What is CIF? – CIF incoterms 2020 (Cost Insurance and Freight) is the latest version of CIF ICC’s Incoterms. Cost Insurance and Freight is belong to group C (Main Carriage Paid), the seller concludes a transport contract with the forwarder and takes the costs. In this case, the seller is responsible for conducting export clearance. The risk is transferred at the time of posting the goods to the buyer. All matters arising after loading costs related to transporting and other events are the buyer’s responsibility. Group C includes the following Incoterms rules: CFR, CIF, CPT, and CIP.
What is CIF – Cost Insurance and Freight?
Cost Insurance and Freight means that the seller delivers the goods to the buyer on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination in sound condition, in the stated quantity or, indeed, at all.
This rule is to be used only for sea or inland waterway transport. Where more than one mode of transport is to be used, which will commonly be the case where goods are handed over to a carrier at a container terminal, the appropriate rule to use is CIP rather than CIF.
In Incoterms 2020 CIF, two ports are important: the port where the goods are delivered on board the vessel and the port agreed as the destination of the goods. Risk transfers from seller to buyer when the goods are delivered to the buyer by placing them on board the vessel at the shipment port or by procuring the goods already so delivered. However, the seller must contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are placed on board a vessel in Shanghai (which is a port) for carriage to Southampton (also a port). Delivery here happens when the goods are on board in Shanghai, with risk transferring to the buyer at that time: and the seller must make a contract of carriage from Shanghai to Southampton.
While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk transfers to the buyer. If the shipment port is of particular interest to the buyer, as it may be, for example, where the buyer wishes to ascertain that the freight or the insurance element of the price is reasonable, the parties are well advised to identify it as precisely aIncoterms 2020s possible in the contract.
The parties are well advised to identify as precisely as possible the point at the named port of destination, as the costs to that point are for the account of the seller. The seller must make a contract or contracts of carriage that cover the transit of the goods from delivery to the named port or to the agreed point within that port where such a point has been agreed in the contract of sale.
It is possible that carriage is effected through several carries for different legs of the sea transport, for example, first by a carrier operating a feeder vessel from Hong Kong to Shanghai, and then onto an ocean vessel from Shanghai to Southampton. The question which arises here is whether risk transfers from seller to buyer at Hong Kong or at Shanghai: where does delivery take place? The parties may well have agreed this in the sale contract itself. Where, however, there is no such agreement, the default position is that risk transfers when the goods have been delivered to the first carrier, i.e. Hong Kong, thus increasing the period during which the buyer incurs the risk of loss or damage. Should the parties wish the risk to transfer at a later stage (here, Shanghai) they need to specify this in their contract of sale.
The seller must also contract for insurance cover against the buyer’s risk of loss of or damage to the goods from the port of shipment to at least the port of destination. This may cause difficulty where the destination country requires insurance cover to be purchased locally: in this case the parties should consider selling and buying under CFR. The buyer should also note that under the Incoterms 2020 CIF rule the seller is required to obtain limited insurance cover complying with Institute Cargo Clauses or similar clauses, rather than with the more extensive cover under Institute Cargo Clauses. It is, however, still open to the parties to agree on a higher level of cover.
If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed between the parties.
CIF requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.
CIF – Cost Insurance and Freight’s Cost and obligation
Blue: Cost/ Yellow: Risk/ Orange: Insurance
Using Incoterms 2020 CIF, seller takes the costs
- Export clearance;
- Delivering the goods to the ship;
- Of issuing and sending the commercial invoice;
- Obtaining an export license or other authorizations;
- Concluding the contract of carriage;
- Insurance;
- Packaging and marking the products;
- Of giving information to the buyer (e.g., the goods have been delivered to the ship);
- Quality control (measurement, weighing, counting).
The seller’s obligations
- The seller is obliged to conclude a contract of carriage to a designated port of shipment at his own expense.
- He concludes and pays the freight contract costs.
- The seller is responsible for the loading the goods on the vessel.
- The seller is obliged to conclude an insurance agreement (with minimum coverage) and deliver it to the buyer.
- He is responsible for the export clearance and related costs.
Buyer takes the costs
- Informing the seller of the date of dispatch of the goods and the port of destination;
- Import license and others authorizations;
- Import clearance;
- Obtaining documents (or equivalent electronic documents) which are necessary for the buyer to import or transit the goods;
- Not covered by the contract or not being freight but relating to the goods during transport from the port of loading;
- Additional, if the buyer won’t notify the seller of the time of dispatch or destination.
The obligations of the buyer
- The buyer is responsible for any damage or theft of the goods after the goods have been loaded to the vessel.
- He is obliged to bear all the costs required to obtain the certificate of origin, consular documents and import rates of duty.
- He has to inform the seller of the designated port, the name of the vessel and the delivery date.
- He organizes the import clearance and bears all related costs.
- The buyer has to obtain all documents necessary for import or transit.
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