Incoterms® (or International Commercial Terms) are essential terms of international trade that define the rules and responsibilities of sellers and buyers. Understanding which Incoterms® rule to use for shipping your cargo is crucial to avoid unforeseen costs or unnecessary risks. Learn more about the meaning of Cost, Insurance, and Freight (CIF), when to use it – and when not to use it.
What is CIF in shipping?
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. 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 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.
CIF only applies to goods transported via sea or inland waterway.
When do you use CIF Incoterms® in shipping?
CIF should be used when the seller has direct access to the vessel for loading, including non-containerised goods. The seller assumes costs and liabilities for the transport to the named port, the loading onboard the vessel, and the clearing of the export. Similar to the Cost and Freight (CFR) Incoterms® rule, the risk transfers from seller to buyer once the goods have been loaded onboard; however, the seller also arranges and pays for insurance for the goods for transportation to the named port. The insurance should cover at least 110% of the value of the goods as provided in the sales contract and cover the goods to the point of delivery.
When should you NOT to use CIF Incoterms® in shipping?
Given that the risk transfers to the buyer once the goods are loaded onto the vessel, CIF (Cost, Insurance, and Freight) should not be used for containerised goods, since it can be difficult to tell exactly when damage has occurred to the goods inside a container. It is more suitable for bulk and breakbulk cargo. In fact, a common mistake with Incoterms® is to use a traditional “sea and inland waterway only” rule such as CIF for containerised goods, instead of the “all transport modes” rule. This can expose the seller to unnecessary risks. Instead, use FCA (Free Carrier), CPT (Carriage Paid To), and CIP (Carriage and Insurance Paid To), which are the correct alternatives as they are meant for containerised freight. CIF Incoterms® should not be used for air or land transportation either.
Incoterms® and the Incoterms® 2020 logo are trademarks of ICC. Use of these trademarks does not imply association with, approval of or sponsorship by ICC unless specifically stated above. The Incoterms® Rules are protected by copyright owned by ICC. Further information on the Incoterms® Rules may be obtained from the ICC website iccwbo.org.
FAQs
CIF is an Incoterm where the seller pays for the cost, insurance, and freight of the goods transported to the buyer's destination port. CFR is an Incoterm where the merchant pays the cost and freight to bring the goods to the buyer's destination port, but not the insurance.
What is CIF cost insurance and freight incoterm? ›
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.
How do you explain CIF? ›
Cost, insurance, and freight (CIF) is an international shipping agreement used when freight is shipped via sea or waterway. Under CIF, the seller is responsible for covering the costs, insurance, and freight of the buyer's shipment while in transit.
What is under the cost insurance and freight Incoterms rule? ›
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.
Who claims the insurance under CIF? ›
Cost, Insurance and Freight (CIF) is an Incoterm rule that is identical to the CFR Incoterm rule except in one aspect: insurance. Even though the risk transfers to the seller upon loading the goods on board the vessel, in CIF, the seller is obliged to take out insurance cover for the buyer's risk.
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.
Who is the buyer responsible for in CIF? ›
The buyer assumes full responsibility for the goods once they are loaded onto the vessel at the port of origin under a CIF agreement. This includes any expenses incurred at the destination port, such as customs fees. CIF is considered an expensive option when buying goods.
How does CIF incoterm work? ›
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.
Who is the beneficiary of CIF insurance? ›
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.
Carriage and Insurance Paid To (CIP) is an Incoterm where the seller is responsible for the delivery of goods to an agreed destination in the buyer's country, must pay for the cost of this carriage, and must take out maximum insurance cover for the buyer's risk.
Who pays terminal handling charges in CIF? ›
THC is paid on the terms of delivery agreed between buyer and seller in their export contract. If contract of terms of delivery is on FOB, CFR, CIF, CPT, DAP, DDU, DDP etc., the THC is paid by the shipper at load port. However the destination port THC need to be paid by the buyer under these types of delivery terms.
Who pays insurance in CFR? ›
As discussed above, the buyer pays for insurance in CFR. He'll be liable for the goods right from the place of origin.
What is the formula for CIF? ›
Figure the shipment's CIF value, by adding the amounts.
(C) Cost (Invoice Value) $10,000. (I) Insurance $1,000. (F) Freight (Shipping) $2,500. = $13,500 (CIF Value)
What is an example of CIF method? ›
Examples of CIF
They order from a manufacturer utilizing a CIF agreement to be delivered to a foreign port. Delivering the order to the port, the manufacturer then loaded the goods onto the ship for transportation. Once loading is complete, the store assumes the risk of loss rather than the customer.
What insurance coverage is required under CIF or CIP Incoterms rules? ›
Insurance Requirements
CIF requires insurance for cargo, CIP does not. Goods under CIP must be insured by both parties; buyer/exporter and seller/importer, but only with respect to the period up until delivery of goods at the destination port.
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 is the CIF value of insurance? ›
Under CIF, the seller is responsible for transport up to the port of destination, export clearance and fees, and minimum insurance coverage up to the named port of destination. The insurance obtained must insure the goods to 110% of their value and provide necessary documentation to the buyer for any insurance claims.
What is CIF transport cost? ›
CIF stands for Cost, Insurance, and Freight. The seller covers all transport costs to the buyer's destination port, insurance for the shipment through its final delivery.
What is an example of a CIF incoterm? ›
CIF Example
Imagine that you're a manufacturer who is responsible for arranging transportation for a shipment of goods from China to the United States. The buyer has agreed to use the CIF incoterm, which means that your company is responsible for paying for shipping, insurance, and freight costs.
