What does CIF stand for in Shipping Terms?
CIF is a Shipping Incoterm that stands for: Cost, Insurance, Freight agreement, with the seller holding responsibility for all three. When you buy internationally, the seller is responsible for exporting and shipping your goods until they arrive at their destination. They also need to make sure that all of it arrives in perfect condition.
When shipping under CIF Incoterms, the transfer of possession begins once goods are loaded safely onto boat. The seller is responsible for paying freight charges and procuring insurance so they can release their products into a new country without worry all while ensuring that buyers receive what was promised in an efficient manner which leaves them satisfied with both parties’ performance.
This Incoterm is only applicable to sea or waterway shipments, and cannot be used on any other forms of shipping. This means that the shipment method is most commonly employed when moving full containers, however it will work with less than container loads too.
What are the Buyers and Sellers Responsibilities with CIF Agreements?
Let’s explore the individual responsibilities for the seller and the buyer when agreeing to a sale under the CIF incoterm.
As the seller agrees to take on all responsibility for exporting and shipping your goods, up until they arrive aboard a vessel. Once safely loaded onto said boat however; you will assume control of importing them into another country or region as well as carrying out any necessary inspections at each step along their journey.
The seller holds responsibility that goes well beyond ensuring the cargo is placed on to a container ship. Their full responsibilities include:
- Export Packaging: Ensuring the cargo is adequately packaged and ready for export. In some instances, exporting countries require specific markings on their products or packaging. This party is responsible for ensuring that the cargo can be exported appropriately.
- Loading Charges: Any costs associated with loading the shipment onto the first carrier from the sellers’ warehouse.
- Delivery to Port/Place: All transportation costs associated with delivering the cargo from the seller’s warehouse to the port.
- Export Duty, Taxes & Customs Clearance: Any customs costs associated with exporting the cargo. In the event of customs examinations and additional fees, the responsibility falls on this party.
- Origin Terminal Charges: These are handing charges at the loading port.
- Loading on Carriage: Charges associated with loading the cargo onto the vessel.
- Carriage Charges: The cost of freight to move the shipment from the port of loading to the port of destination.
- Insurance: Under CIF Incoterms, the seller is responsible for obtaining insurance policy on the shipment, up until the port of destination.
One the cargo is loaded onto the vessel; the seller transfers the shipment and all risks to the buyer. When the buyer is in control of the shipment, their responsibilities are as follows:
- Destination Terminal Charges: Also known as Destination Handling Charges, or DTHC, these are all costs associated with unloading to transferring the cargo within the terminal.
- Delivery to Destination: Organizing the logistics to move the cargo from the port to the final delivery destination.
- Unloading at Destination: Once the cargo arrives at the delivery destination, any costs associated with unloading the cargo for the truck.
- Import Duty, Taxes & Customs Clearance: All import requirements, including customs clearance, duty, and taxes. In the event of a customs examination or issue with the importation, this party is responsible for rectifying the problem.
Advantages and Disadvantages for the Buyer
When trading under a CIF agreement, there are significant advantages for the buyer, making the purchasing process easier. However, the disadvantages often outweigh the benefits for more experienced buyers.
- When the buyer has little experience with a particular country and lacks necessary contacts in that region, they might consider CIF shipping. This allows for them to do most of their international shipments outside of the destination country.
- When purchasing products that may require special export requirements, it is important for the seller to ensure they can be shipped appropriately. This could help if you’re shipping dangerous or hazardous goods and will make sure your purchase meets all local regulations in countries where rules are not well documented.
- The seller’s insurance can help with losses in case of an issue at sea, such as piracy or damage caused by bad weather.
- When a buyer has an existing relationship with the transportation company that can hold both importing and domestic shipments, CIF allows them to utilize their resources without having look elsewhere.
- All risk is assumed once the goods are on board the carriage vessel. When an issue occurs during the shipping process, the buyer is responsible for rectifying or coping with the losses, not the seller.
- The buyer is responsible for all import duties, taxes and obligations. The seller must provide insurance which costs baked into sale price when buying from abroad under CIF Incoterms. When you import goods, it not only pays customs duty on product prices but also has an additional charge because they’re bringing them in through international ports where there’s always some form of extra fee associated with shipping anything overseas – even something small can add up quickly.
- When a buyer needs something shipped, they often rely on the seller to manage any aspect of shipping. There are risks in doing this though because shippers have been known take advantage by inflating prices and using kickbacks or commissions which can lead one’s bill for transportation into an inflated shape.
- When the seller is handling freight, they are most likely going to select least expensive shipping method. This inevitably leads delays caused by inefficient companies and longer than normal time for receiving your purchase.
- In the event of damaged cargo, you may face a difficult time getting money from your insurance claim. CIF Incoterms will usually define the beneficiary as the seller, and if your shipment is damaged, you may only find out after the container is unloaded, and you have paid the final amount to your seller. In that event, the seller completed the transaction and the insurance claim would go to the seller, not the buyer.
- Sellers may not know specific import requirements, which, if neglected, could lead to hefty fines. In the US, every importer is required to fulfil the Importer Security Filing, also known as an ISF. Since the seller is handling the shipping, they must prepare the filing on the buyer’s behalf. However, if they are unaware of this, the U.S. Customs and Border Patrol will fine the importer (the buyer) $5,000.
When to Use a CIF Agreement?
- CIF Incoterms should only be used for sea and waterway shipments.
- For those new to importing, CIF can be a useful starting point as it allows them the chance of understanding what they will need before getting into exports.
- When shipping your products, it is always better to use a freight forwarder who will work with the supplier and buyer in order find out what’s most cost-effective for them. This way you can save on unnecessary expenses.