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What is Cost, Insurance and Freight (CIF) in shipping?

Under the CIF shipping agreement, charges related to Cost, Insurance, and Freight are borne by the seller when goods are transported via sea. Learn more about it in the blog.

Running a successful export business starts with understanding various shipping terms – an important step in the export procedure. Every business needs to have a clear vision of the various steps involved when goods are being transported across the border using one or more modes of transport. Buyers and sellers can form shipping agreements as per their needs to ensure a seamless process. One of the most used shipping agreements is Cost, Insurance, and Freight (CIF) – an agreement where the seller is responsible for cost, insurance, and freight charges until goods reach the destination port specified by the customer.

What is Cost, Insurance and Freight (CIF)?

Cost, Insurance, and Freight (CIF) is one of the 11 Incoterms® rules established by the International Chamber of Commerce to standardize international trade terms. CIF is an international shipping agreement where the seller bears the costs, insurance, and freight of a buyer's order while the cargo is in transit.

This Incoterm is predominantly used for sea, ocean, or waterway transportation. Under CIF, the seller is responsible for delivering the goods to the port specified by the buyer in the sales contract, covering all expenses up to that point.¹

Responsibilities of sellers under CIF

Some of the responsibilities of a seller under CIF include:

· Procuring export licenses for goods being exported.
· Getting inspection done for goods, if required.
· Paying charges or fees related to shipping and loading goods at the seller’s port.
· Paying any costs related to packaging.
· Paying fees related to customs clearance, taxes, and duties related to export of products.
· Paying costs related to freight and insurance from the seller’s port to the customer’s port of destination.
· Covering any costs related to damage or destruction to goods during transit.²

Responsibilities of buyers under CIF

In a CIF agreement, the buyer's obligations usually begin when the goods reach the designated port of destination. Some key responsibilities include:
● Product unloading at the port terminal.
● Moving the goods from the terminal to the delivery location.
● Costs for customs duties and other related costs when importing products.
● Fees associated with loading, unloading, and delivering the merchandise to its destination.³

When to use CIF Incoterms?

CIF should be used when the seller has direct access to the vessel for loading, including for non-containerized goods. It is particularly suitable for long-distance maritime shipments where the seller is responsible for the costs and liabilities of transporting goods to the named port, loading them onboard, and clearing the export duties.

In CIF, the seller also arranges and pays for insurance for the goods being transported, up to the point of delivery. This makes CIF an appropriate choice for many international commerce operations, as it simplifies the shipping process for buyers. However, CIF might not be ideal for expensive, urgent items or transactions where buyers prefer more control over the shipping procedure.⁴

Advantages of CIF Incoterms

Some of the advantages of using CIF in international shipping are as follows:

1. Transparency and lower risk:

CIF lowers the possibility of disagreements between buyers and sellers by clearly outlining costs and duties.

2. Insurance coverage:

Under CIF, the seller is responsible for providing insurance coverage for the goods during transit. This protects the buyer in the event that the items are damaged or lost during transit.

3. Long-distance shipping:

CIF is usually used when shipping goods over long distances by sea as it simplifies the logistics and planning involved in such journeys.

4. Fixed expenses:

CIF allows buyers to accurately determine the cost of goods, which enables better financial planning.⁵

Example of Cost, Insurance and Freight Incoterm (CIF)

Let us consider an example to understand how CIF can be applied in international shipping. Let's say that a furniture retailer in London has ordered 500 custom-designed chairs from a manufacturer in Bangkok. The order has to be delivered to a port in the UK and the parties have used a CIF agreement to secure the transaction. The manufacturer in Bangkok arranges for the chairs to be delivered to the port and ensures they are loaded onto a ship bound for the UK. Once the chairs are loaded onto the vessel, the risk of loss transfers from the manufacturer to the retailer. The manufacturer also purchases insurance and covers the freight and shipping costs until the chairs reach the destination port.

