In return, Sony has purchased insurance and pays the freight and shipping costs until the ordered goods reach the buyer’s port of destination. CIF is an international agreement between a buyer and seller in which the seller has responsibility for the cost, insurance, and freight of a sea or waterway shipment. Although the possession of the shipment transfers to the buyer once the goods have been loaded on the boat or ship, the seller is responsible for any shipping insurance and freight charges. CIF is one of the most popular shipping terms used in global trade, particularly ocean freight. Its widespread use is due to the clear responsibilities it assigns to sellers and buyers. With CIF, sellers cover shipping and insurance costs to the port of destination.
What Are Freight Charges?
- Under CIF (Cost, Insurance, and Freight) terms, this includes the price of the goods, freight charges, insurance, and any other costs incurred during transit.
- In addition, they identify when the risk or liability of the goods transfer from the seller to the buyer.
- They order from a manufacturer utilizing a CIF agreement to be delivered to a foreign port.
- It is also the buyer’s responsibility to claim if anything goes wrong on the voyage.
- Although the seller purchases the insurance, it is entirely the buyer’s responsibility to make a claim if something goes wrong after the goods have been loaded onto the vessel.
With CIF, the seller must provide insurance coverage, but the protection is often limited unless otherwise specified. CIF helps mitigate risks during the shipping process by including insurance coverage. It also helps manage costs by offering a predictable pricing structure for both the seller and the buyer. As also highlighted above, they delineate the responsibilities and risks between purchasers and merchants during the transportation of goods across the sea or inland waterways. Understanding these Incoterms, especially CIF, is essential for businesses. They offer a blueprint for navigating the complexities of shipping agreements, insurance coverage, and risk management in global transactions.
Cost, Insurance, and Freight (CIF) Incoterms® explained
If the buyer wishes to keep the risk with the seller throughout transport, they should instead consider using DAP or DPU. Incoterms are common trade rules developed by the International Chamber of Commerce (ICC) in 1936. The ICC established these terms to govern the shipping policies and responsibilities of buyers and sellers who engage in international trade. Incoterms are often similar to domestic terms (such as the U.S. Uniform Commercial Code) but with international applications. The seller has the responsibility for paying the cost and freight of shipping the goods to the buyer’s port of destination. However, the buyer has responsibilities as well, which are outlined below.
Cost, Insurance and Freight (CIF) Incoterms 2020 Rule – key changes and updates
The buyer only arranges for offloading and transportation to the end destination. The largest part of the costs are controlled by the seller, so there is a risk of overcharging. The seller may also select options for transportation that are more costly than the buyer would have.
There can, in practice, however, be agreed exceptions, such as when the buyer provides the seller with labels, logos, or similar. The buyer has no obligation to the seller to arrange a contract of carriage. The contract for carriage and cost implications are dealt with in other articles. The main difference in wording to FOB is simply that with CFR and CIF, reference to the vessel being nominated by the buyer is absent, as is a reference to the buyer nominating a loading point within the load port.
Key Components of DDP (Delivered Duty Paid)
However, the buyer assumes responsibility for the goods once the cargo has reached the buyer’s port. Under CIF terms, the seller is responsible for arranging and paying for the transportation of goods to a designated port of destination, as well as securing insurance coverage against the risk of loss or damage during transit. Responsibility for Freight and InsuranceWith CIF, the seller arranges and pays for the freight charges, including any insurance costs during transportation. With FOB, on the other hand, the buyer is responsible for covering the cost of freight and insurance, while the seller pays for the goods themselves and the cost of loading them onto the vessel at the port of origin. Once the shipment arrives at the Port of Genoa, the responsibility shifts to the Italian company.
By having the seller manage shipping and insurance, CIF reduces the potential for disputes over cost and risk. This built-in risk mitigation, combined with the seller’s duty to arrange insurance, gives buyers a sense of security not always found in other Incoterms. One of the main advantages for buyers using CIF is the ease of handling.
Incoterms Explained: Cost, Insurance, and Freight (CIF) – A Complete Guide for eCommerce Businesses
Landed cost is the total cost of getting goods from the seller to the buyer’s location, including all expenses up to the destination port. Under CIF (Cost, Insurance, and Freight) terms, this includes the price of the goods, freight charges, insurance, and any other costs incurred during transit. To calculate the landed cost, simply add the CIF price to any additional expenses such as import duties, taxes, and handling fees at the destination port.
- For example, with containerized cargo shipments, the goods may sit in a container for days before being loaded onto the vessel at the seller’s port.
- The insurance policy is arranged by the seller, which can complicate the claims process for the buyer.
- However, it’s crucial for both parties to understand the specifics of CIF agreements, including insurance coverage, the port of destination, and customs duties.
- Under a CIF contract, the seller takes on a significant portion of the shipping process, making it an attractive option for buyers who prefer a more hands-off approach to logistics.
- To this end, we have written a comprehensive guide on the CIF Incoterms, offering insights into their application and benefits for global commerce.
Buyers might end up with lower-quality services than if they cost insurance and freight meaning had selected their own providers. The CIF delivery term is more convenient for buyers with less experience in international shopping. It ensures they don’t have to navigate the complexities of arranging freight and insurance.
CIF in eCommerce: The Seller’s Perspective
Under CIP, the required insurance coverage is ICC Clause A, which provides “all risks” coverage and is broader than what’s required under CIF. Ensuring that the goods are properly packaged and labeled for international shipping falls under the seller’s purview. This is crucial for protecting the cargo during transit and facilitating smooth customs clearance. Free Carriage Arrangement (FCA) places more responsibility on the buyer than CIF does.
Depending on the specific needs of the transaction, sellers and buyers may choose different terms that better suit their requirements. While CIF requires the seller to provide insurance coverage, the level of coverage may vary. Sellers and buyers should agree on the extent of coverage to ensure that it adequately protects the goods in transit. Buyers can more accurately predict the total cost of the goods, including insurance and freight charges, allowing for better financial planning. Under CIF, the seller is responsible for obtaining insurance coverage for the goods during transit.
Under this term, the seller assumes full responsibility for delivering goods to the buyer’s location, including all costs, duties, and taxes. Managing DDP efficiently requires accurate documentation, real-time tracking, and tight coordination. With centralized tracking and automated workflows, Pazago simplifies DDP logistics and gives businesses full visibility into every shipment. According to the International Chamber of Commerce, misunderstandings of Incoterms remain one of the top reasons for delays and disputes in international shipping. Delivered Duty Paid (DDP), with its high seller responsibility, is often at the center of these challenges. FOB origin means the buyer pays the carrier and takes over the goods once they leave the seller.
Chris Hanks is an experienced physical therapist based in Austin, Texas. He earned his Doctor of Physical Therapy degree from the University of Texas at Austin in 2005 after completing his Bachelor of Science in Kinesiology in 2002. Dr. Hanks has been a licensed PT in Texas since 2005. He began his career at Central Texas Rehabilitation Hospital before moving to Austin Sports Medicine Center in 2010. In 2015, Dr. Hanks opened his own clinic, Capital City Physical Therapy, where he continues to treat patients.