Cost, insurance, and freight (CIF) is an expense paid by the seller and requires the seller to cover the costs, insurance, and freight of a buyer’s shipment while in transit to the vessel. The seller contracts and pays for the cost of ocean freight and insurance to move the goods to the port of destination and is required to clear customs at the destination port. Ownership of the freight is transferred to the buyer when the goods are offloaded.
What is CIF?
Under the CIF INCOTERM:
Cost: The seller is responsible for the costs associated with delivering the goods onto the ship at the port of origin. This includes the production cost of the goods, local inland transportation costs, customs procedures, loading charges, and any other fees or charges required to get the goods onto the ship.
Insurance: The seller is also responsible for purchasing insurance coverage for the goods during their sea journey to the destination port. The seller is only required to obtain minimum coverage. If the buyer wants more protection, they will need to make their own arrangements or specify it in the contract.
Freight: The seller is responsible for paying the freight charges to transport the goods to the named destination port. This means arranging for a carrier, negotiating rates, and handling any related documentation.
Under CIF terms, the risk of damage or loss to the goods transfers from the seller to the buyer as soon as the goods have been loaded onto the ship at the port of origin. However, the seller is still responsible for arranging and paying for the transport and insurance to the destination.
To summarize, when CIF is used, the seller is responsible for all the costs, risks, and logistics until the goods are loaded onboard the ship at the originating port. From that point onward, though the seller pays for the insurance and freight to the destination port, the risk is transferred to the buyer. Therefore, the buyer has to handle all logistics, costs, and risks once the goods arrive at the destination port.
It’s crucial for both parties involved in the transaction to fully understand and agree on the chosen INCOTERM, as it significantly impacts the costs, risks, and responsibilities involved in the ocean freight shipping process.