Last updated on Nov 24, 2023
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What is CIF?
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Benefits of CIF for the seller
3
Drawbacks of CIF for the seller
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Benefits of CIF for the buyer
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Drawbacks of CIF for the buyer
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Here’s what else to consider
If you are involved in international trade, you have probably come across the term CIF, which stands for Cost, Insurance and Freight. It is one of the 11 Incoterms, or international commercial terms, that define the responsibilities and risks of the seller and the buyer in a transaction. But what are the benefits and drawbacks of using CIF as an Incoterm? In this article, we will explore some of the pros and cons of CIF from both the seller's and the buyer's perspectives.
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- Pintu Vachhani Purpose Driven GI/ UW Professional 2
1 What is CIF?
CIF is an Incoterm that applies to sea or inland waterway transport only. It means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place, and pays for the cost of carriage and insurance to bring the goods to the destination port. The seller also clears the goods for export. However, the risk of loss or damage to the goods transfers from the seller to the buyer when the goods are on board the vessel. The buyer is responsible for unloading the goods at the destination port, clearing them for import, and arranging for their onward transport.
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In summary:Benefits of using CIF:Simplicity and clarity in defining seller's responsibilities.Insurance coverage provided by the seller.Reduced administrative burden for the buyer.Drawbacks of using CIF:Limited control for the buyer once goods are loaded.Lack of flexibility for different modes of transport or specific trade requirements.Potential indirect cost implications for the buyer.
UnhelpfulLike Like Celebrate Support Love Insightful Funny 3 - Pintu Vachhani Purpose Driven GI/ UW Professional
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IN CIF terms buyer get all risk cover till his warehouse but if CIF terms is up to the port then buyer has to take cover from the port to his warehouse n usually its basic cover n for all risk cover he has to do physical inspection which is not feasible at times
UnhelpfulLike Like Celebrate Support Love Insightful Funny 2 - Ibrahim T. Mashal (CFE. CERT CILA. IFCE. CME. FIN Bsc.) Branch Manager at Arab Loss Adjusters L.L.C
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Cost, Insurance, and Freight (CIF) is one of the 11 Incoterms rules set by the International Chamber of Commerce. It’s an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer's order while the cargo is in transit. It follows the same procedure as the Cost and Freight (CFR) Incoterms rule, but the seller must also provide insurance coverage in case of loss or damage to the goods during the transportation.
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2 Benefits of CIF for the seller
One of the main benefits of CIF for the seller is that it allows them to control the cost and quality of the insurance coverage for the goods. The seller can choose an insurance policy that suits their needs and budget, and that covers the minimum level of protection required by the Incoterm. The seller can also include the insurance cost in the invoice price, which may give them a competitive edge over other sellers who use different Incoterms. Another benefit of CIF for the seller is that it limits their liability for the goods once they are on board the vessel, which reduces their exposure to potential claims or disputes from the buyer.
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- Ibrahim T. Mashal (CFE. CERT CILA. IFCE. CME. FIN Bsc.) Branch Manager at Arab Loss Adjusters L.L.C
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In summary the advantage to the seller is that it can often obtain cheap insurance and then build a larger amount into its selling price.
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3 Drawbacks of CIF for the seller
One of the main drawbacks of CIF for the seller is that it requires them to obtain and pay for insurance that may not be necessary or sufficient for the buyer. The buyer may have their own insurance arrangements or prefer a different level of coverage than the seller. The seller may also face difficulties in proving that they have fulfilled their obligation to provide adequate insurance, especially if the buyer does not receive or check the insurance documents. Another drawback of CIF for the seller is that it does not guarantee that the buyer will pay for the goods upon arrival, which may expose them to the risk of non-payment or delayed payment.
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4 Benefits of CIF for the buyer
One of the main benefits of CIF for the buyer is that it reduces their upfront costs and responsibilities for the goods. The buyer does not have to pay for the freight or insurance until they receive the invoice from the seller, which may improve their cash flow and budgeting. The buyer also does not have to arrange for the export clearance or the transport of the goods to the destination port, which may save them time and hassle. Another benefit of CIF for the buyer is that it gives them some assurance that the goods are insured during the transit, which may protect them from potential losses or damages.
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- Ibrahim T. Mashal (CFE. CERT CILA. IFCE. CME. FIN Bsc.) Branch Manager at Arab Loss Adjusters L.L.C
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Also in summary, the advantage to the buyer is that it does not have to worry about declaring the shipment to its own insurer.
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5 Drawbacks of CIF for the buyer
One of the main drawbacks of CIF for the buyer is that it transfers the risk of loss or damage to the goods to them as soon as the goods are on board the vessel, which may be before they have paid for or inspected them. The buyer may have to bear the consequences of any delays, accidents, or thefts that occur during the transit, and may have to file claims or disputes with the insurance company or the carrier. The buyer may also face difficulties in verifying the validity or adequacy of the insurance policy provided by the seller, especially if the seller does not disclose the details or the terms and conditions of the insurance. Another drawback of CIF for the buyer is that it does not give them much control or flexibility over the transport and delivery of the goods, which may affect their logistics and planning.
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6 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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It seems that for a majority of shippers and traders agreeing on CIF terms is almost a Pavlovian reaction, or at least a default. That is unfortunate, because often it makes more sense to agree on other terms, especially from the buyer’s perspective. The loss of flexibility and quality of transport/insurance should not be underestimated when you give away that initiative by agreeing on any of the C-terms.
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