A trade term used in international commercial transactions, Cost, Insurance, and Freight (CIF) is an Incoterm specifically designed for sea and inland waterway transport. It outlines the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. The Incoterms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) relating to international commercial law. Incoterms define the responsibilities of exporters and importers in the arrangement of shipments and the transfer of liability involved at various stages of the transaction. They are widely used in international commercial transactions or procurement processes and their use is encouraged by trade councils, courts and international lawyers. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the global or international transportation and delivery of goods.
How CIF Works
Under CIF, the seller assumes a greater share of the responsibility than under FOB, as they are required to arrange and pay for the costs and freight, as well as minimum insurance to bring the goods to the destination port. The seller is responsible for everything until the goods reach the destination port named in the contract. However, there is a split in responsibility that often surprises new importers:
- Seller Pays: Export clearance, loading, ocean freight, and minimum maritime insurance.
- Risk Transfer: Even though the seller pays for the freight, the risk of loss or damage transfers to the buyer the moment the goods are safely on board the vessel at the origin port.
- Buyer Pays: Import duties, taxes, unloading at the destination port, and onward transport to the final warehouse.
Why Choose CIF?
For Buyers: It’s more "hands-off." You don't have to deal with international freight forwarders or insurance companies in the seller's country. For Sellers: It allows more control over the shipping process and can sometimes be used as a small profit center if the seller can negotiate better freight rates than they charge the buyer.
Insurance Requirements
CIF requires the seller to provide insurance. Under Incoterms 2020, this is only required to be "minimum cover" (Clause C). If the buyer wants more comprehensive insurance, they must negotiate it separately.
