Meaning of Cost, Insurance and Freight (CIF)
- CIF is an ‘Incoterm’ developed by the International Chamber of Commerce. Incoterms are often similar to domestic terms but come with international application.
- CIF is an international shipping agreement that is used in the transportation of goods between a buyer and a seller and differs in who assumes liability for the goods during transit.
- CIF determines when the responsibility of the goods transfers from the seller to the buyer.
- The use of CIF of transport goods is limited to only inland waterways and seas.
- These costs are assumed by the seller and the goods are not considered to be delivered until they are in the buyer’s possession.
- It is similar to carriage and insurance paid to (CIP).
Seller’s Responsibilities Under CIF
- The seller has to purchase export licenses for the product.
- The seller has to cover the cost and contracts of moving or carrying the goods.
- The seller has to purchase insurance to protect the value of the order in its entirety.
- The seller has to provide for inspections of the products.
- The seller must also cover for the cost of any damage or destruction to the goods.
Terms of CIF
- The exporters who have direct access to ships will use CIF.
- seller must deliver the goods to the ship within the time period stipulated in the sale contract.
- The seller's obligation ends once cargo loading is complete. However, the sale contract can stipulate it otherwise.
- The buyer is to pay as per the terms of the sales contract and must cover additional costs of transportation, inspection, and licensing along with customs duties, taxes etc.
Difference Between CIF and FOB
- The responsibility of the seller during the transit of the goods is what distinguishes the CIF and Free on Board (FOB).
- In the former, the seller is to transport the goods and assume the liability and costs associated with successful transit such as insurance and freight.
- FOB, on the other hand, relieves the seller of liability the minute the goods are loaded onto the ship or have “passed the ship’s rail”. The buyer assumes all liability thereafter.
- CIF is more expensive than FOB contracts as in the latter, the buyer can negotiate cheaper price for the freight and insurance with a forwarder of his or her choice.
