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Meaning of CIF Term in Shipping

In international business transactions, there is a set of internationally recognized terms, called international commercial terms. Each of these terms has advantages and disadvantages for you as an importer or for suppliers, and these rules are used when agreeing on shipping procedures between you and the supplier.

In international trade and shipping, CIF (Cost, Insurance, and Freight) is a widely used trade term. This term not only clarifies the responsibilities and obligations of the buyer and seller in the transaction, but also stipulates the payment method of freight and insurance premiums from the port of shipment to the port of destination. This article will analyze the meaning of CIF term and related issues in detail.

What does CIF mean in shipping?

CIF, the full name is Cost, Insurance, and Freight, which means cost plus insurance plus freight (specified port of destination). When the buyer and seller use CIF terms to make a deal, the seller is responsible for transporting the goods to the designated port of destination and bears the freight and insurance from the port of shipment to the port of destination. In addition, the seller is required to handle the export customs declaration procedures for the goods and provide relevant documents and certificates.

What does CIF mean in shipping

Components of CIF terms

  • Cost: The cost here refers to the cost paid by the seller for the production or purchase of goods, including the original price of the goods, shipping costs, loading and unloading costs, packaging costs, transportation costs, etc. The seller needs to provide the buyer with a detailed list of costs.
  • Insurance: Under CIF terms, the seller needs to purchase appropriate insurance for the goods to cover possible losses or damages during transportation from the port of shipment to the port of destination. The insurance costs are borne by the seller, but the buyer enjoys the insurance benefits.
  • Freight: Freight refers to the cost paid by the seller to transport the goods from the port of shipment to the port of destination. The seller needs to choose a suitable mode of transport (such as sea, air, land, etc.) and bear the cost of transporting the goods.

Place of delivery and risk transfer under CIF terms

Under CIF terms, the place of delivery is usually on board the ship at the port of shipment. When the goods cross the ship’s rail at the port of shipment, the seller is deemed to have completed delivery. At this time, the risk of the goods is also transferred from the seller to the buyer. However, it should be noted that although the seller is responsible for insurance and freight, the seller does not assume the obligation to ensure that the goods arrive safely at the port of destination. This is because the CIF term is a term of delivery on shipment, not a term of delivery at the port of destination.

What is the meaning of CIF in shipping or cost, insurance and shipping?

First of all, you should know that the term “CIF” is an agreement between you and the supplier, which is an abbreviation of the English word (Cost, Insurance, and Freight) meaning “cost, insurance and shipping”.

Under this system, the supplier assumes the cost and responsibility of shipping and insuring the goods and the shipping expenses to the port of arrival that you specify as the importer. You will not incur any shipping costs until the shipment is delivered at the agreed port of arrival.

We advise you to use the “cost, insurance and freight” shipping agreement when the supplier is able to reach the vessel and can ensure that the goods are loaded properly.

Entering the port of arrival is usually considered the official place where the responsibility of the supplier ends and the responsibility of the shipment passes to you.

What are the obligations of the supplier and importer under the shipping agreement “CIF”

You have become aware that it is the supplier who is responsible for paying the cost and shipping of the goods to the importer’s port of destination.

Suppliers with direct access to vessels typically use the CIF “cost, insurance and freight” billing agreement. However, there are responsibilities that the importer has and you should be aware of.

Therefore, in this axis, we will give you a summary of the obligations and fees borne by both the importer and the supplier in light of the CIF shipping agreement “cost, insurance and shipping”:

1. Obligations, fees and paperwork incurred by the Supplier under the CIF Agreement

We can mention them by the following points:

  1. Commitment to inspection and packaging costs.
  2. Commitment to insurance costs associated with the carriage of goods.
  3. The supplier bears all risks of loss or damage to the goods until they are delivered.
  4. The supplier is responsible for all necessary transactions and costs when clearing customs in the country of supply.
  5. Commitment to conclude a contract of carriage of goods with the party that will transport the shipment.
  6. Fees associated with loading the cargo on the ship.
  7. The supplier is responsible for notifying the importer that the goods have been delivered to the requested port.
  8. Commitment to deliver the required goods and official papers at the port of arrival specified by the importer.

2. Obligations, fees and paperwork incurred by the importer under the CIF agreement

Once the goods arrive at the port of arrival specified by you, you will bear the costs associated with the import and delivery of the goods. In this type of agreement, you will be responsible for the following points:

  1. Pay for the goods.
  2. You will bear all risks of loss or damage to the goods starting from your receipt at the port of your country.
  3. Payment of customs duties associated with the import of goods.
  4. You will be responsible for the charges for transporting, unloading and delivering goods to the final destination.
  5. Organizing logistics for the transport of goods from the port to the final delivery destination.

