The CIF Incoterm is dedicated to maritime transport. It is one of the most used Incoterms in the world.
What is the “Cost Insurance & Freight” Incoterm?
Incoterms represent the obligations and responsibilities of the buyer and seller in an international transaction. Incoterms are divided into two main categories: multimodal Incoterms and maritime Incoterms. The CIF Incoterm or “Cost Insurance & Freight” is part of the “Maritime Incoterms” category.
The obligations of the seller and the buyer with the CIF Incoterm?
The CIF Incoterms is one of the most widely used Incoterms in the world. Although it is very similar to the CIP Incoterm, it differs in the insurance coverage requirements.
The seller’s obligations:
- The seller is responsible for the selection and payment of the carrier (shipping line in this case) to the port of shipment as provided for in the commercial contract between the buyer and the seller.
- The seller is responsible for fulfilling all export requirements, performing the customs clearance procedure, and paying the export duties and taxes.
- The seller must load the cleared goods on board the vessel.
- The seller must take out marine insurance, covering the risks of damage and loss of goods. This insurance is an “ad-valorem” insurance with a 10% surcharge on the face value of the contract. The seller takes it out for the benefit of the buyer.
- The seller must provide the buyer with documents and information relating to the commercial transaction and the security.
The obligations of the buyer:
- The buyer is responsible for receiving the goods at the port of destination agreed upon in the commercial contract between the buyer and the seller.
- The buyer is responsible for completing the customs clearance formalities due to the import of the goods.
The CIF Incoterm greatly limits the buyer’s responsibility. The transfer of costs is done at the port of destination and the transfer of risks at the loading of the goods (insurance taken by the seller covering the risk for the buyer).
What are the risks of using the CIF Incoterm?
Although the Incoterm CIF covers mostly the buyer. The seller (supplier) must take out marine insurance and bear the risks during the journey. Many sellers will tend to take out basic insurance which can cause problems for the buyer in case of issues during the logistic process.
Even if the Incoterm CIF is one of the most used in the world, some countries do not allow its use because they impose national insurance linked to the imports. It is therefore important to verify that IncotermCIF is allowed in your country.
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