CIF (Cost, Insurance & Freight)

Cost, insurance and freight (CIF) is a shipping agreement that applies exclusively to goods transported by sea or waterway. In the cost insurance and freight definition, the seller is responsible for covering three main expenses, which are the cost of goods, insurance and freight charges up to the buyer’s port of destination. When the goods are loaded onto the vessel, the risk of loss or damage transfers from the seller to the buyer.

However, the seller must still pay for freight and secure minimum insurance coverage for the cargo during its journey. CIF terms are mostly commonly used for bulk or oversized shipments, though they can also apply to less-than-container loads. While the buyer assumes risk once the goods are on board, they only take on import and delivery costs when the cargo reaches the destination port.

This shipping method simplifies international transactions by making the seller responsible for expecting the goods and ensuring the cargo’s safety during transit.

-1: Provide Goods and Documents

The seller must provide the goods and commercial invoice as per the sales contract.

Any relevant documents, such as certificates of conformity, must also be supplied, either in paper or electronic form.

-2: Delivery of Goods

The seller delivers by placing the goods on board the vessel at the agreed time and port, not the destination port.

-3: Risk Transfer

The seller bears all risks until goods are delivered on board the vessel.

-4: Arrange Carriage

The seller must arrange and pay for a contract of carriage to the named destination port.

-5: Arrange Insurance

The seller must provide insurance coverage for the buyer’s risks during transit, at a minimum level of 110% of the invoice value.

-6: Provide Transport Documents

The seller must provide the buyer with the usual transport documents, such as bills of lading for the shipment.

-7: Export Clearance

The seller must handle all export formalities, including any necessary licences or inspections.

-8: Checking, Packaging and Marking Goods

The seller is responsible for the appropriate checking, packaging and marking of the goods for transport.

-9: Cost Allocation

The seller pays for loading, freight, export duties, insurance and any other costs related to providing proof of delivery.

-10: Provide Notices

The seller must notify the buyer when the goods are loaded on board and provide any required notices to facilitate receipt.

-1: Pay the Price

The buyer must pay the agreed price for the goods as per the sales contract.

-2: Take Delivery

The buyer must take delivery of the goods when they are loaded on the vessel and receive them at the destination port.

-3: Risk Assumption

The buyer bears the risks of loss or damage to the goods after they have been delivered on board.

-4: No Carriage Obligation

The buyer has no obligation to arrange carriage, as this is the seller’s responsibility.

-5: Insurance Information

The buyer must provide the seller with any necessary information for arranging additional insurance if requested.

-6: Accept Transport Documents

The buyer must accept the transport document provided by the seller, assuming it conforms to the contract.

-7: Import Clearance

The buyer must handle all import-related formalities, such as obtaining licences and paying duties.

-8: No Obligation for Packaging

The buyer has no obligation regarding the packaging or marking, except as agreed in the contract.

-9: Cost Allocation

The buyer pays for transit and import costs, as well as any additional costs from delays in giving required notices.

-10: Provide Notices

The buyer must notify the seller about the destination port and the time of delivery of the goods if agreed upon in the contract.

-1. Simplified Process for Buyer

The seller takes care of the logistics, relieving the buyer of administrative tasks.

-2. Reduced Risk for Buyer

The seller bears the risk until the goods reach the destination port, ensuring safer transportation.

-3. Insurance Coverage

The seller provides insurance, which can offer protection for damages or losses during shipping.

-4. Convenient for Inexperienced Buyers

CIF is beneficial for buyers unfamiliar with export procedures, as the seller manages most shipping logistics.

-5. Helpful for Complex Shipments

CIF is useful for shipping dangerous or regulated goods, where the seller ensures compliance with export regulations.

-1. Higher Costs for Buyer

The buyer may pay inflated prices for insurance and freight as these costs are included in the sale price.

-2. Limited Control Over Insurance

Since the seller chooses the insurer, the buyer may face issues with claims, especially if the coverage is insufficient.

-3. Increased Risk After Shipment

Once the goods are on board, the buyer assumes all risks, including potential losses during transit.

-4. Hidden Costs

Buyers are responsible for import duties, taxes and destination handling charges, which can sometimes be higher than expected.

-5. Possible Delays

The seller might choose slower or less efficient shipping methods to save costs, leading to longer delivery times.

-6. Potential for Misunderstandings

Buyers unfamiliar with CIF terms may assume ‘free shipping’ means delivery to their door when it only covers shipment to the destination port.

-7. Difficulty with Claims

If cargo is damaged, the seller may receive the insurance payout, leaving the buyer with little recourse.

-8. Import Requirements

Sellers may not be aware of specific import rules, leading to potential fines for the buyer.

CIF (Cost, Insurance & Freight) is used in trade primarily for sea or inland waterway shipments. It is ideal for bulk, oversized or heavyweight cargo, where the seller has direct access to the vessel for loading.

Under CIF, the seller assumes responsibility for the transportation cost, loading and insurance coverage until the goods reach the destination port. The risk shifts to the buyer when the goods are loaded onto the vessel. Cost, Insurance and Freight is not suitable for containerised goods, air or land transport and is often used when the buyer is new to importing.

Securing marine insurance is crucial for CIF (Cost, insurance and freight) agreements as it safeguards against potential losses or damages during maritime transport. With the seller responsible for insurance under CIF cost, having a reliable provider is essential to ensure comprehensive coverage and prompt claims processing.

TATA AIG stands out as a trusted option in the industry, offering a robust marine insurance policy designed to protect your valuable assets during transit.

TATA AIG’s marine insurance protects against financial loss by covering damages to ships, cargo and other maritime assets from accidents, theft and unforeseen events. This peace of mind is invaluable, especially for businesses dealing with high-value goods, making marine cargo insurance an indispensable safety net.

Additionally, TATA AIG ensures the prompt settlement of claims through a team of experienced professionals, minimising the financial impact of any loss. Compliance with international regulations is yet another benefit, as many countries mandate marine insurance for transporting goods.

TATA AIG offers coverage for international transportation, allowing businesses to engage confidently in global trade. With competitive rates and extensive coverage options, TATA AIG’s transit insurance stands out as an ideal choice for protecting maritime assets.

-Who pays the import duties under CIF in marine insurance?

The buyer is responsible for paying import duties at their destination port under CIF.

-What is the key difference between CIF and FOB?

The key difference between CIF and FOB is that under CIF, the seller is responsible for insurance and freight charges, while under FOB, the buyer is responsible for these costs after the goods are loaded onto the ship.

-What is the key difference between CIF and CFR?

Under CIF, the seller is obligated to take out insurance for the goods and procure a document allowing the buyer to claim in case of loss or damage. On the other hand, under CFR, the buyer is responsible for arranging insurance coverage for the goods.