One of the most common Incoterms coined by the International Chamber of Commerce to ease out the transactions for importer and exporter is Cost, Insurance, and Freight(CIF).
Cost: It means the cost or the price of the product which is quoted by the seller.
Insurance: It is the protection that you receive in case of any contingency.
Freight: Expenses related to the delivery of goods from one place to another.
In any general contract of sales, it is obvious that you pay the price and bring home the product. Insurance and freight is your botheration and not that of the seller. But what happens when the goods have to travel across thousands of miles and then reach you? In that case, the possibility of damage increases, and the cost of transit is huge. In such cases, a clear understanding of who is responsible for what is of utmost importance to ensure flawless transactions.
With this motive in mind,ICC developed the Incoterms, CIF lays out the obligations of buyer and seller in the most transparent manner in the shipping contracts.
Meaning of CIF
CIF means that the seller has to pay for the insurance and delivery until the goods get loaded on the vessel at the port mentioned in the contract. This means that the seller’s liabilities are more than those of the buyer. In case any damage happens while loading, any additional paperwork is needed at the port or goods have to be kept at the warehouse on the dock because of some unforeseen incident, these expenses are to be borne by the seller.
It is only after the goods get loaded on the ship that the seller’s responsibility ceases to exist and that of the buyer begins.
Thus the costs linked with the seller under CIF are:
- Insurance cost to the value of the product
- An export license needs to be obtained
- Freight charge while moving the goods from the factory to the post
- Payments related to the inspection of goods.
This type of arrangement thus imparts some advantage to the seller whereby he has the option of picking up the cheapest insurance policy under which he gets the goods insured to the given point of destination and delivers the goods to the mentioned port.