If you want to facilitate the shipping process, you can contact Basenton Logistics, We will take care of the collection, transportation and customs clearance from Chinese suppliers and only follow up until your goods arrive at your warehouse door.

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What are the advantages and disadvantages of the shipping agreement “CIF”?

Obviously, when using the CIF shipping agreement “Cost, Insurance and Shipping”, the supplier has more control and responsibility in the shipping process. This can be considered a double-edged sword for you as an importer.

While the burden is on the supplier for you, the supplier has great control during the shipping process, and you will be at the supplier’s full disposal. You cannot make decisions about your goods until you receive them.

In this axis, we will present to you the advantages and disadvantages of the shipping agreement “cost, insurance and shipping” to be aware of what you can benefit from as an importer:

Is it preferable to use the shipping agreement “CIF” or not?

The answer to this question depends on several factors, there are cases where the CIF shipping agreement “Cost, Insurance and Shipping” is appropriate.

If the supplier wishes to establish long-term relationships with importers, it will rely on the shipping agreement “cost, insurance and freight” in order to provide comfort to the importer in the shipping process.

For the importer, you can choose to use “cost, insurance and shipping” because of convenience, you do not have to deal with any risks, claims or concerns related to shipping in transit.

If you are a new importer in the world of international trade, you can rely on the shipping agreement “cost, insurance and shipping”, because it allows you to understand the import process clearly.

You can use the “Cost, Insurance and Shipping” shipping agreement for large or small shipments, as the shipping agreement can be relied upon in cases of partial shipment (LCL) and total freight (FCL).

Q&A about the CIF shipping agreement

In this axis, we will answer three questions that will help you identify some other shipping terms:

What is the difference between cIF and fob?

The term FOB means that the supplier ends his responsibility for the exported goods as soon as they are delivered on board the ship in the port of the country of export, if the buyer delays in determining the name of the ship and the date of its departure, he bears the expenses resulting from this delay.

CIF means that the seller (exporter) ends his responsibility for the exported goods at the buyer’s port (importer), which is the point of receipt of the goods by the buyer.

Learn more : What Is The Difference Between FCA And FOB

What is the difference between CIF and CNF?

If the supplier of the goods is responsible for the cost of shipping and insurance during the process, the term used is “CIF” or “cost, insurance and shipping”. The supplier assumes the risk and is responsible for arranging and paying the insurance,
while with “Cost and Freight CNF” you will be responsible for organizing and paying the insurance during the shipping process.

What is the difference between “CIF” and “CIP” or (Carriage And Insurance Paid To)?

Whereas, in the case of using the CIF shipping condition, the supplier shall bear both the cost of shipping the goods to the port of destination determined by the supplier and shall also be responsible for the safety of the goods until delivery at the port of destination,

When using the CIP shipping condition, the supplier is responsible for bringing the goods to the destination specified by the importer, and is responsible for the cost of shipping and insurance. However, the risk tolerance is different, as the sea carrier bears the risks during the voyage.

Table showing the difference between different incoterms:

Shipping AgreementCIFFOBCNFCIP
The difference between each typeThe supplier is responsible for the cost of shipping the goods to the port of destination specified by the importer.The importer is responsible for the cost of shipping the goods to the port of destination he wishes (in the country of supply).Responsibility is divided between the supplier and the importer, as the supplier is responsible for shipping-related charges. While the importer is responsible for organizing and paying insurance for the goods.The supplier is responsible for bringing the goods to the destination specified by the importer, and is responsible for the cost of shipping and insurance. However, the risk tolerance point within the ship transporting the cargo varies, as the sea carrier bears the risks during the voyage.

Is the Shipping Agreement “CIF” used in all means of transporting shipments?

The CIF “Cost, Insurance and Shipping” shipping agreement applies only to sea freight and to one mode of transport, i.e. you cannot use “CIF” in the case of ship-to-ship shipping.

If several transport options will be used in the shipment, you must use a CIP instead of CIF, and you can use air freight through a CIP agreement.

After all, international trade agreements are “pre-prepared” terms to streamline trade processes between suppliers and importers. The multiplicity of its forms and types is only an opportunity for you to choose the most appropriate conditions for your type of trade and apply it on the ground. In this article, we have tried to provide you with all the information that will help you use one of the shipping agreements in the right way.

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