What does CIF incoterms mean? Everything you need to know

What does CIF incoterms mean

If you’re familiar with international trading, you’ve probably heard of the common abbreviation CIF. This incoterm is well-known for its convenience, particularly for purchasers. But how come this is the case? What does CIF incoterms mean? Everything you need to know,Let us shed some light on it in this article.

We have assembled all of the necessary information on CIF. We’ll go over the roles of buyers and sellers, the point of risk transfer, and the advantages and downsides so you can decide if this incoterm is right for you.

What does CIF incoterms mean

Another prominent incoterm that can only be used for ocean freight or inland canal cargoes is CIF-Costs, Insurance, and Freight.

In this incoterm, the seller exports the cargo and pays all freight and insurance costs until the items arrive at the agreed-upon destination port. Despite the fact that the seller pays for freight and insures the cargo, their liability stops once the products are safely on board the shipping carrier. The risk of the shipping is now transferred to you. You will then handle import clearance and transportation of the items from the destination port to the final destination.

A CIF agreement requires the vendor to offer insurance for your goods. Insurance should be at least 110% of the declared worth of your products and should cover them until they arrive at their destination port.

One crucial aspect of CIF to remember is that the point of risk transfer differs from the point of cost transfer. Remember that the seller pays for freight and insurance, thus the cost transfer occurs when the items arrive at your target port. However, after the cargo are loaded into the vessel, you assume responsibility for the shipment. This means you’re responsible for any damage or loss that occurs during transit. You can file a claim with the seller’s insurance company if your products are damaged.

What does CIF incoterms mean? Everything you need to know

What are the Buyers’ and Sellers’ duties under CIF?

CIF lists clear obligations for both buyers and sellers.

Seller’s Responsibilities:

Package the goods to be ready for shipping.
Deliver the goods to the agreed destination port.
Arrange and pay for insurance to cover the goods during shipping.
Handle export customs clearance
Pay freight charges.
Load the goods onto the ship
Hand over necessary shipping documents to the buyer

Buyer’s Responsibilities:

Bears damages during shipping
Receive and unload the goods from the ship at the destination port.
Handle import clearance and pay customs duties
Transport the goods to the final destination.

When should I think about using CIF?

Sellers prefer CIF because it allows them to make a larger profit. However, consider using CIF when:

You have no prior experience with international shipping.
You want the seller to handle the shipping and insurance.
You desire the ease of having products delivered to your local port.
You wish to have your items sent by sea.
Your package is little.

The Benefits of CIF for the Buyer
Because the seller handles the majority of the logistics, CIF is a convenient shipping option for the customer. The following are the advantages of adopting this incoterm:

CIF is one of the most user-friendly incoterms for newcomers to international trading. It’s simple to find your way around.
Less stress: Because the seller oversees shipping, insurance, and customs procedures, CIF decreases your involvement in these processes.
Convenience: CIF simplifies shipping for you. The goods are delivered directly to the destination port, saving you time and effort.
Hazardous commodities: The seller is responsible for getting the relevant licenses and carefully packaging the items for safe transport when shipping dangerous goods.
Insurance: The seller is required to acquire insurance for your products until they arrive at the target port, which aids in the settlement of damages in the event of a shipping catastrophe.
Budgeting is easier with CIF since you have a comprehensive grasp of costs upfront, including shipping and insurance. Because you are not liable for shipping costs, you will not be caught off guard by sudden changes in freight costs.
Global Access: CIF allows customers to access items from all over the world without having to deal with complicated shipping issues.

CIF disadvantages for the buyer
CIF is not always a good option for purchasers because it means you lose control of the shipping process while bearing a significant portion of the risk.

Less Control: You have little influence over the seller’s shipping and insurance choices. For example, you may be unable to select a freight forwarder, and your seller’s selection may be untrustworthy. When problems develop, it can be difficult to resolve them directly.
Higher Costs: It is significantly more expensive for you than other Incoterms such as FOB. The seller adds the cost of shipping and insurance, which raises the price significantly over what you would pay if you arranged for them yourself.
Scams are possible because CIF puts you at the whim of greedy vendors who may inflate shipping charges to increase their profits at your expense.
Import customs clearance is still your responsibility, which might be challenging if you are unfamiliar with local restrictions.
Shipping risks: You are responsible for any losses or damages to goods during transport, not the vendor. Because the insurance is in the seller’s name, filing a claim with the seller’s insurance provider to address this can be difficult. It can also be difficult to discover damaged items in time to register a claim before the transaction expires.
Cheap and inefficient shipping options: To save money, sellers frequently use low-cost freight forwarders and shipping carriers. This can result in shipment delays, for which you will be held responsible.
Import restrictions: Some import rules for specific nations may be unknown to sellers. As a result, they may fail to give you with relevant documents such as the ISF, which may result in fines.
Container shipping is not recommended: CIF is not recommended for items sent in containers. This is due to the fact that these goods may spend many days in the airport before being shipped. Because containers are normally sealed until they reach their destination port, any damage to the cargo may go undetected until they are loaded onto the ship. When shipping containers, the incoterms CIP or FCA should be used.
Difficulty tracking shipment: Because you have limited control over the freight process, it is difficult to monitor your items during transit to determine the status of the shipment.
As you can see, CIF largely assists newbies to shipping who lack international trade experience. The drawbacks for more experienced customers are considerable.

How Do I Determine the CIF Price?

The CIF value of your goods determines the amount of customs duty you pay upon clearance. As a result, accuracy in this estimate is critical.

The entire CIF value is:

The overall cost of manufacture of the items, as shown on the commercial invoice.
The cost of the insurance (usually at least 110% of fair value)
The freight charges
Costs of transportation from the seller’s warehouse to the port.

You may use the following formula to calculate:

Cost of products + Insurance Costs + Freight Costs + Costs of transportation to the port

Best CIF Substitutes

FOB Shipping vs. CIF Shipping
The risk transfer occurs immediately after the products are loaded onto the ship in FOB shipment, but unlike CIF, the seller is not responsible for freight charges.

The main distinction between CIF and FOB is that in CIF, the seller pays for freight and must offer insurance.

While inexperienced buyers choose CIF, seasoned buyers prefer FOB since it gives them greater control over shipment. Keep in mind that CIF is more expensive than FOB.

CIF Shipping vs. CFR Shipping

CFR and CIF are inextricably linked. The seller is also responsible for paying freight fees, arranging customs clearance, and shipping merchandise to the destination port in CFR. The primary distinction between them is insurance.

While the seller is required to pay for insurance on products shipped CIF, the seller is not required to pay for insurance on products shipped CFR. However, if the seller so wants, insurance may be included.

DDP Shipping vs. CIF Shipping

Because it places all shipping responsibilities on the seller, DDP is the most buyer-friendly incoterm. The risk remains with the seller until the products are delivered to the buyer’s location in DDP shipping, as opposed to CIF shipping, where the risk shifts to the buyer once the items are on board the ship.

What is the distinction between CIF and CFR?

The main difference between them is insurance. While the seller is required to pay for insurance on products during CIF shipping, the seller is not required to do so during CFR shipping.