CIF (Cost, Insurance, and Freight), one of the shipping terms, delineates the obligations between buyers and sellers in international trade transactions. Understanding these responsibilities is pivotal in determining when to opt for CIF in your business.
So today, we will talk about CIF meaning in shipping, its advantages, and essential facets you should know.
CIF meaning in shipping
CIF delivery terms encompass the expenses paid by a seller to account for a buyer’s order, including the insurance and freight costs during the cargo shipment.
Below is the detailed CIF freight meaning:
Cost (C): It refers to the handling costs, including the expenses incurred by the seller until the goods are on the vessel for transportation.
Insurance (I): CIF obligates the seller to obtain insurance coverage for the goods during their journey to the buyer’s destination. This insurance protects against potential risks such as damage, loss, or theft during transit.
Freight (F): It includes the cost of transporting the goods from the seller’s location to the agreed-upon destination port.
CIF and Carriage and Insurance Paid To (CIP) share similarities, but they also have a difference. CIF is only applicable to sea and waterway shipments, while CIP can be used for any shipping mode, such as air freight or truck.
Seller responsibilities
Export packaging
It includes ensuring that the package and marking of the cargo are proper to comply with the export regulations. Ensure the goods are ready for export.
Export clearance
Obtain any necessary export licenses or permits and handle customs formalities required for exporting the goods from their country. They should also pay the customs clearance fees, duty, and taxes (only for exporting).
Insurance
Provide marine insurance coverage for the shipped cargo. The seller must ensure the insurance adheres to the contract terms.
Payment of freight charges
Pay the freight charges for shipping the goods to the destination port. It includes the costs of loading, unloading, and other expenses related to the cargo shipping.
Providing documents
Offer the buyer the essential documents, including the insurance certificate, commercial invoice, and other required ones.
Notification
Inform the buyer about the shipment details, including the vessel’s name, departure date, and expected arrival date. So that the buyer can make the necessary arrangements for taking delivery of the goods.
Buyer responsibilities
Import customs clearance
Handle all import customs processes and pay needed import duties or taxes. They also should obtain the related import licenses for the cargo, ensuring compliance with all import regulations and documentation rules.
If there is a customs inspection or an importation issue, this party is accountable for resolving the matter.
Payment of local charges
Pay local charges or fees associated with the goods after they arrive at the specific port. It may include fees for unloading, storage, Destination Handling Charges (DTHC), etc.
Delivery to destination
Take possession of the goods at the terminal and cover the costs and arrangements for shipping from the port to their final destination. It includes coordinating with local transport providers, if necessary.
Understand the respective responsibilities of both buyers and sellers in CIF terms, preventing disputes during the shipping process. Moreover, it can help to facilitate a smoother international shipping trade.
If you think it is complex, you can hire a reliable shipping expert like Airsupply to handle it on your behalf. We are proficient in various Incoterms covering CIF and will guide and divide what you should do.
Transferring costs and risks in CIF terms
In a CIF shipping arrangement, the transfer of costs and risks happens at distinct time periods.
Initially, the seller bears the cost for the goods while they are in transit to the destination seaport, such as the freight and insurance fees. However, the cost transfer will occur once the product arrives at the buyer’s named port.
On the other hand, the risk transfer signifies a change in liability for lost or damaged items. Under CIF shipping terms, the risk will shift from the seller to the buyer when loading the goods onto the cargo ship before transporting.
It means that while the seller manages shipping costs and insurance arrangements, the buyer addresses related cargo issues in transportation. For example, if the goods sustain damage during transit, the buyer should initiate a claim with the seller’s insurance company.
Cost Insurance and Freight example
Let’s illustrate the CIF terms process with a practical example:
Scenario:
Company A, based in the United States, is a machinery seller. Company B, located in Germany, seeks to purchase this machinery to expand its production capabilities.
Company A and B negotiate the Incoterms, including machinery price and delivery. They agree on CIF shipping terms for the transaction.
As a result, Company A will arrange shipments to Germany. They transport the machinery to the U.S. departure port, load it onto the ship bound for Germany, and secure marine insurance for transit.
While in route, a fire breaks out in one cargo bay, causing damage to the goods. Because of the CIF agreement, Company B can file an insurance claim to cover damaged goods’ costs.
Upon arrival at the specified German port, Company B takes charge of import customs clearance. After the cargo is released, they oversee its unloading and subsequent shipping to its final destination within Germany.
Ready to try CIF shipping? You can contact our online freight experts and get the latest shipping rates based on your logistics needs.
CIF vs. FOB (Free on Board)
FOB terms signify a different arrangement. The seller’s responsibility concludes when the goods are loaded onto the vessel at the port of origin. From that point onwards, the buyer takes ownership, assumes risk, and bears responsibility for transportation costs, insurance, and any issues that may arise during transit.
Generally, the main distinction between CIF and FOB lies in the responsibilities allocation, costs, and risks. CIF places more responsibility on the seller, including insurance coverage during transit, while FOB shifts these responsibilities to the buyer once loading the cargo before shipping.
The choice between CIF and FOB depends on the preferences and negotiations of the parties involved in international trade.
Reasons to choose CIF shipping terms
Seller’s expertise
If the buyer is unfamiliar with the shipping and customs procedures in the departure country, CIF terms can be beneficial. The seller’s responsibility for transportation and insurance simplifies the process for the less-experienced party. Moreover, they may secure favorable shipping rates and insurance terms, potentially resulting in cost savings for both parties.
Minimizing risk for the buyer
CIF terms are advantageous for buyers when they want the seller to take on the primary responsibility for ensuring the goods’ safe arrival. CIF agreements ensure that the seller provides insurance coverage during transit. It is valuable when the goods are expensive, fragile, or prone to damage during transit.
Convenience and simplification
CIF terms simplify the logistics and documentation in international trade for both parties. The buyer does not need to handle shipping arrangements until it arrives at their local port.
However, it’s important to note that CIF terms also have drawbacks. For example, the buyer has less control over the shipping process, and the seller may pass on higher insurance costs. Additionally, the buyer assumes most of the risk.
Therefore, you should consider the specific transaction circumstances when determining CIF and other Incoterms. If you are not sure when to use CIF shipping, consult with our freight forwarding experts. We will customize suitable logistics solutions with appreciated Incoterm tailored to your requirements.
How does Airsupply help you in CIF shipping?
When dealing with international shipping, including CIF terms, Airsupply can streamline your process. They can handle the insurance and transportation at competitive prices for your shipment without hidden costs.
Furthermore, Airsupply’s dedicated warehousing team can ensure your cargo is in the correct package and labels for smooth customs clearance. With their comprehensive guide, you can fully understand the terms and conditions of your shipping agreement.
CIF delivery terms FAQs
Who pays CIF freight?
It is the seller’s obligation to arrange and pay for the transportation of the goods to the destination, ensuring that the buyer receives the goods at the specified location without incurring additional freight charges.
Who pays for unloading under CIF?
In accordance with CIF shipping regulations, the seller is responsible for covering all loading and unloading expenses up to the designated port of arrival. Subsequently, the buyer assumes responsibility for unloading costs incurred at the terminal port and any ensuing charges.
Does the CIF freight term include duty?
No, the CIF shipping term does not include import duties or taxes. Import duties and taxes are separate from the CIF term and are typically the buyer’s responsibility.
Is air freight CIF available?
CIF is intended for ocean and waterway shipments and cannot apply to air freight. Parties interested in using CIF terms for air shipments can opt for CIP (Carriage and Insurance Paid To) instead.
