What is Cost, Insurance and Freight - CIF

Cost, Insurance and Freight (CIF) means the seller pays costs, freight, and insurance against the buyer's risk of loss or damage in transit to the destination.

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Cost, Insurance and Freight (CIF)

Cost, Insurance and Freight - CIF Explained

Cost, Insurance and Freight (CIF) is one of 13 international commerce terms known as Incoterms - commonly known trade terms developed by the International Chamber of Commerce (ICC) in 1936 to govern the shipping policies and responsibilities of buyers and sellers, who engage in international trade. Incoterms are often identical to domestic terms (such as the U.S. Uniform Commercial Code) but have different meanings. As such, parties to a contract must state the governing law of their terms.

The ICC's official definition reads, “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. 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."

For further context, consider this theoretical example: Sony in Japan wants to ship a container of flat-screen televisions to Best Buy in the United States. Under CIF, Sony will be responsible for all freight and costs required to get the container of televisions to Best Buy's chosen port of destination. Sony will also be responsible for the costs of insuring the shipment against loss or damage while in transit. Once the shipment reaches Best Buy's port of destination and is unloaded from the cargo ship, Sony's (the seller) obligation is complete, and Best Buy (the buyer) assumes responsibility.

Terms of Cost, Insurance and Freight

Under the terms of CIF, the seller's responsibilities include the provision of the goods and commercial invoice as per the contract, the purchase of export licenses, the contracts and costs of carrying the goods and insurance. The seller must deliver the goods aboard the ship at the port of destination, during the agreed-upon time frame; the seller is responsible for any lost or damaged goods up to the point of delivery. The seller has to give sufficient notice of delivery to the buyer, provide proof of delivery and cover any associated coasts.

The buyer has to pay what was agreed upon in the contract, including any licenses or other costs agreed on. Once the buyer receives the goods at the point of delivery, it is responsible for what happens to the goods from that point on. The buyer covers division of costs relating to the goods including duties, taxes, customs and the pre-shipment inspection of the goods. The buyer has to give notice for the timing of the delivery to the seller, prove the goods were delivered and provide the seller with information for procuring insurance. The buyer isn't responsible for the carriage of goods.