Home / Freight resources / CIF Incoterm (Cost, Insurance and Freight) - Use and Meaning
What is the CIF Incoterm (Cost, Insurance, and Freight)
Incoterms 2010 dictates that the CIF Incoterm, or “Cost, Insurance and Freight”, is exclusive to maritime shipping.
Under CIF, the seller is responsible for the cost and freight of bringing the goods to the port of destination specified by the buyer.
CIF risk transfer takes place when the merchandise is loaded onto the shipping vessel and is recommended for situations in which the seller is able to access the vessel directly, such as in the case of bulk cargo shipping. This makes CIF unsuitable for containerized cargo.
Seller’s obligations under the CIF Incoterm
- Delivery of goods and documents required
- Packaging and wrapping
- Inland transport in the country of origin
- Customs handling fees at origin
- Origin charges
- International freight
- Insurance
Buyer’s obligations under the CIF Incoterm
- Payment of goods
- Destination charges
- Customs handling fees at destination
- Inland transport at the destination country
- Payment of duties and taxes
CIF insurance
Under CIF, the seller is contractually obliged to provide insurance for the transport of the goods. Together with CIP, these are the only two Incoterms that stipulates that insurance must be provided by the seller.
In common practice, the CFR Incoterm is often preferred by buyers if they are able to secure better cargo insurance coverages. This is because unlike CIF, insurance isn’t a seller’s obligation under CFR and can also be acquired by the buyer.
CIF unsuited for containerized cargo
Unlike some other Incoterms, the risk transfer point of the CIF Incoterm is not the same point as the cost transfer point. With CIF, risk is transferred only when the goods are loaded on board the ship at origin.
This makes CIF unsuitable for containerized cargo, which is usually dropped off at terminal days prior to loading. This creates a grey area during which cargo could unknowingly suffer damages.
Given the nature of containerized cargo, which remains unopened until destination, it would be nearly impossible to know when merchandise gets damaged in the event that it does. When dealing with containerized cargo, CIP is the recommended alternative to CIF.
If you’re not sure if the CIF Incoterm is the right way to go, we recommend getting a free copy of our ebook on how to choose the best Incoterm. Alternatively, you may contact us. Our import and export consultants will be glad to help you with selecting the best Incoterm for your shipping needs.
FAQs
With CIF, the seller covers the freight and insurance costs to deliver the goods to the buyer's port. This means the exporter handles transportation to the port, loading, ocean freight, and cargo insurance during the journey.
What is the meaning of CIF cost insurance and freight? ›
Cost, Insurance, and Freight (CIF) is one of the 11 Incoterms® rules set by the International Chamber of Commerce. It's an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer's order while the cargo is in transit.
What is the insurance coverage for CIF Incoterms? ›
The insurance coverage for the shipment should be at least 110% of the value of the cargo detailed per the sales contract. Having seen the CIF abbreviation and its meaning, let us understand the terms and the roles and responsibilities of the buyer and seller.
What does CIF mean in Incoterms? ›
When goods are bought or sold via “Cost, Insurance, and Freight” (CIF) it means that the Seller is responsible for delivery of the goods to a ship, loading the goods onto the ship, and insuring the shipment until it reaches the port of destination.
What are CIF Incoterms costs? ›
Under CIF, the buyer must pay:
- all costs relating to the goods from when they have been “delivered” (meaning loaded on board the vessel for CIF), other than those payable by the seller, and.
- any duties, taxes and other costs for transit or import clearance, where applicable.
Under CIF, the seller is responsible for covering the costs, insurance, and freight of the buyer's shipment while in transit. The buyer is responsible for any costs once the freight has reached the buyer's destination port.
Who buy insurance in CIF? ›
Under CIF (short for “Cost, Insurance and Freight”), the seller delivers the goods, cleared for export, onboard the vessel at the port of shipment, pays for the transport of the goods to the port of destination, and also obtains and pays for minimum insurance coverage on the goods through their journey to the named ...
How to calculate insurance for CIF price? ›
To calculate CIF accurately, one must grasp three fundamental components: the cost of the goods, the expenses associated with insuring the goods, and the freight or shipping charges. The CIF value is calculated by the formula CIF = C+I+F.
What type of insurance is CIF? ›
CIF is an appropriate Incoterms® rule for transport by water of bulk and general cargo. The transfer of costs and risk takes place at different times. Seller must take out transport insurance.
What are the disadvantages of CIF? ›
One of CIF's main disadvantages is that the seller can only use it for specific types of international trade. This means sellers must ensure they obtain the right shipping policy for the entire cargo journey. Another disadvantage of CIF is that it might be hard for the buyer to take out a claim if anything goes wrong.
CIF Incoterms will usually define the beneficiary as the seller, and if your shipment is damaged, you may only find out after the container is unloaded, and you have paid the final amount to your seller. In that event, the seller completed the transaction and the insurance claim would go to the seller, not the buyer.
What is the risk of CIF incoterm? ›
Under CIF, the seller bears the risk of loss or damage to the goods until they are delivered at the port to the first carrier. However, once the goods are delivered and unloaded at the port, the buyer assumes all risks.
How does CIF work? ›
Under CIF contracts, the seller assumes responsibility for costs and liabilities until the goods are loaded onto the vessel at the port of origin. From that point onward, the risk and responsibility transfer to the buyer.
What are the examples of freight insurance? ›
There are different types of freight insurance policies including cargo insurance, marine insurance, shipping insurance, transport insurance, and transit insurance. All these policies cover merchandise and goods against loss or damage during transit from one location to another.
Which is cheaper CIF or FOB? ›
Compared to FOB, CIF comes at a higher cost for buyers: sellers invoice buyers to cover costs of shipping and insurance. As mentioned, sellers can add additional fees for the service to make a larger profit. Therefor using CIF provided by the seller ends up costing more for the buyer.
What is the CIF price? ›
The c.i.f. price (i.e. cost, insurance and freight price) is the price of a good delivered at the frontier of the importing country, including any insurance and freight charges incurred to that point, or the price of a service delivered to a resident, before the payment of any import duties or other taxes on imports or ...
What is CIP cost, insurance, and freight? ›
The term “carriage and insurance paid to (CIP)” signifies that the seller will pay freight and insurance when sending goods to a buyer's representative at a mutually agreeable location. The seller must insure the goods being sent for 110% of their contract value.
What does CIF stand for in insurance? ›
Cost, Insurance and Freight (CIF)
How to calculate Cif price? ›
To calculate CIF accurately, one must grasp three fundamental components: the cost of the goods, the expenses associated with insuring the goods, and the freight or shipping charges. The CIF value is calculated by the formula CIF = C+I+F.
