Incoterms: CIF – Cost, Insurance and Freight

July 19, 2006 by SwizStick  
Filed under Education, Incoterms 2000

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CIF

CIF – Cost, Insurance and Freight – is a very commonly used incoterm. This is another incoterm that officially is not supposed to be used for air shipments, but I have seen its usage in both air and ocean shipments. Officially CIF is only to be used for ocean or inland waterway transport. CIF is basically the same as CFR except that it includes insurance as well as cost and freight.

In CIF, the seller/exporter arranges for the goods to be delivered to the named port of destination. However, unlike CFR, the seller’s risks do not end until the moment the goods have passed the ship’s rail at the named port of destination. The seller is responsible for all costs until the goods have been unloaded at the named port of destination. In this case, the named port of destination is domestic to the buyer, meaning that the named port must be a port in the buyer’s country. For example, if I was exporting cherries to Thailand and the port of destination was Laem Chabang, I would sell it based on “CIF Cost, Insurance and Freight Laem Chabang, Thailand”.

Under CIF terms, the seller’s risks end the moment the goods pass the ship’s rail at the named port of destination, but the seller is responsible for all costs up to the named port of destination :
Seller’s Responsibilities:
1) Produces the goods and commercial documents as required by the sales contract.
2) Arranges for export clearance and all export formalities.
3) Arranges and pays for all costs for the transportation of the goods up to the named port of destination.
4) Assumes all risk to the goods (loss or damage) only up to the point they have been carried to the port of destination and ends the moment the goods pass the ship’s rail at port of destination.
5) Seller must advise the buyer of the location and time that goods have been delivered onto the named vessel.
6) Seller has to provide the buyer with transport documents that will allow the buyer to take possession of the goods at the named port of destination.
Buyer’s Responsibilities:
1) Buyer must pay for the goods as per the sale contract
2) Buyer must obtain all commercial documentation, licenses, and authorizations required for import and arrange for import clearance and formalities at own risk and cost.
3) Buyer takes delivery of the goods after they have been delivered by the seller to the named port of destination.
4) Buyer must assume all risks for the goods from the time the goods pass the ship’s rail at port of destination to delivery into the buyer’s warehouse or other specified location. SPECIAL NOTE: While the seller is obligated to insure the goods and is legally responsible for the goods up to the port of destination, the buyer may have a vested interest in the goods during the voyage. It may be a wise decision for the buyer to purchase additional insurance coverage in the case of a loss.
5) Buyer pays for all costs of transportation, import customs formalities and duty fees, and all other formalities and charges related to the transportation of the shipment from the time the goods have been delivered to the named port of destination.
6) Buyer would accept the seller’s transport documents provided they conform with the sales contract and will allow the buyer to take possession of the goods after arrival at the named port of destination.

This interpretation is provided as a guide only.

Incoterms are published by the International Chamber of Commerce and are available on their website and official publication “Incoterms 2000″. For a complete and official overview please refer to the ICC’s publication.

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