The buyer then takes responsibility for the goods from this point onwards (i.e., once they are on the vessel). Drawbacks for Buyers ❌ Limited shipping control – Can’t choose faster/cheaper carriers.❌ Hidden fees – Demurrage charges if customs clearance delays.❌ Basic insurance gaps – Theft or improper packing often isn’t covered. By bundling costs, they simplify pricing while maintaining profit margins.
CIF requires a minimum level of insurance paid as identified by Clause (C) of the Institute Cargo Clauses. The contract terms for CIF clearly define where the liability for the seller ends and where the responsibility is transferred to the buyer. Unfortunately, this leaves retailers struggling when they start researching all the shipping policies available. With shipping being one of the last steps in completing the sale, it is often something that is not given much attention until the very last minute.
CIF can be easier for buyers who don’t want to go through the trouble of obtaining insurance, paying freight charges, and assuming all of the responsibility for shipping internationally. Additionally, any transportation, inspection, and licensing costs, as well as the cost to transport the goods to their final location, are the buyer’s responsibility. CIF is an international agreement between a buyer and seller in which the seller has responsibility for the cost, insurance, and freight of a sea or waterway shipment. The ICC established these terms to govern the shipping policies and responsibilities of buyers and sellers who engage in international trade. The seller has the responsibility for paying the cost and freight of shipping the goods to the buyer’s port of destination.
Our platform integrates freight and insurance management tailored to your shipment’s value and destination, ensuring full visibility and control throughout the shipping journey. CIF (Cost, Insurance, and Freight) offers several distinct advantages for both buyers and sellers, particularly in international trade, where managing shipping complexities can be particularly challenging. Now that we know what CIF stands for and why it’s important, let’s get into the specific responsibilities sellers and buyers take on under this agreement.
b. Buyers Responsibilities
We define self-insurance as setting aside your own funds to cover potential cargo losses. When pursuing a specific export transaction, you are encouraged to conduct your own due diligence and to consult legal counsel as appropriate. Yes, all contracts using any incoterms are valid if they are agreed upon by all parties to the transaction, and correctly identified on the export-related documents. CIF – Cost Insurance and Freight (insert named port of destination) Of the 11 rules, there are seven for https://www.ven369.com/which-accounting-basis-should-i-use-accounting/ ANY mode(s) of transport and four for SEA or LAND or INLAND WATERWAY transport.
This includes filing import declarations, paying duties and VAT, and dealing with customs inspections or holds. Under CIF, the seller handles export customs clearance in the country of origin. Always verify the insurance certificate is issued in your company name, not the seller’s. The reason is that CIF is built around the concept of loading goods onto a vessel.
CIF Under Incoterms 2020
- One of CIF’s main disadvantages is that the seller can only use it for specific types of international trade.
- When you agree to ship goods under CIF (Cost, Insurance, and Freight) terms, the seller takes on a broad set of responsibilities to ensure your shipment reaches your destination port safely and on time.
- Sony has delivered the order to Kobe and loaded it onto the ship for transport.
- The cost of the goods includes the purchase price, as well as any applicable taxes or duties.
- It is similar to Free on Board (FOB) shipping with the primary difference being who is responsible for bearing the expenses up to the point of loading the product onto the transport vessel.
- Once the goods are loaded onto the vessel, the buyer carries the risk for the entire ocean journey, even though the seller is still paying for the shipping.
The risk transfer point in CIF is different from the cost transfer point. It also specifies at what point the responsibilities are transferred from the seller to the buyer. Sellers will typically use CIF for non-containerised goods and bulk cargo shipping. Additionally, the insurance coverage should be in the same currency as the contract. The insurance coverage should be at least a minimum of 110% of the value of the goods on the sales contract – this is known as “CIF+10%”. The goods will be exported to the buyer’s named port as specified in the sales contract.
- CIF can be a suitable option for buyers who want a more simplified shipping process, as it places the responsibility for both transportation and insurance on the seller, reducing the buyer’s burden.
- The total landed cost is calculated by adding import duties, taxes, and handling fees to the CIF price.
- While CIF and FOB both set out the transfer of responsibility, risk, and costs for a specific international trade transaction, they differ in several ways.
