International commercial terms, or Incoterms represent a series of laws and regulations related to import and export activities. Being the fundamentals of international trade and business, incoterms are used by almost all governments, and it is essential to know them.
There are a variety of incoterms, but we will focus on CIF (Cost, Insurance & Freight) in this article. CIF incoterms simplify the shipping process by offering multiple advantages to buyers. It can also be a good and cost-efficient option for sellers, especially if they have a significant network. What exactly are CIF incoterms, what do they entail, and when do you use them? Let’s find out!
What does CIF mean?
Incoterms are published by the International Chamber of Commerce (ICC), which revises and updates them every ten years.
CIF stands for Cost, Insurance and Freight. This incoterm is commonly used for maritime transportation and inland waterway transport.
When using CIF, the seller bears all costs for the transportation of the goods from the origin point to the destination port. He also has to provide insurance coverage for the items.
On the other hand, the risks of loss and damages to goods transfer from the seller to the buyer once the cargo is onboard the ship at the exporting port. The buyer is then responsible for the rest of the process.
All in all, CIF incoterm defines a clear framework for both the seller and the buyer, making it an attractive option for the shipping process.
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What are the buyer’s and the seller’s responsibilities with CIF?
Let’s take a closer look at the responsibilities of both parties.
Seller’s obligations under CIF:
- Complete the packaging and labeling of goods;
- Load goods onto a local carrier (truck, van, etc.) and pay the fees associated with this process;
- Transport and deliver goods to the shipping terminal;
- Handle the export clearance, which includes export duties, taxes, and customs clearance;
- Remove goods from the local carrier and load them onto the cargo transport, then pay the Origin Terminal Handling Charges (OTHC);
- Pay freight charges and freight insurance related to the import activity.
Buyer’s obligations under CIF:
- Transfer items to local transportation once they arrive at the destination port and pay the Destination Terminal Handling Charges (DTHC);
- Deliver and unload goods at the final destination;
- Handle the import clearance, which includes import duties, taxes, and customs clearance.
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When to use CIF Agreement?
CIF Agreement can only be used for sea and inland waterway transport. It’s often employed for a Full Container Load.
Using CIF incoterm is interesting for importers who are not used to working with a specific export country, or for new importers since the process is easier for them. There are also fewer risks, as they are equally shared with the other party. For the seller, using CIF means better control over the logistics process.
You should opt for CIF Agreement in the following scenarios:
- The seller is certain to make higher margin profits despite all the costs related to the transportation of goods and the insurance;
- The seller has a good network and enough experience to have access to competitive freight rates and make the process cost-efficient for both him and the buyer;
- The trade relationship can be trusted, especially for the seller’s sake, as there are risks that the buyer might back out of the agreement or engage in deceitful behavior.
FAQ | CIF incoterms: Meaning, terms and conditions
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