It’s specifically beneficial for those who want to make transportation as simple as possible. Hence, from this point, the buyer is responsible for the organization, insurance, and any other charges that occur, including import duties. In short, FOB provides the buyer with much more flexibility when it comes to choosing a freight carrier and discussing rates. When it comes down to international trade, both CIF and (Free on Board) FOB are two of the most frequently used and, of course, compared terms. They are both recognized under the Intercoms 2020, and they lay out a clear set of rules on cost, insurance, risk, and responsibility.

Suitable for Long-Distance Shipping

These are terms used by the business community and cargo transport operators in the sale and the subsequent transport of goods by land, sea, or air. 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. Buyer’s Input on InsuranceThe buyer is not obligated to insure the goods but must provide any information the seller needs to arrange additional insurance (if requested). Plus, the seller does have to arrange insurance, but you might well need to discuss in detail exactly how much coverage is required.

The buyer assumes all risk once the goods are on board the vessel for the main carriage; however, they don’t take on any costs until the freight arrives at the named port of destination. ❌ If the buyer wants full control over freight and insurance.❌ When shipping high-value goods, as CIF only includes minimum insurance.❌ If the buyer has access to better shipping rates. The contract terms of Cost, Insurance and Freight will define when the liability of the seller ends and that of the buyer begins. It is similar to Free on Board (FOB) shipping with the primary difference being who is responsible for bearing the expenses up to the point of loading the product onto the transport vessel. However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place.

While they are both used only for maritime and inland waterway shipments, they differ in other key aspects. Yes, under CIF Incoterms (Cost, Insurance, and Freight), the seller is generally responsible for choosing the insurance provider. The seller must arrange marine insurance to cover the goods during transit to the designated port of destination.

CIF and DDP are both Incoterms used in international trade, but they allocate costs and risks very differently. They cannot choose the shipping company or route, which might lead to longer transit times or less efficient shipping methods. Additionally, there may be potential hidden costs not covered in the CIF price, such as local handling fees, which can add unexpected expenses.

The ICC and Cost, Insurance and Freight

By having a clear understanding of the terms and conditions of the sale, buyers and sellers can help to reduce the risk of disputes and ensure that the shipping process runs smoothly and efficiently. The buyer’s responsibilities in CIF include clearing customs and paying any applicable duties or taxes on the goods. The buyer must also ensure that they comply with all relevant laws and regulations in their country, including those related to customs clearance and taxation. By fulfilling these responsibilities, the buyer can help to ensure that the goods are received safely and efficiently.

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As an example, let’s say Best Buy has ordered 1,000 flat-screen televisions from Sony using a CIF agreement to Kobe, a Japanese port city. Sony has delivered the order to Kobe and loaded it onto the ship for transport. Once loading has been completed, the risk of loss is transferred from Sony to Best Buy. In return, Sony has purchased insurance and pays the freight and shipping costs until the ordered goods reach the buyer’s port of destination. Deliver happens in the port of cost insurance and freight meaning loading, the risk for seller ends at the port of discharge and must acquire insurance coverage.

How CIF Works

• However, insurance for the cargo and paying for freight remain the seller’s responsibility.
• Overall, the use of CIF is an important part of international trade, as it provides a clear and concise way to calculate the total cost of shipping goods.
• If you are involved in cross-border trade, you will undoubtedly understand the importance of selecting the right international shipping agreement.
• After the goods arrive at the destination port, the buyer handles unloading, customs clearance, and any further transport.

There are seven Incoterms 2020 rules for any type of transport and four Incoterms rules for sea and inland waterway transports. Cost, Insurance, and Freight (CIF) is an Incoterm used in an international shipping to determine which party is liable during the transport of cargo overseas or via a waterway. If the freight is containerized and delivered only to the terminal, use CIP instead. If using CIP instead, insurance coverage defaults to all-risk; however, the parties may negotiate a lower coverage requirement. Navigating the vast waters of global trade can be a tumultuous journey, especially when cultural misunderstandings and communication breakdowns threaten the shipment process.

Advantages of CIF Delivery Option

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. Landed cost is the total cost of getting goods from the seller to the buyer’s location, including all expenses up to the destination port. Under CIF (Cost, Insurance, and Freight) terms, this includes the price of the goods, freight charges, insurance, and any other costs incurred during transit. To calculate the landed cost, simply add the CIF price to any additional expenses such as import duties, taxes, and handling fees at the destination port. 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.

• In addition, the bill of lading may include other relevant details, such as the weight and measurement of the goods, and any special handling instructions.
• It’s important to note that under CIF, the risk passes to the buyer once goods are loaded onto the ship at the port of shipment.
• If using CIP instead, insurance coverage defaults to all-risk; however, the parties may negotiate a lower coverage requirement.

Let us study the various advantages of the concept of cost insurance and freight contract in detail. The seller must deliver the goods aboard the ship within the agreed-upon time frame. They must also give the buyer sufficient notice of delivery and provide proof of delivery and loading. Buyers should be aware of the customs duties and import regulations of the destination country. These can vary significantly and impact the overall cost of the transaction. Destination PortCIF is used when goods are shipped to a specific destination port, whereas FOB is used when goods are shipped from a specific port of origin.

What is the Difference Between CIF and FOB Incoterms?

CIF is exclusively used for sea and inland waterway transport and cannot be used for air freight. In this example, the CIF price includes the cost of goods, freight charges, and insurance costs. The total landed cost is calculated by adding import duties, taxes, and handling fees to the CIF price.

The seller covers all transport costs to the buyer’s destination port, insurance for the shipment through its final delivery. The risk is transferred as soon as the goods are loaded on board the vessel i.e. are loaded onto the ship. The seller is required to purchase minimum insurance coverage complying with the Institute Cargo Clauses (C) in the buyer’s name in the case of damage or loss. While CIF freight terminology offers convenience, it is not always the most cost-effective or flexible choice. Because the buyer assumes risk once the goods are loaded and on board the vessel, yet the seller is responsible for arranging transport and insurance, buyers may face limitations and hidden costs.