CIF (short for Cost, Insurance and Freight) is a term used in international trade that specifies the obligations, costs, and risks associated with the transfer of goods from the seller to the buyer, according to the Incoterms standards.
1. What is CIF?
CIF (Cost, Insurance and Freight) is a term in international commercial law that specifically defines the obligations, costs, and corresponding risks related to the transfer of goods from the seller to the buyer, according to the Incoterms standards published by the International Chamber of Commerce (ICC).
Under CIF conditions, the seller is responsible for customs clearance at the port of departure, delivering the goods on board the vessel, and paying for minimum insurance coverage until the goods are discharged at the destination port. Although the seller pays for insurance during the main transportation, the risk is transferred to the buyer once the goods are loaded onto the vessel.
CIF is commonly used in maritime or inland waterway transportation.
2. Guide to using CIF – Incoterms 2020
2.1. Transportation mode
This condition is used for maritime and inland waterway transportation. CIF is not suitable when the goods are delivered to a carrier before being loaded onto a vessel, for example, when goods are containerized and delivered at the port terminal. In such cases, the CPT condition should be used.
2.2. Transfer of goods and risk (CIF – Cost Insurance and Freight)
Cost, insurance, and freight mean that the seller must deliver the goods by delivering them on board the vessel or procuring the goods for that purpose. The risk of loss or damage to the goods is transferred when the goods are delivered on board the vessel. The seller must arrange and pay for the necessary documents and expenses to bring the goods to the specified port.
The seller has an obligation to conclude an insurance contract to insure the buyer’s risks of loss or damage to the goods.
This condition has two key ports: the port of dispatch where the goods are delivered on board the carrier and the destination port. The risk is transferred from the seller to the buyer when the seller delivers the goods by placing them on board the carrier at the port of dispatch or procures them for that purpose. However, the seller remains responsible for concluding the transportation contract to bring the goods from the port of dispatch to the destination port.
This condition has two critical points of demarcation because the risk and cost are divided at two different places. While the contract always specifies the destination port, it may not necessarily specify the port of shipment – the place where the risk is transferred to the buyer. If the port of shipment is of particular significance to the buyer, the parties should specify it more explicitly in the contract.
The parties should determine the specific location at the destination port that has been agreed upon and the costs up to that point borne by the seller. The seller should conclude transport contracts to this specific location. If, according to the transport contract, the seller is responsible for the costs associated with unloading the goods at the destination port, the seller cannot claim reimbursement from the buyer unless otherwise agreed.
2.3. Involvement of multiple carriers
It is common for multiple carriers to be involved in the transportation process through various stages. For example, an initial carrier may transport the goods from Hong Kong to Shanghai, and then the goods will be transferred to the main carrier for transportation to Southampton. The question arises as to where the risk is transferred from the seller to the buyer, whether in Hong Kong or Shanghai. The parties can negotiate this based on the contract. However, in the absence of any agreement, the default place where the risk is transferred for the delivered goods is when the goods are handed over to the first carrier, in this case, Hong Kong. If both parties want the transfer location to be Shanghai or any other place, they can include this in the contract.
2.4. Cargo insurance
The seller has an obligation to conclude an insurance contract for the buyer’s risks of loss or damage to the goods during transportation to the delivery location. This may create difficulties if the importing country requires insurance to be purchased domestically. In such cases, the parties should consider using the CFR condition, and the buyer can arrange insurance on their own. The buyer should also note that according to the Incoterms 2020 conditions, the seller is only obliged to purchase insurance at a minimum level of Clause C or an equivalent level. However, if the parties wish, they can negotiate to increase the insurance coverage and include it as a separate provision in the contract.
2.5. Unloading costs at the destination port
If the transportation contract concluded by the seller includes the unloading costs at the destination port, the seller will be responsible for these costs unless the parties have agreed in advance that the seller will be reimbursed by the buyer for these costs.
2.6. Export/Import customs clearance obligations
The CIF term requires the seller to handle export customs clearance, if necessary. However, the seller is not obligated to handle import customs clearance or transit customs clearance in a third country through which the goods must pass, nor to pay import duties or customs clearance costs.
3. How to express CIF Incoterms in a foreign trade contract
The CIF Incoterms 2020 condition can be expressed on a foreign trade contract as follows: CIF [Specified Delivery Port] Incoterms 2020
For example: CIF Ho Chi Minh Incoterms 2020
4. Obligations between the seller and the buyer
A. OBLIGATIONS OF THE SELLER:
A1. General obligations of the seller
The seller must provide the goods and commercial invoice in accordance with the sales contract and any relevant documents referred to in the contract.
Any documents provided by the seller may be in traditional paper form or in electronic form if agreed upon by the parties or established practice.
A2. Delivery of goods
The seller must deliver the goods by delivering them on board the vessel or procuring the goods for that purpose. The seller must deliver the goods on the agreed-upon date or within the agreed-upon timeframe, in the usual manner at the port.
A3. Transfer of risk
The seller bears all risks of loss or damage to the goods until the goods are delivered as specified in A2, except for any losses or damages covered in B3.
A4. Transport
The seller must conclude a contract to transport the goods to the agreed delivery place (if any) at the delivery place or any other place at the destination port. The transportation contract must be concluded on usual terms, with costs borne by the seller, and the goods must be transported on the usual route by a vessel commonly used for such transportation.
A5. Insurance
Unless otherwise agreed or customary trade practice specifies otherwise, the seller must, at their own cost, default to purchasing insurance for the goods with a minimum coverage level of Institute Cargo Clauses (C) or its equivalent. The insurance contract must be concluded with an insurer or insurance company of good reputation to provide the buyer or any other party with an insurable interest in the goods and the ability to make a claim directly against the insurer.
