They are meant to make foreign trade seamless with clearly defined roles for buyers and sellers in the global market. First developed in 1936, the terms more than 45 million companies in more than 100 countries. When you ship CIF, the seller is responsible for goods up until their arrival at the destination port. That means the seller must deliver the goods to a ship, load them onto the ship and insure the goods for the entirety of the journey.
However, if the buyer requests, at its risk and cost, the seller must provide the buyer with information in its possession that the buyer needs to arrange its insurance. The key difference between CIF and CFR is, under CIF the seller is required to pay for the cost of marine insurance which provides protection against any damage to cost insurance and freight meaning the goods being shipped, rest everything remains the same. Seller only arranges for offloading and transportation to the end destination. The largest part of the costs are controlled by the buyer, so there is a risk of overcharging. Seller may also select options for transportation that are more costly than the buyer would have.
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This provision means that the seller is not responsible for securing insurance for the cargo for loss or damage during transportation. CIF should be used when the seller has direct access to the vessel for loading, including non-containerised goods. The seller assumes costs and liabilities for the transport to the named port, the loading onboard the vessel, and the clearing of the export. The insurance should cover at least 110% of the value of the goods as provided in the sales contract and cover the goods to the point of delivery. Cost, insurance, and freight (CIF) is an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer’s order while the cargo is in transit.
This Incoterm is a cornerstone in global trade, affecting your shipping agreements, costs, responsibilities, and more. Imagine saving hours and reducing costs on each order, all while ensuring your goods are insured and delivered seamlessly to your customer’s doorstep. Incoterms® (or International Commercial Terms) are essential terms of international trade that define the rules and responsibilities of sellers and buyers.
That’s because they have more control over choosing shippers and insurance limits. Since the seller has more control, they may opt for a preferred shipper who may be more costly. They may also choose higher insurance limits, as they want to ensure that the goods are delivered in excellent condition. Buyers have more control over shipping lines and insurance limits with FOB, meaning they can keep costs down.
Sellers are now required to obtain a higher level or more comprehensive insurance than what was required under Incoterms 2010. Over the years, the International Chamber of Commerce (ICC) has made changes to the terms and guidelines for international trade. In 2020, the ICC made adjustments to the rules, (called Incoterms 2020), which in part, made changes to security requirements for shipments. Where applicable, the buyer must assist the seller at the seller’s request, risk and cost, in obtaining any documents and/or information needed for all export-related formalities required by the country of export. Each of the rules also provides that any document can be in paper or electronic form as agreed to in the contract, or if the contract makes no mention of this then as is customary.
CIF stands for “Cost, Freight and Insurance”, hence all plans will be insured by default. If you purchase shipping based on CIF terms, your merchandise will be fully covered from the minute it’s loaded on the port until it gets unloaded at your port of destination. The merchandise is insured https://adprun.net/ for the entire duration of its trip over the ocean, irrespective of how long it takes to get there. Accidents happen during the loading and unloading process at the ports in China and US unloading ports. To be covered, you need freight insurance that will reimburse you for all damages.
Cost and freight is a legal agreement between a buyer and a seller in international trade. Incoterms are common trade rules developed by the International Chamber of Commerce (ICC) in 1936. The ICC established these terms to govern the shipping policies and responsibilities of buyers and sellers who engage in international trade. Incoterms are often similar to domestic terms (such as the U.S. Uniform Commercial Code) but with international applications. The seller has the responsibility for paying the cost and freight of shipping the goods to the buyer’s port of destination.
It’s important to note that there are different types of FOB agreements and the insurance coverage can be negotiated between the buyer and seller. In other words, there could be an agreement in which the buyer pays the freight charges or cost of delivery but the seller might agree to pay for the marine insurance. Also, under CFR, the seller must provide the buyer with the documents necessary to obtain them from a carrier.
Understanding CIF Incoterms is crucial for any business involved in international trade. From outlining the responsibilities of buyers and sellers to offering a framework for shipping costs, insurance, and freight, CIF provides a structured approach to global commerce. CFR and CIF are both very similar terms that relate to transporting goods by sea where the primary responsibility lies with the seller, particularly in the cost of shipping the freight.
They get a fixed price for their ocean freight and only have to worry about the costs of transporting goods to their final destination. It is now responsible to arrange carriage, often by chartering the vessel, and must pay the cost of carriage. As the cost of carriage is an input to the selling price the seller most likely will add a margin of error and a profit margin, all built in to its CFR price. Like FOB, the seller’s risk for loss or damage to the cargo ceases once the goods are on board the vessel, and like FOB it would be prudent for the seller and buyer to agree in their contract as to how the goods are to be stowed. CIF is one of the 11 Incoterms used in international trade, explicitly tailored for transactions where goods are transported via ocean or inland waterways.