The abbreviation CIF stands for cost, insurance, and freight. It is a term used in international trade in reference to transporting goods from one destination to another through maritime shipping. The term has changed to include inland and airline shipments.
The CIF Model
When a buyer purchases goods and chooses to have them delivered using the CIF model, the seller does most of the work. The seller is therefore responsible for paying the transport to deliver goods to the nearest port, insurance for the goods, and the freight to deliver goods to a destination chosen by the buyer.
The responsibility of the seller ends once the goods reach the buyer’s port of choice. The buyer is then responsible for other charges that enable the goods to be cleared from the port. These charges include customs clearance fees, port security fees, docking charges and warehouse storage fees.
The Free On Board Model
CIF charges do not affect customs charges. The buyer still has to pay customs duty whether shipping is done through CIF or the Free On Board model (FOB). The FOB model is better for a buyer in terms of profit, because the buyer is responsible for insuring the goods and paying freight when using FOB. In FOB, the goods are considered delivered once they cross the ship’s rail. The buyer can negotiate a better price for freight than the seller who might be looking to make extra profit. There is also better communication when the buyer uses their own forwarder rather than relying on one selected by the vendor who might charge extra to make a profit.