Understanding Cost, Insurance, and Freight
What is CIF?
CIF stands for Cost, Insurance, and Freight– a general method of export and import shipping. It is a seller’s expenditure for a buyer’s order-cost, insurance, and freight while it is being transported. Therefore, CIF deals with the transfer of goods’ responsibility from a seller to a buyer. The goods are exported to the port mentioned in the sales contract. The cost of loss or damage to goods is the responsibility of the seller until the goods are entirely laid onto the ship.
Moreover, depending on the product requirements, including export paperwork, added custom duties, rerouting, or inspections, the seller manages such expenses. After the freight loads, the other costs are her responsibility of the buyer. Despite having similarities, CIF is not entirely the same as Carriage and Insurance Paid To (CIP).
The CIF’s contract terms describe when the seller’s liability ends and the buyer’s liability begins. CIF is a traditional method for importers to ship goods and is like the free-on-board shipping. The significant difference lies in the party responsible for the cost until the goods are loaded onto the transport vessel. Moreover, generally, the exporters with direct access to ships use CIF, and as per CIF terms, certain protections for an order is the seller’s responsibility.
What are the seller’s responsibilities?
- Purchase product’s export licenses
- Insurance for protecting the value of the order
- Cover the price and contracts of traveling and carrying goods
- Cover the cost of damage to the goods
- Provide products’ inspections
The seller should deliver products to the ship as per the decided time-frame. Furthermore, the buyer should be informed about the delivery, and the seller must additionally provide proof of delivery and loading. The transfer of liability from the seller to the buyer depends precisely on the contract details. Mostly, the seller is responsible until cargo-loading is over. Notwithstanding, the buyer remains in a misconception that it is the seller’s responsibility until the product reaches the port of import or the ultimate destination.
According to the sales contract, after changing hands, the buyer needs to pay the decided cost and cover any additional inspection, licensing, and transportation charges. Taxes, customs duties, and the shipment of goods to their ultimate location are included in other typical expenses.
Incoterms- trade rules given by the International Chamber of Commerce
These trade rules were established by ICC in 1936 to govern international buyers’ and sellers’ responsibilities alongside the shipping policies. These international commerce terms called Incoterms include CIF and resemble domestic terms like the U.S. Uniform Commercial Code. However, the resemblance is in accordance with global applications. The ICC restricts the use of transport goods’ CIF to the ones who travel by sea or through inland waterways.
Therefore, during carriage, the seller is responsible for any damage or risk of loss until the goods are brought to the port, and getting the insurance for covering the risk of loss or damage. Moreover, apart from the required minimums, insurance needs to be agreed upon between both buyers and sellers or arranged. It is vital to understand that the term only concerns with inland waterway transport and sea.