In a CIF agreement, the seller selects the freight forwarder and shipping route, which means the buyer has limited control over these costs. This can sometimes lead to higher expenses, especially if the seller marks up these services. CIF terms consolidate the cost of goods, insurance, and freight into a single price, which simplifies the buyer’s expense management. With a clear understanding of the total cost upfront, they can more accurately forecast their financial outlays and avoid unexpected charges that can arise from transportation and insurance. Sellers are required to bear the cost of freight and insurance before receiving payment from the buyer.
Cost, insurance, and freight (CIF) and free on board (FOB) are international shipping agreements used in the transportation of goods between buyers and sellers. They are among the most common of the 11 international commerce terms (Incoterms), which were established by the International Chamber of Commerce (ICC) in 1936. CIF and FOB are helpful since these shipping agreements outline whether the buyer or seller has the responsibility for the freight during the shipment. These terms are important since they indicate which parties are responsible for insurance, freight charges, and which party is held responsible in the event the goods are damaged during transport.
The contract for carriage and cost implications are dealt with in other articles. The seller delivers by placing the goods on board the vessel on the agreed date, or within the agreed period, or if there is no such time notified then at the end of that period, and in the manner customary at the port. Add cost, insurance and freight to one of your lists below, or create a new one. While CIF does include insurance, the coverage is often minimal and may not cover the full value of the freight. Buyers may need to purchase insurance for more comprehensive protection, adding to the overall cost. The insurance and regulatory requirements that come with CIF terms safeguard the buyer, ensuring that their goods are protected against transit risks such as loss, damage, or theft.
- With a clear understanding of the total cost upfront, they can more accurately forecast their financial outlays and avoid unexpected charges that can arise from transportation and insurance.
- That’s because the seller may use a transport carrier of their choice who may charge the buyer more to increase the profit on the transaction.
- It not only simplifies the buying process for the customer but also adds an extra layer of assurance, making your business more attractive to potential customers.
- This division of responsibility can create confusion and lead to delays in customs clearance.
- That includes the terminal charges upon arrival, the costs of unloading goods from the ship and the costs of delivering the shipment to its final destination.
CIF and CIP are quite similar, except for one key difference which is that CIF can only be used for goods shipped via ocean freight and CIP can be used for all modes of transport. Also, under CIP the risk of goods gets transferred at any agreed upon location at the place of shipment (in the country of origin) and under CIF the risk transfers after the goods are loaded onto the vessel. This insurance is based on the minimum coverage, which is the commercial value of the product, plus 10 %. The seller is also responsible for any export documentation and export licenses if needed.
What is CIF in shipping?
The seller must also take into account the transport of the goods and package them appropriately, unless the parties have agreed in their contract that the goods be packaged and/or marked in a specific manner. Despite having the risk of loss or damage to the goods from the delivery point, the buyer does not have an obligation to the seller to insure the goods. Whether the buyer chooses to insure the goods or bear the risk themselves is entirely their choice.
However as with “Carriage and Insurance Paid To”, the rule only require a minimum level of cover, which may be commercially unrealistic. Therefore the level of cover may need to be addressed elsewhere in the commercial agreement. Your containers will be uninsured and if the goods are damaged while shipped, you’ll have cost insurance and freight meaning to bear the responsibility by yourself. CIF is one of the four terms that can only be used for waterbound shipments, but don’t forget about the seven terms that can be used for any type of shipment. It could be worth checking out CIP instead, which now requires the seller to take out a higher level of insurance.
CFR Video – What is the importance of the new Incoterms® 2020 rules in light of Brexit?
Just as CIF holds particular relevance for sellers, it carries equal weight for buyers. This section will outline the advantages and disadvantages of CIF from the buyer’s perspective. It not only simplifies the buying process for the customer but also adds an extra layer of assurance, making your business more attractive to potential customers. Understanding the division https://adprun.net/ of responsibilities between the seller and the buyer is crucial for smooth international transactions. Under CIF Incoterms, these roles are clearly defined to avoid any ambiguity. J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor.
This basic coverage may not be comprehensive enough for high-value or delicate goods, which are more susceptible to damage. Additional expenses can erode profit margins and complicate the pricing strategy for their products. When the seller assumes responsibility for shipping and insurance, it allows eCommerce businesses to maintain leaner inventories. This is particularly beneficial for small and medium-sized enterprises (SMEs) that may not have extensive warehousing facilities. The main advantage of CIF insurance is that you can file a claim in the event of damages.
How Much Does Ocean Freight Insurance Cost? Calculator
The difference between the two is that CIF requires marine insurance to be included, paid by the seller, that provides protection against any damages to the goods. The seller is still responsible for all arrangements and transport costs for shipping goods to the agreed-upon destination port. The receiver then assumes all cost responsibilities once the goods have been loaded on the vessel.
Access trade, receivables and supply chain finance
CIF insurance is the most popular form of insurance that is offered by all major shipping contractors. CIF ensures you for the full value of your goods from the port of loading to the port of destination. CIF plans can be added to any container order by consulting your shipping forwarder.
In return, Sony has purchased insurance and pays the freight and shipping costs until the ordered goods reach the buyer’s port of destination. CIF is an international agreement between a buyer and seller in which the seller has responsibility for the cost, insurance, and freight of a sea or waterway shipment. Although the possession of the shipment transfers to the buyer once the goods have been loaded on the boat or ship, the seller is responsible for any shipping insurance and freight charges. Under a cost and freight (CFR) agreement, the seller has a weightier responsibility for arranging and paying for transportation the ordered products. For goods shipped CFR, the shipper is responsible for organizing and paying for the shipping of the products by sea to the destination port, as specified by the receiver. In a contract specifying that a sale is cost and freight, the seller is required to arrange for the carriage of goods by sea to a port of destination and provide the buyer with the documents necessary to obtain them from the carrier.
Under a FOB agreement, the supplier assumes responsibility until the goods are loaded onto the shipping vessel. This means they pay for the goods to be transported to the port and onto the vessel. As such, the seller has a limited set of responsibilities under the contract. The buyer assumes full responsibility for the goods as soon as they reach the destination port under a CIF agreement.
It can also offer additional peace of mind regarding the lawful handling of their shipments. In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods. If you place an order for a container from China, the shipping contractor will likely offer you a few options in regards to the Incoterms. Prior to TFG, Deepesh worked at Travelex where he was responsible for the cards business and the Travelex Money app in Europe, NAM, UK and Brazil.
