- Author :
- TATA AIG Team
- ●
- Published on :
- 08/01/2024
- ●
- 2 min read
International trade is key to economic growth and facilitates access to resources. While there are different means to international trade, waterways are significant for their global connectivity and cost-efficiency!
To ensure seamless international trade, the International Chamber Of Commerce introduced International Commercial Terms (Incoterms), the predefined commercial trade rules.
Cost, Insurance, and Freight (CIF) in marine insurance is a popular Incoterm that has increased in relevance across trade through waterways. It states clearly the responsibilities of the buyer and seller and the risk transfer for the transportation.
Here are the details about the CIF meaning in shipping, its importance, stated responsibilities, and factors to consider.
What is the Meaning of CIF in Marine Insurance?
CIF full form in export is Cost, Insurance, and Freight (CIF). It is an international shipping contract between a seller and a buyer, wherein the seller will be held responsible for the freight charges and obtaining the insurance cover to secure the cargo being transported to the buyer’s destination port.
In addition, it is an Incoterm, referred to as trade rules, as stated by The International Chamber Of Commerce, and is applicable to goods carried via a waterway, sea, or ocean. It is the only incoterm that states the seller’s responsibility to ensure the insurance coverage for reducing the risk at the buyer’s end.
The insurance coverage for the shipment should be at least 110% of the value of the cargo detailed per the sales contract.
Having seen the CIF abbreviation and its meaning, let us understand the terms and the roles and responsibilities of the buyer and seller.
What is Stated in the CIF Shipping Agreement?
Responsibilities The Cost, Insurance, and Freight in Marine Insurance state the responsibilities of the seller and buyer in transporting the cargo.
Risk transfer CIF insurance also defines at which stage the risk of cargo being shipped is transferred between the seller and the buyer.
Seller’s Responsibilities
Expenses
Loading and shipping The seller is responsible for the loading and shipping of the goods to the buyer’s destination and pays for the applicable charges.
Customs clearance and taxes The seller will be responsible for customs clearance, paying the corresponding duties and taxes to transport the cargo from their jurisdiction.
Insurance The seller has to arrange for insurance coverage for cargo transport until it reaches the buyer’s destination port.
Destruction costs The seller will be held responsible for covering the costs due to damage or destruction of the goods until it is loaded onto the ship.
Inspection
The seller should facilitate the inspection of goods and confirm that they meet international trade rules and industry-specific standards. The currency is required to be the same as stated in the agreement.
Obtaining licences
The seller has to obtain the respective export licence for the goods being shipped to comply with the local and international trade rules.
Timely delivery
The seller is responsible for the timely delivery of the goods within the stated timeframe as mentioned in the contract in CIF shipping.
Buyer’s Responsibilities
Unloading
The buyer is responsible for unloading the goods from the vessel and paying the required charges at the destination port.
Transferring
The buyer should make the necessary arrangements to transfer and pay for the applicable charges for transferring the goods from the ship terminal to the actual site.
Import and customs duties
The buyer will be responsible for paying the import and customs duties and the applicable fees and taxes based on the import requirements at the destination country.
Claiming for damages
The buyer will be responsible for initiating a CIF insurance claim for the damages incurred to the goods during the transportation.
Risk Transfer
The concept of risk transfer is often misunderstood with the cost transfer in Cost, Insurance, and Freight in Marine Insurance.
The risk transfer between the seller and buyer happens when loading the goods onto the ship or vessel. The seller is held responsible for any risks associated with the goods until they are loaded onto the ship at the origin port.
On the other hand, the cost transfer from the seller to the buyer happens when the goods are delivered at the destination port.
Therefore, the buyer has the ownership of the goods once it is loaded onto the vessel. In the case of damage or destruction to the goods, after it is loaded or transported, the buyer is responsible for raising a claim for the insurance benefit with the insurance company where the seller has purchased the risk cover.
Factors To Consider While Using CIF
Type of cargo
CIF can be used for non-containerised goods. Containerised cargo can be present at the origin port for longer, waiting to be loaded onto the vessel. The goods are highly likely to get damaged during these days, and there is no means to find when the cargo got damaged as they remain closed; here, CIF is not preferable. Therefore, using CIF is best suited for bulk non-containerised cargo.
Cost
Purchasing the Cost, Insurance, and Freight in marine insurance can be expensive. Therefore, finding out if the CIF is cheaper for the seller is best advised. Furthermore, an expensive CIF can be avoided if the buyer can find better insurance coverage or handle the transit better with their freight forwarder.
Advantages And Disadvantages Of Cost, Insurance, and Freight (CIF)
**For the Seller **
| Advantages | Disadvantages |
|---|---|
| Sellers choosing the CIF will have increased control over the shipment process. They can decide on the CIF value, shipment route, and other processes to benefit from cost-efficient export. | Sellers have to bear the costs of shipping and insurance. Inadequate financial planning can affect their profit margins. |
** For the Buyer**
| Advantages | Disadvantages |
|---|---|
| The cargo shipped onto the vessel is covered against any damages or destructions until it arrives at the destination. |
How Is Cost, Insurance, and Freight (CIF) Different From Other Incoterms
CIF vs FOB (Freight On Board)
In FOB, the seller is responsible for loading the goods onto the vessel. And from that point, the buyer takes responsibility for the costs and the risks, including the insurance and transit.
CIF vs Delivery Duty Paid (DDP)
In DDP, the seller holds additional responsibility for the shipment, including the transport from the destination port to the actual site and handling the import customs duties, clearance, and taxes. However, the seller is not obliged to take cargo insurance.
CIF vs Free Carriage Arrangement (FCA)
In FCA, the buyers have more responsibilities. They are responsible for the payments at the origin port, transportation to the destination port, and all the formalities at the destination port.
CIF vs Carriage And Insurance Paid To (CIP)
In CIP, the seller is responsible for the cargo and the insurance until it reaches the destination site. Therefore, the seller handles the entire transit, and the risk transfer happens at the destination site against the risk transfer at the loading point in CIF.
Conclusion
Cost, Insurance, and Freight (CIF) is a crucial agreement for international trade. It states the terms and conditions for the transport, the seller’s and buyer’s responsibility, and the risk transfer for clarity in risk management, cost consideration, and legal compliance.
It helps streamline international trade logistics and ensures seamless transport. Considering the diverse trade routes and the large capacity for vessels, a standardised Incoterm such as the CIF is important for a sustainable global trading ecosystem.
Tata AIG offers a marine insurance policy for comprehensive coverage at affordable premiums with features like protection against damage or loss, liability protection, customised coverage, etc. Check out the marine insurance page to learn more.
