What does CIF mean in international trade?
CIF stands for Cost Insurance and Freight. It is included in Incoterms® 2020 and one of the most important terms to ever be introduced by the(International Chamber of Commerce or ICC. The reason for this is that the CIF value is the basis of valuation used by many Customs authorities across the world.
The Customs value is the value upon which duties and taxes are levied on every shipment and getting it correct is a major Customs compliance concern.
Let’s understand more about what CIF means for the buyer and seller in any cross border transaction.
- When using the CIF term, the destination port must be included in the naming convention. This means that the sales contract will have to state “CIF (port of destination).. “. The port of destination stated in the naming convention will represent the point to where the seller has to procure insurance for the shipment.
- Under CIF terms, delivery is made to the seller when the goods are placed on board the vessel.
- CIF terms is a sea term and should only be used for ocean or inland waterway shipments.
- Under CIF terms, the seller has to arrange for transport and pay for freight up to the named port.
- Under CIF terms, the seller will act as the exporter of record and the buyer will act as the importer of record.
FAQs about CIF Incoterms:
Who pays for freight in CIF terms?
The seller will arrange and pay for the freight.
What is the difference between CIF and FOB?
One of the differences under CIF terms is that the seller must pay for insurance during main carriage. Under FOB there is no such requirement.
What is the meaning of CIF price?
CIF price includes the price of the product, the cost of freight and the cost of insurance. For the purpose of Customs valuation, other incidental costs may also need to be included.
What is the difference between CIF and CIP terms?
One of the differences between CIF and CIP is that the level of insurance cover that the seller needs to purchase is different between the 2.
How is freight calculated?
Freight can be calculated based on the actual value of a trucker’s invoice. However if this information is not available, a defendable peg rate can be used based on an over arching freight cost contract with a forwarder. However, if even that information is not available, Customs authorities in most countries would have published guidance on how to ascertain a freight value for various modes of shipments.
How is insurance calculated?
Insurance can be calculated based on the actual value of a insurer’s invoice. However if this information is not available, a defendable peg rate can be used based on blanket agreement with an insurer. Alternatively, Customs authorities in many countries have published guidance to traders on how to determine an acceptable insurance value for shipments based on shipment values.
Who pays for loading/unloading costs under CIF?
The seller will pay for all loading and unloading costs until the the shipment has arrived at the destination. At the destination port, if the seller’s contract for carriage includes unloading costs then the seller will bear it, otherwise the buyer will bear the unloading costs at the destination port.
A final note
We always strongly recommend buyers and sellers not to depend only on the legal text of the Incoterms to determine responsibilities and costs allocation. Instead, granular details should be included in the sales contract to ensure that no misunderstandings occur in future. This could include clauses such as who will bear costs for inspections by authorities, unloading costs and other incidental costs that may occur in different ports. Other points to include could be the HS codes to be used for the shipments and whether Free Trade Agreements documentation will be provided to importer’s utilization.
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