- This shipping method simplifies international transactions by making the seller responsible for expecting the goods and ensuring the cargo’s safety during transit.
- By fulfilling these responsibilities, the seller can help to ensure that the goods are delivered safely and efficiently to their destination.
- Many sellers work with freight forwarders who specialize in international logistics, but ultimately, it’s their responsibility to get everything right.
Know Your Incoterms
Landed cost is the total cost of getting goods from the seller to the buyer’s location, including all expenses up to the destination port. This point can be confusing because the seller covers the cost of freight, but the actual transfer of risk happens earlier. These responsibilities start for the buyer once the goods arrive at the port of destination. However, the buyer assumes responsibility for the goods once the cargo has reached the buyer’s port. Meanwhile, duty charges at the buyer’s port of destination (import duties) are the responsibility of the buyer. Duty charges for exporting the goods from the seller’s port of destination are the responsibility of the seller.
What are the risks and transfer of ownership under CIF?
However, cargo insurance and paying for freight remain the seller’s responsibility. The seller (likely already paid in cash before shipment) agrees to load goods onto the ship and pay the freight, but not bear the ocean risk. The seller must also clear customs.This term is only used for ocean transportation. This term is for ocean and inland waterway transportation. The seller pays for insurance during transport, but the buyer is https://www.theviceroycollection.com/bookkeeping-jersey-city-nj/ responsible for the goods once they are on board.
Cost AllocationCIF requires the seller to cover the total cost of the goods, freight, and insurance. Conversely, with FOB the seller has responsibility for the goods until they pass the ship’s rail at the port of shipment. Transfer of RiskWith CIF, the seller has responsibility for the goods until they pass the ship’s rail at the destination port. Seller’s Duty to NotifyThe seller must notify the buyer once delivery has occurred (goods are loaded) and provide any additional notice the buyer needs to receive the shipment.These terms are typically defined in the contract and may reference other transport agreements, such as charter parties.
Cost, Insurance, and Freight (CIF) is an international shipping agreement used when freight is shipped via sea or waterway. In other words, there could be an agreement in which the buyer pays the freight charges or cost of delivery but cost insurance and freight meaning the seller might agree to pay for the marine insurance. 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. CIF is different from cost and freight (CFR), whereby sellers don’t have to insure goods in transit.
When not to use CIF
Buyer’s Input on InsuranceThe buyer is not obligated to insure the goods but must provide any information the seller needs to arrange additional insurance (if requested). Delivery is considered complete once the goods are on board—not when they arrive at the destination. Buyer’s Payment ObligationThe buyer must pay the contractually agreed price for the goods.Incoterms do not specify when or how the payment should be made. CIF terms are mostly commonly used for bulk or oversized shipments, though they can also apply to less-than-container loads. In this guide, we will try to explain the CIF term and clarify the scope of responsibilities for each party – the buyer and the seller. Instead, use FCA (Free Carrier), CPT (Carriage Paid To), and CIP (Carriage and Insurance Paid To), which are the correct alternatives as they are meant for containerised freight.
CIF provides a clear breakdown of costs and responsibilities, reducing the risk of disputes between buyers and sellers. For buyers, CIF simplifies logistics by requiring the seller to handle transportation and insurance to the destination port. Furthermore, the risk transfers to the buyer as soon as the goods are loaded onto the ship, even though the buyer continues to pay for transportation and insurance to the destination port. From that point, the buyer assumes all costs and risks, including the cost of sea freight and arranging insurance (not mandatory). Under CIF, the seller is responsible for booking and covering transportation expenses to the destination port, as well as arranging and paying for minimum insurance coverage for the goods during sea transit.
FOB is often considered by buyers who want more control over the shipping process, such as when they work with a digital freight forwarder. The seller’s obligation ends once the goods are loaded onto the vessel at the port of shipment. The seller must arrange marine insurance to cover the goods during transit to the designated port of destination. It’s important to note that under CIF, the risk passes to the buyer once goods are loaded onto the ship at the port of shipment. Despite its convenience, keep in mind that CIF can result in higher costs compared to buyer-arranged services, with less control over the shipping process, which can lead to challenges if issues arise during transit.
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