During this interval, the goods are technically under the buyer’s risk but not yet covered by the insurance purchased by the seller. This gap highlights a potential vulnerability for the importer, suggesting that CIF agreements may require careful consideration or additional insurance for certain types of shipments. CIF agreements delineate specific points at which the seller’s responsibilities for costs and risks shift to the buyer, which is essential for both parties to comprehend. Once the goods have reached the buyer’s port of destination, the buyer assumes costs and liabilities for unloading and delivering the shipment to the final destination. That’s because CIF is generally used in shipments of lower-value goods than CIP. Incoterms 2020 rules outline whether the seller or the buyer is responsible for, and must assume the cost of, specific standard tasks that are part of the international transport of goods.
- EXW (Ex Works) places nearly all responsibility on the buyer, including export formalities and documentation.
- Ensuring that the goods are properly packaged and labeled for international shipping falls under the seller’s purview.
- I frequently write and speak on export documentation, regulations and compliance issues.
- Sea freight is best for large loads while air freight works well for urgent or smaller orders.
The timely delivery notice from the seller (as required by Article A10 of CPT, Incoterms® 2020) allows the buyer to be aware that it has assumed risk for the goods and organise insurance accordingly. Under CIF terms, the Brazilian supplier is responsible for covering the costs, insurance, and freight needed to get the coffee beans safely to Genoa. This means the supplier pays for the transportation of the goods across the ocean, including insurance to protect against loss or damage to the cargo until it reaches the port specified in the sales contract. If you are involved in cross-border trade, you will undoubtedly understand the importance of selecting the right international shipping agreement. Making the right choice can greatly impact your business’s bottom line, affecting insurance coverage, risk management, and cost efficiency. Besides, you will have a clear understanding of who pays for what and when.
The seller must arrange and pay for the transportation of goods from their premises to the port of origin. The Incoterm permits a wide range of usage but should never be used in containerised cargo and is only applicable for sea and inland waterway journeys. Under the Carriage and Insurance Paid To (CIP) Incoterm, the seller must pay for the freight and obtain insurance to the named destination. The seller is also responsible for loading goods onto the vessel at the designated destination. Additionally, a buyer should not agree to CIF if it is more expensive than making arrangements through their own freight forwarder or if better cargo insurance coverages are available.
Export Clearance and Departure Costs
- Another difference between CIF and CIP lies in the level of insurance coverage.
- This includes bills of lading, insurance certificates, and any other relevant documents that demonstrate compliance with the CIF agreement.
- CIF and EXW represent opposite ends of the spectrum in terms of seller and buyer responsibilities.
- Transfer of RiskWith CIF, the seller has responsibility for the goods until they pass the ship’s rail at the destination port.
- Under CIF Incoterms, these roles are clearly defined to avoid any ambiguity.
- Free Carriage Arrangement (FCA) places more responsibility on the buyer than CIF does.
Cost, Insurance, and Freight (CIF) is a widely used shipping term that benefits both buyers and sellers by clarifying responsibilities and simplifying the logistics process. For sellers, it offers a predictable pricing structure and the assurance that goods will be insured during transit. For buyers, CIF ensures that goods are covered for risks during the shipping journey, minimizing uncertainties in international trade. It’s important to recognise situations where CIF might not be the best fit. For instance, in the case of containerised or bulk cargo shipping, there could be a delay between when goods are prepared for shipment and when they are actually loaded onto ocean freight or inland waterway transport.
Risks and Costs for the Seller
I frequently write and speak on export documentation, regulations and compliance issues. If you are regularly involved in international trade, you need to understand the risks and responsibilities as defined by Incoterms 2020 rules, not just pick the term you always use. Incoterms 2020 also made changes to the insurance coverage requirements under CIF agreements.
Understanding CPT (Carriage Paid To)
The buyer must handle all import clearance procedures and pay any applicable VAT, duties, and taxes. Finally, it is important to note that some countries don’t permit CIF imports, and some authorities require a local insurance policy. CIF should be used if the seller is knowledgeable about their local customs and can handle export duties accordingly. If a situation arises and a claim needs to be made, the buyer is entirely responsible for making the insurance claim with the seller’s insurance company. The risk transfer point in CIF is different from the cost transfer point.
Incoterms 2020 CIF: Spotlight on Cost, Insurance and Freight
Use DCL’s national footprint of warehouses to distribute your inventory across the country to reduce transit times and save on shipping costs. If you need fulfillment or shipping support and want to partner with DCL Logistics, we’d love to hear from you. CIF is just one of many Incoterms available for international trade.
These terms allow you to deal directly with the carrier; documentation, bills of lading, and all the information needed for letters of credit originate from a single place. Additionally, using C-group terms gives you more negotiation power, especially if you book a lot of freight. The risk or liability for the goods transfers from the seller to the buyer as soon as the goods are loaded upon the vessel before the international carriage takes place. 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 or marked in a specific manner.
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 cost insurance and freight meaning in transit. It follows the same procedure as the Cost and Freight (CFR) Incoterms® rule, but the seller must also provide insurance coverage in case of loss or damage to the goods during the transportation.
Once the original insurance policy covering the freight has been purchased, the seller can add the cost to the sales invoice for the buyer to cover. CIF is generally used if there is bulk cargo or non-containerised goods. It is also primarily used when the seller has direct access to the vessel for loading the goods. Additionally, charges could be a little higher than anticipated because of variations in shipping restrictions in some nations.
Typically, the insurance will be an original insurance policy covering just that transaction. Additionally, the insurance coverage should be in the same currency as the contract. CIF relates to the value of goods sold up until the port of destination. CIP relates to the carriage and insurance that’s paid up until the port of destination. However, under the CIF agreement, the risk transfer comes at a different time and point compared to the cost transfer. All of these details will be outlined in the contract, and they will specify when the liability of the goods will transfer from the seller to the buyer.
It is crucial for both parties to maintain clear documentation and proof of delivery. This includes bills of lading, insurance certificates, and any other relevant documents that demonstrate compliance with the CIF agreement. If history is any indication, the Incoterms 2020 rules will be around for at least a decade.