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

Under 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 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)?

Under the Cost, Insurance and Freight in shipping agreement, the charges related to cost, insurance and freight are borne by the seller when goods are in transit. CIF is mainly used when goods are being transported using sea, ocean or waterways. CIF is a part of the 11 incoterms by the International Chamber of Commerce (ICC). Under CIF, goods are exported to the port specified by the customer in the sales contract¹.

· The seller is expected to bear the cost of any loss or damage to the products when they are in transit.
· The seller is also expected to cover expenses in case goods require any additional inspection, rerouting, custom duties, or export paperwork.

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

Conditions of CIF

Some of the common conditions of CIF are:
· Transferring of cost and risk takes place at different times. The transfer of cost happens when goods arrive at the port of the customer. The risk transfer happens when goods are boarded on the vessel.
· CIF arrangements are well-suited in cases where exporters have direct access to ships.

Difference between CIF and FOB

CIF and Free on Board (FOB) are two different types of shipping agreements. The key differences between the two are²:

Responsibility of goods

The seller is responsible for goods during transit in case of CIF. However, in FOB, the seller's responsibility is over as soon as the goods are loaded and passed from the ship’s rail.

Charges to be paid

The seller is expected to pay charges related to cost, insurance and freight in case of CIF. The customer is expected to pay these charges in case of FOB contracts.

Viability

CIF contracts are usually found to be more expensive as compared to FOB. The customer can negotiate charges related to insurance and freight by selecting a forwarder of their choice.

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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 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?

FOB is a better choice for customers as it gives them more control over the cost being incurred on freight and insurance of the goods.

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.

Published on January 12, 2023.

Sources:
1. https://www.investopedia.com/terms/c/cif.asp#:~:text=Cost%2C%20insurance%2C%20and%20freight%20(CIF)%20is%20an%20international,waterway%2C%20sea%2C%20or%20ocean.
2. https://cleartax.in/g/terms/cost-insurance-and-freight-cif
3. https://www.freightright.com/kb/cif-cost-insurance-and-freight-named-port-of-destination
4. https://economictimes.indiatimes.com/definition/cif

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