Cost, Insurance and Freight - CIF


DEFINITION of 'Cost, Insurance and Freight - CIF'

Cost, Insurance and Freight (CIF) is a trade term requiring the seller to arrange for the carriage of goods by sea to a port of destination, and provide the buyer with the documents necessary to obtain the goods from the carrier.

BREAKING DOWN 'Cost, Insurance and Freight - CIF'

Contracts involving international transportation often contain abbreviated trade terms that describe matters such as the time and place of delivery, payment, when the risk of loss shifts from the seller to the buyer and who pays the costs of freight and insurance. The most commonly known trade terms are called Incoterms​, published by the International Chamber of Commerce (ICC). These are often identical in form to domestic terms (such as the American Uniform Commercial Code), but have different meanings. As a result, parties to a contract must expressly indicate the governing law of their terms.

According to the ICC, the official definition of CIF stipulates that, "The seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination," adding that the seller is also responsible for insuring the goods to cover the risk of loss or damage during carriage. Further insurance beyond the required minimums must be agreed upon between the buying and selling parties, or must be arranged for separately by the buyer. It is also important to note that the term applies only to sea and inland waterway transport.

Application of Incoterms

Incoterms consist of the 13 international commerce terms developed by the ICC in 1936 that aim to govern the shipping policies and responsibilities of the buyers and sellers who engage in international trade. By communicating contract models, these pre-defined commercial terms function to facilitate orderly trade, procurement processes and other international transactions across country lines and language barriers. Recognized by governments, legal authorities and practitioners worldwide, the terms strive to reduce or outright remove variations on interpretations of sales contracts. The three-letter trade terms, which each cover a common contractual sales practice, are primarily intended to communicate clearly and consistently the tasks, costs and risks associated with the delivery and transport of goods. The ICC published its eighth and most recent version of the rules–Incoterms® 2010–on January 1, 2011.

Each Incoterm specifies the parties responsible for goods in transit, insurance coverage and freight charges. The contracts also denote the point at which a seller's obligation is complete and the buyer assumes responsibility. This transfer of responsibility and liability is known as the delivery, even though the goods may still be in transit. As a point of comparison, below we have outlined the distinctions between CIF and several similar Incoterms:


Cost and Freight (CFR), like CIF, requires the seller to pay the costs and freight necessary to transport goods to the named port of destination. Risk responsibility for lost or damaged goods, as well as any additional costs, gets transferred from the seller to the buyer once the goods pass the ship's rail in the port of shipment. CFR requires the seller to clear the goods for export. CFR and CIF are similar agreements; the exception being that, under CIF, the seller is obligated to insure the goods while in transit for 110% of their value.


Carriage and Insurance Paid (CIP) is also similar to CIF in that the seller is responsible for providing insurance coverage for the goods while in transit for 110% of their value. However, CIP applies to all modes of transport, while CIF can only be used for non-containerized sea freight.


With a Free on Board (FOB) agreement, the seller arranges for the transport of goods to a designated port or other point of origin. Once the seller releases the goods to the buyer, when the goods cross the rail of the ship, the delivery is considered accomplished. Unlike CIF, however, the point at which responsibility shifts from the seller to the buyer occurs when the shipment reaches the point of origin. With a CIF agreement, the seller assumes responsibility and pays costs until the goods reach the buyer's chosen port of destination. Furthermore, unlike CIF, FOB contracts are not limited to sea freight, and may also be used for inland and air shipments.

Terms of CIF

The specific stipulations of a CIF agreement are as follows (it is important to realize that because this is a legal term, its exact definition is much more complicated and differs by country; contact an international trade lawyer before using any trade term): 

Under the terms of CIF, the seller's responsibilities include the provision of the goods and commercial invoice in conformity with the contract of sale, the acquisition and cost of any and all export licenses and other official authorizations, as well as the contracts and costs of the carriage of goods and insurance coverage. The seller is also responsible for the delivery of goods aboard the ship at the port of destination and during the stipulated timeframe, as well as the risk of lost or damaged goods up until the point of delivery, and the division of freight, customs and other associated costs. Further, the seller must give sufficient notice of delivery to the buyer, provide the buyer proof of delivery, cover checking, packaging and marking costs, and fulfill any other stipulated obligations.

