ocean transport of goods. It is usually utilized for overweight, oversized, or bulk shipments. In case the freight is stored in the container and delivered only at the terminal, CIP is leveraged in this scenario. Let us understand the meaning of CIF in freight transportation.
What is CIF in Shipping?
CIF (Cost, Insurance, and Freight), serves as a shipping Incoterm: Cost, Insurance, and Freight agreement. Within the scope of this agreement, the seller is responsible for all three aspects, including costs, insurance, and freight. During an international purchase, the seller exports the goods and ships them to reach the destination port. At the same time, it is also the responsibility of the seller to make sure that the cargo is insured throughout the journey.
Upon shipping within the regulations of the CIP Incoterm, the transfer of goods starts when the freight is effectively onboard the ship. However, the seller is expected to pay subsequent freight charges along with fulfilling the respective shipment insurance. This implies that the seller is expected to incur all the costs linked with transporting the goods until they arrive at the destination port.
On the other hand, the buyer takes charge of completing the import process while bearing the costs linked with clearing the goods through customs and delivering the products to the final destination.
Understanding the Buyer and Seller Responsibilities with CIF Agreements
Seller Responsibilities
When the seller quotes CIF as the Shipping Incoterms, they take full responsibility for shipping and exporting the goods until the goods arrive at the destination port. Once the products are loaded on the ship safely, the buyer will eventually be responsible for the cargo.
Some more responsibilities to consider are:
- Export packaging: The buyer is expected to make sure that the goods are packaged properly to be ready for export. For instance, some nations require particular markings on the products or packaging.
- Loading Charges: These are costs associated with loading the goods onto the first carrier from the warehouse of the seller.
- Delivering to the Destination Port: This includes all transportation costs related to delivering the products from the warehouse of the seller to the destination port.
- Fulfilling Export Duty, Customs Clearance, and Taxes: These feature customs expenses linked to transporting the cargo from one country to another. During customs examination, the seller is responsible for fulfilling these expenses.
- Insurance: Under the scope of CIF Incoterms, the seller is expected to obtain insurance on the shipment until it reaches the destination port.
- Carriage Loading: Charges related to loading the goods on the vessel.
- Carriage Charges: The total freight cost to transport the goods from the origin port to the destination port.
Buyer Responsibilities
Once the shipment has been loaded onto the vessel, the seller will transfer the shipment along with all risks to the buyer. Some more responsibilities to consider are:
- Terminal Charges at the Destination: Also referred to as DTHC or Destination Handling Charges, these are costs associated with unloading the cargo from the shipment at the destination port.
- Delivering the Shipment: It involves organizing the freight to be transported from the port to the final destination.
- Unloading at the Destination: Upon arrival at the destination, the buyer is expected to bear any cost associated with unloading the goods from the truck.
- Customs Clearance, Import Duty, and Taxes: These include all import requirements, like taxes, customs duty, and import duty. In case there is some issue with customs clearance, the seller is responsible for resolving this problem.
When is CIF Used in Shipping?
CIF is typically used when the seller will have direct access to the shipment. These also include non-containerized goods. The seller bears costs and obligations for the transportation of the goods to the destination port, the loading of the shipment on the vessel, and customs clearance.
The respective risk eventually transfers from the seller to the buyer once the goods have been onboarded on the vessel. However, the seller is also responsible for arranging and paying for insurance of goods to reach the desired port. This insurance is capable of covering 110 percent of the goods’ value as specified in the sales contract while covering the goods at the delivery point.
When NOT to Use CIF
As the risk transfers from the seller to the buyer upon the loading of goods on the vessel, CIF should not be used to transport containerized goods. This is because it becomes challenging to analyze the exact damage caused to the goods inside the container. At the same time, CIF shipment is more suitable for bulky and heavy items.
Conclusion
CIF (Cost, Insurance, and Freight) is a widely used international trade term that outlines the responsibilities of the seller and buyer in a shipping transaction. By understanding the core of CIF, businesses can minimize risks, improve their supply chain operations, and ensure smooth international trade.