During the voyage, the ship encounters a severe storm, and some of the containers, including the one carrying the chairs, sustain water damage. Because a CIF agreement was in place, the London retailer can file an insurance claim to recover the cost of the damaged chairs.

CIF vs FOB: What's the difference?

CIF and Free on Board (FOB) are two different types of shipping agreements. Some of the key differences between the two are as follows:

1. Responsibility of goods

Under CIF, the seller arranges and pays for the freight charges and insurance costs during transportation. However, under FOB, the buyer is responsible for covering the cost of freight and insurance, while the seller covers the cost of the goods and loading them onto the vessel at the port of origin.

2. Risk transfer

In a CIF arrangement, the seller is responsible for goods until they are delivered to the destination port. Once the goods arrive at the port, the buyer assumes responsibility, including handling customs clearance. In contrast, under an FOB agreement, the seller's responsibility ends once the goods are loaded onto the ship at the port of origin. From that point, the buyer takes over all responsibilities and costs associated with the shipment.

3. More control over logistics

With CIF, the seller gets more control over logistics, and can choose their preferred carrier and insurance provider. With FOB, the buyer gets more control over logistics and can opt for the carrier and insurance provider of their choice.⁶

Conclusion

CIF is a crucial Incoterm that outlines the responsibilities and costs between buyers and sellers in international shipping. By defining clear obligations up to the destination port, CIF ensures smoother transactions and mitigates risks for both parties involved. In the evolving landscape of e-commerce, where efficient logistics and cost transparency are paramount, understanding and correctly applying Incoterms like CIF are indispensable for exporters navigating global trade complexities. For more support with e-commerce exports, exporters can leverage the tools and services offered by e-commerce export programs like Amazon Global Selling.

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More blogs on incoterms

1. What is Delivered at Terminal (DAT) incoterm?

2. What is a Cost and Freight (CFR) incoterm?

3. All you need to know about Free Alongside Ship (FAS) incoterm 2020

4. Guide to FCL shipping: Everything exporters need to know

5. What is Carriage Insurance Paid (CIP) in incoterms?

6. What is Freight on Board: How does it work in shipping?

7. What is a Container Freight Station (CFS) and its role in shipping?

8. What are incoterms in exports: Here’s everything you need to know

9. What is a Free Carrier (FCA) incoterm?

10. What is EX Works (EXW) incoterm in international trade?

Frequently Asked Questions

What is CIF payment?

CIF payment involves is charges related to cost, insurance and freight that are paid by the seller to move goods to the destination port of the customer or importer.

Which is better FOB or CIF?

The choice between FOB and CIF depends on factors like cost management and risk tolerance. FOB may offer more control over shipping costs, while CIF shifts responsibility and insurance costs to the seller, simplifying logistics for the buyer.

Is CIF good for the buyer?

CIF is good for buyers that are looking to avoid the hassle of paying costs for freight and insurance for moving the goods.

Who pays for CIF delivery?

The seller is expected to pay for freight and insurance of the goods till the point they reach the destination port.

What is the CIF value in shipping?

CIF value is the price paid to the exporter for goods when it reaches the destination port of the customer.

Does CIF include duty?

CIF includes duty charges that are involved in the process of moving goods to the destination port.

Does CIF include insurance?

Under CIF, the seller is responsible for paying for the buyer's shipment's freight, insurance, and fees during transit.

What does CIF destination mean?

The seller is responsible for the cost, insurance, and freight of the goods until they reach the agreed-upon destination, called the CIF destination.

Published on January 12, 2023.

Sources:
1. https://www.investopedia.com/terms/c/cif.asp
2. https://www.investopedia.com/terms/c/cif.asp
3. https://www.investopedia.com/terms/c/cif.asp#
4. https://www.maersk.com/logistics-explained/customs-and-compliance.
5. https://dclcorp.com/blog/shipping/incoterms-cost-insurance-freight-cif/
6. https://www.clarksons.com/glossary/what-is-the-difference-between-cif-and-fob/

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