When the seller requests and depending on the information provided by the buyer at the seller’s request and expense, additional insurance coverage such as war risk (Institute War Clauses) and/or strike risk insurance (LMA/IUA) or similar coverage may be provided.
The minimum insurance value must be the contract value of the goods plus 10% (i.e., 110%) and in the currency of the contract.
The insurance must be effective from the specified delivery place in A2 and end at least at the specified destination port.
The seller must provide the buyer with an insurance policy or certificate of insurance or other evidence of insurance.
Additionally, the seller must provide the buyer, if requested and at their expense, with any necessary information for additional insurance.
A6. Transport document
The seller must, at their own cost, provide the usual transport document to the buyer without delay to prove that the goods have been delivered.
The transport document must indicate that the goods pertain to the contract, be dated within the agreed-upon delivery timeframe, and enable the buyer to take delivery of the goods from the carrier at the destination port and, unless otherwise agreed, enable the buyer to sell the goods in transit by transferring the transport document to the next buyer or by notifying the carrier.
When the transport document is issued as negotiable and consists of multiple originals, a full set of originals must be presented to the buyer.
A7. Export/Import customs clearance
a) Export customs clearance
If necessary, the seller must perform and bear the costs associated with export customs clearance as required in the country of export, such as:
- Export license;
- Security screening for exported goods;
- Inspection of goods for export; and
- Any legal requirements.
b) Assistance with import customs clearance
If necessary, the buyer must provide assistance to the seller, at the seller’s request and at the buyer’s risk and expense, in obtaining documents/information necessary for customs clearance during transit/import, including security information and goods inspections as required by the transit country or the importing country.
A8. Inspection – Packaging, labeling – Marking
The seller needs to bear the costs of any necessary inspections (such as quality inspection, weighing, measuring, counting) required for the delivery of the goods as specified in A2.
The seller must package the goods and bear the costs unless the trade custom of the goods’ industry specifically requires the goods not to be packaged. The seller must package and label the goods appropriately for the mode of transport unless the parties have agreed specifically on how the goods will be packed and marked when signing the contract.
A9. Allocation of costs
The seller must bear:
a) All costs related to the goods until they are delivered to the buyer as specified in A2, except for costs borne by the buyer in B9;
b) Transportation costs and any associated costs arising from A4, including handling charges and transportation security costs;
c) Any destination port unloading fees, but they must be within the transportation contract signed by the seller and the carrier;
d) Transit costs if included in the transportation contract concluded by the seller;
e) Costs of providing evidence of delivery to the buyer as specified in A6;
f) Costs of purchasing insurance as stated in A5;
g) If necessary, customs clearance, export duties, and any other associated costs related to export as stated in A7(a); and
h) Reimburse the buyer for all costs and fees related to the buyer’s assistance in obtaining documents and information as stated in B7(a).
A10. Notice to the buyer
The seller must give notice to the buyer that the goods have been delivered as specified in A2 and promptly provide any necessary information to enable the buyer to take delivery.
B. OBLIGATIONS OF THE BUYER:
B1. General obligations of the buyer
The buyer must pay the price of the goods as specified in the sales contract.
Any documents provided by the buyer may be in traditional paper form or in electronic form if agreed upon by the parties or established practice.
B2. Taking delivery
The buyer must take delivery of the goods when the goods are delivered as specified in A2 and take delivery from the carrier at the designated port.
B3. Transfer of risk
The buyer bears all risks related to the loss or damage of the goods from the time the goods are delivered as specified in A2.
If the buyer fails to give timely notice to the seller as stated in B10, the buyer will bear all risks of loss or damage to the goods from the specified date or the last day of the agreed delivery period, provided that the goods have been identified as the contract goods.
B4. Transport
The buyer has no obligation to the seller regarding the conclusion of a transportation contract.
B5. Insurance
The buyer has no obligation to the seller regarding the conclusion of an insurance contract. However, if requested by the seller, the buyer must provide any necessary information for the seller to arrange additional insurance as stated in A5 and B5.
B6. Proof of delivery
The buyer must accept the provided transport document as stated in A6 if it conforms to the contract.
B7. Export/Import customs clearance
a) Assistance with export customs clearance
If necessary, the buyer must assist the seller when requested by the seller, and at the seller’s risk and expense, in obtaining documents/information related to export customs clearance, including security or inspection information before export as required by the exporting country.
b) Import customs clearance
If necessary, the buyer must perform and bear the costs related to customs clearance as required in the transit and importing countries, such as:
- Import license or any necessary permits for transit;
- Security screening for import and transit;
- Inspection of goods; and
- Any legal requirements.
B8. Inspection – Packaging, labeling – Marking
The buyer has no obligation to the seller.
B9. Allocation of costs
The buyer must:
a) Pay all costs related to the goods from the time the goods are delivered as specified in A2, except for costs borne by the seller in B9;
b) Pay transit costs, unless they are included in the transportation contract concluded by the seller;
c) Pay unloading costs, including lighterage and wharfage fees, unless they are included in the transportation contract concluded by the seller;
d) Pay for any additional requested insurance as stated in A5 and B5;
e) Reimburse all costs and fees incurred by the seller in assisting the buyer as stated in A5 or A7(b);
f) Pay all taxes, duties, and other expenses, as well as customs clearance costs for transit and import as stated in B7(b);
g) Pay all costs resulting from failure to give timely notice to the seller as stated in B10, computed from the specified date or the deadline for the agreed delivery period, provided that the goods have been identified as the contract goods.
B10. Notice to the seller
In cases where the buyer has the right to determine the time of delivery and/or the place of arrival or the point of receipt at the destination, the buyer must provide the seller with complete information regarding that decision.
For more detailed information on the conditions of Incoterms 2020, please refer to the specific content of the Incoterms 2020 document.