Key Takeaways
- Seller pays goods, freight, and minimum insurance.
- Risk transfers to buyer once goods load onboard.
- Buyer handles unloading, import duties, and inland transport.
What is Cost, Insurance and Freight (CIF)?
Cost, Insurance and Freight (CIF) is an Incoterm used primarily for sea or inland waterway transport where the seller pays for the goods, freight to the destination port, and minimum insurance coverage. However, the risk transfers to the buyer once the goods are loaded onto the vessel at the origin port, separating costs from risk.
This term combines the value of goods, shipping expenses, and insurance into the total price, making it important to understand each component, especially in relation to cost management and shipping logistics.
Key Characteristics
CIF defines clear responsibilities between seller and buyer, focusing on cost coverage and risk transfer at specific points.
- Seller pays: Cost of goods, freight charges to the destination port, and minimum insurance, typically 110% coverage under standard clauses like Institute Cargo Clauses C (insurance).
- Risk transfer: Occurs once goods are loaded on board the vessel at origin, even though the seller covers transport costs until arrival.
- Transport mode: Exclusively for sea or inland waterway shipments, not suitable for air or multimodal transport.
- Buyer pays: Unloading, import duties, inland transport, and all risks after goods reach the destination port.
How It Works
Under CIF, the seller arranges and pays for export clearance, loading, sea freight, and minimum insurance. Once the cargo is onboard, the risk shifts to you, the buyer, who must handle import procedures, unloading, and onward transport.
This division lets sellers manage major shipping risks while buyers control import logistics. For example, sellers typically provide proof of insurance and transport documents, enabling smoother customs clearance. Understanding CIF’s cost structure helps optimize your financial planning, similar to managing capital allocation in investments.
Examples and Use Cases
CIF is ideal for bulk cargo, oversized shipments, and non-containerized goods where sellers maintain control until goods are loaded on vessels.
- Bulk commodities: A wheat exporter in the U.S. ships under CIF Shanghai, paying the freight and insurance, while the buyer handles unloading and customs.
- Manufacturing exports: A German electronics firm ships to Brazil under CIF Santos, covering container freight and minimum insurance; buyers deal with import taxes and inland delivery.
- Energy sector: Companies like CVX involved in global energy supply chains often use CIF terms for raw material shipments requiring clear cost and risk allocation.
Important Considerations
CIF’s early risk transfer can expose buyers to losses during transit despite sellers covering shipping costs, so negotiating insurance levels beyond minimum coverage is crucial for high-value goods. Clearly specifying destination ports in contracts avoids costly disputes.
As with back-to-back letters of credit, precise documentation and understanding of CIF terms protect your financial interests in international trade.
Final Words
CIF shifts key transport and insurance costs to the seller but transfers risk at loading, so buyers should carefully assess their post-arrival responsibilities and insurance needs. Review your contract terms closely and consider supplementing insurance coverage to fully protect your shipment.
Frequently Asked Questions
CIF is an Incoterm used for sea or inland waterway transport where the seller pays for the cost of goods, freight to the destination port, and minimum insurance coverage. However, the risk transfers to the buyer once the goods are loaded onto the vessel at the origin port.
Under CIF, the seller is responsible for obtaining and paying for minimum insurance coverage, typically at least 110% of the goods’ value. Buyers can choose to purchase additional insurance for better protection if they wish.
The risk transfers from the seller to the buyer as soon as the goods are loaded onto the vessel at the origin port, even though the seller pays for freight and insurance until the destination port.
The CIF price includes the cost of the goods, the freight charges to the destination port, and the minimum insurance coverage arranged by the seller. The buyer is responsible for unloading, import duties, and inland transport from the destination port.
The seller must provide the goods, handle export clearance, load the goods on the vessel, pay for freight and minimum insurance, and provide export documentation such as the invoice and insurance certificate.
The buyer pays for the goods according to the contract and is responsible for unloading at the destination port, import customs clearance, duties, inspections, and inland transportation from the port onward.
CIF is mainly used for bulk cargo or non-containerized shipments where the seller controls loading directly. For containerized shipments, CIP is often preferred as it includes higher default insurance coverage and suits multimodal transport better.
Yes, while the seller arranges minimum insurance coverage under CIF, the buyer can opt to purchase additional insurance for greater protection during transit if desired.
