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COST, INSURANCE, AND FREIGHT (CIF)

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.

CIF - Cost, insurance and freight

Thus the costs linked with the seller under CIF are:

  1. Insurance cost to the value of the product
  2. An export license needs to be obtained
  3. Freight charge while moving the goods from the factory to the post
  4. 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.

Responsibilities of the Buyer and Seller:

Seller:

  1. He is bound to deliver the goods as per the terms mentioned in the contract along with the invoice and documents sufficing that the work has been done.
  2. Loading charges up to the point of shipment.
  3. Insurance charges for the goods are to be paid by the seller.
  4. All sorts of customs formalities and export licenses need to be procured by the seller
  5. He is bound to deliver the goods at the defined port of shipment.

Buyer:

  1. Cost of import clearances and duties rest on the shoulder of the buyer
  2. Once the goods are transferred on the ship, the risk of the buyer starts.
  3. Any charges related to pre-shipment inspection have to be borne by him.