Meanwhile, the buyer is responsible for the payment of the price agreed upon in the contract, the acquisition of necessary licenses and other authorizations, the reception of goods at the point of delivery and the transfer of risk at that juncture, assuming responsibility at that point for any and all losses or damages of the goods. The buyer is further responsible for the division of costs relating to the goods including duties, taxes, customs and other official charges, as well as for payment of the pre-shipment inspection of goods. The buyer must give notice for timing of delivery to the seller, provide proof of delivery and fulfill and other necessary obligations, including providing the seller with the necessary information for procuring insurance. The buyer has no contractual obligations for the carriage of goods.

  1. Ex Works (EXW)

    An international trade term requiring the seller to make goods ...
  2. Assembly Service

    Combining a number of small shipments from multiple parties into ...
  3. HARPEX Shipping Index

    The container ship index of ship brokers Harper Petersen & ...
  4. Cass Freight Index

    A measurement of the monthly aggregate shipment of freight that ...
  5. Truck Tonnage Index

    An index that measures the gross tonnage of freight that is transported ...
  6. Intermodal Freight

    Products and raw materials that are placed in a container that ...
Related Articles
  1. Personal Finance

    What Is International Trade?

    Everyone's talking about globalization, so we explain what is it and why some oppose it.
  2. Budgeting

    7 Tips For Avoiding Shipping Costs When Shopping Online

    Before clicking on that purchase, make sure you're getting the best deal possible.
  3. Economics

    Understanding Donald Trump's Stance on China

    Find out why China bothers Donald Trump so much, and why the 2016 Republican presidential candidate argues for a return to protectionist trade policies.
  4. Markets

    Will Paris Attacks Undo the European Union Dream?

    Last Friday's attacks in Paris are transforming the migrant crisis into an EU security threat, which could undermine the European Union dream.
  5. Investing

    World Bank Data For Dummies

    Developing countries can't always afford to track the data crucial to setting the right economic policies and programs. That's where the World Bank steps in.
  6. Economics

    Currency Swap Basics

    A currency swap involves two parties exchanging a notional principal and interest to gain exposure to a desired currency.
  7. Investing Basics

    General Agreement on Tariffs and Trade (GATT)

    The General Agreement on Tariffs and Trade was a treaty created after World War II that regulated world trade in an effort to aide economic recovery.
  8. Economics

    Explaining Devaluation

    Devaluation is the deliberate decrease in one county’s currency relative to the currency of other countries.
  9. Economics

    What is Dumping?

    Dumping refers to exporting a good at a lower price than the price charged for the good at home.
  10. Investing

    Is US Inflation Too Low?

    One reason the Fed has delayed its first rate hike: U.S. inflation has been persistently running below the stated 2 % level the central bank seeks to target.
  1. What is the difference between cost and freight (CFR) and cost, insurance and freight ...

    The difference between cost and freight (CFR) and cost, insurance and freight (CIF) is essentially the requirement under ... Read Full Answer >>
  2. What is the difference between CIF and FOB?

    Cost, Insurance and Freight CIF and Free on Board FOB are international shipping agreements used in the transportation of ... Read Full Answer >>
  3. Do CIF charges affect the customs duties?

    The abbreviation CIF stands for "cost, freight and insurance." It is a term used in international trade in reference to transporting ... Read Full Answer >>
  4. Where can I find the terms governing my CIF in different ports of call?

    Cost, insurance and freight (CIF) is one of the 12 International Commercial Terms (Incoterms). The International Chamber ... Read Full Answer >>
  5. When do you buy CIF and when do you buy FOB?

    The abbreviation CIF stands for "cost, insurance and freight," and FOB means "free on board." These are terms are used in ... Read Full Answer >>
  6. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  2. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  3. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  4. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  5. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the ...
Trading Center