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CIF Incoterms 2020 : A Few Quick Points
- Cost Insurance and Freight (CIF) Incoterms (or CIF Incoterms) can be used for sea transport, including inland waterway
- Risk transfers from seller to buyer when the cargo is loaded onboard the vessel
- The seller must arrange for carriage to the agreed destination (named place)
- The seller must pay for insurance costs to the agreed destination (named place).
- Insurance cover must be 110% of the contract value.
- The seller must pay for transport costs to the agreed destination (named place)
When CIF Incoterms are used in a contract, the named destination is mentioned. For example, if a company in Norway is selling on CIF terms to a company in Singapore, the sales contract should at least mention:
CIF (Keppel Port, Singapore, Incoterms 2020)
What does CIF mean in shipping terms?
CIF is just one of the 11 Incoterms® 2020 used international trade. Cost, Insurance and Freight means that the price on the invoice reflects the cost of the goods, the cost of shipping the goods and the cost of insuring the goods on main carriage. This is the basis of valuation used by Customs valuation teams in many countries.
Shipping CIF Incoterms: Delivery & Transfer of Risks
Delivery happens when the seller places the cargo on the vessel. Although the point of delivery is well defined for CIF terms, it is nonetheless still advisable to define the point of delivery as accurately as possible in the sales contract, as there may be conflicts in understanding of the terms between buyer and seller.
Shipping CIF Incoterms: Insurance
The seller must purchase insurance for buyer’s benefit in case of damage or lose of cargo. It must be noted that the insurance coverage required under CIF is lower than the cover required under CIP.
Shipping CIF Incoterms: Carriage
The seller must arrange and pay for carriage from the point of delivery to the named place of the destination. The seller must abide by laws and meet all obligations relating to transport security regulations.
Shipping CIF Incoterms: Customs clearance
The seller must meet the obligations of export Customs clearance and the buyer must manage import Customs clearance. This would mean that respective parties responsible for export/import have to manage and pay for all formalities like licenses, security checks, inspections and other document submissions as required.
Shipping CIF Incoterms: Delivery/transport documentation
The seller must provide the buyer with related transport documents. The costs of providing such documents, original or otherwise will be paid for by the seller.
Shipping CIF Incoterms: Packaging & Marking
Seller must ensure and pay any costs related with ensuring that the cargo is delivered in acceptable condition. This would mean the seller has to pay for quality checks, weighing operations and/or counting etc. The seller must package the goods at the seller’s cost.
Shipping CIF Incoterms: Cost allocations
The allocation of costs between buyer and seller are as follows:
- Any additional insurance cover requested
- Any costs involved in obtaining documents for import clearance
- Duties, taxes and other costs related to import
- Any costs incurred due to a failure to give reasonable notice to seller when it is agreed that the buyer is allowed to choose the time for departure from origin or receiving at destination
- Transport and insurance costs to the named place
- Transport security related costs
- Cost of providing usual proof of delivery
- Duties, taxes and other costs related to export
- Any costs involved in obtaining documents for export clearance
Shipping CIF Incoterms: Notices
- The seller must use the usual methods to notify the buyer that delivery has been made
- The buyer must give the seller enough notice time to deliver the cargo at the buyer’s chosen time (if agreed that the buyer can choose the time)
What is the difference between CIP & CIF Incoterms?
The above is a common question that arises when traders decide on Incoterms.
The 2 major difference between these Incoterms are:
- CIP can be used for any mode of transport while CIF can only be used for transport by sea or inland waterway
- The insurance cover required in CIP is more extensive then the cover required by CIF
We have a more comprehensive article on Incoterms 2020 that you can find here.
Does CIF include duties?
CIF prices do not include import duties and taxes. The buyer will have to pay these charges, including any other Customs fees.
Can CIF be used for air freight?
No, CIF terms cannot be used for air freight. This term can only be used for ocean, sea or inland waterway transport.
Does CIF value include vessel unloading costs?
The seller will have to bear all charges until the cargo has reached the place of delivery in the port agreed upon between buyer and seller in the sales contract.
A final note
It cannot be stressed enough that the terms do not cover every single aspect of international trade. Concerns like issue mediation, revenue recognition and payment terms are out of scope of the terms.
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