Cost, Insurance, and Freight Value: In Simple Terms
CIF or Cost, Insurance, and Freight value is the price paid or payable to the exporter for the cargo when it is unloaded from the shipper at the port when imported. The price includes the value of goods, insurance, and freight costs required for delivering the commodities at the port of destination.
CIF: Technical Definition
ClickPost defines CIF ( Cost, Insurance and Freight value) as a standard term of sale found in the international shipping agreement for commodities transported through waterways that constitutes the price paid or payable by the seller to cover the cost, insurance, and freight charges of the cargo to ensure the shipment reaches the agreed-upon port of destination safely.
How are CIF Price and Insurance Calculated
CIF value is derived by adding the value of the product during importation along with the freight charges and the insurance cost required for the arrival of the cargo at the port.
Who Pays for CIF
According to CIF terms, the seller pays the costs for insurance and freight charges until the cargo is loaded on board a shipping vessel.
Who Bears the Risks in CIF
The seller bears all the risks with the responsibilities of paying for the freight, cost of the product, and insurance till it is unloaded on the destined port from the shipping vessel.
What are the Standard Obligations for the Buyer and Seller Under CIF
The seller is responsible for:
-
Product, invoice, and paperwork
-
Packaging and labeling
-
Custom clearance and taxes
-
Pre-loading and transport
-
Loading on the vessel
-
Delivery at the port
The buyer is responsible for:
-
Purchase of the goods
-
Import taxes and paperwork
-
Unloading at the dock
-
Forward carriage
What are the Advantages and Disadvantages of CIF
Considering the fact that the seller is accountable for transportation, insurance, and cost of the cargo, there are certain aspects to look at before selecting CIF.
Advantages
-
The buyer need not declare the shipment to the insurer.
-
The seller takes all the responsibility of bringing the cargo to the destined port.
Disadvantages
-
The seller might choose a less impressive and cheaper insurance plan to mark up the final price for higher profit margins.
-
Some countries might not permit CIF, which requires the buyer to find an insurer.
What is the Difference Between CIF and CIP
CIF (Cost, Insurance, and freight value) and CIP (Carriage and Insurance Paid To) are very similar in functions. The difference is in the fact that CIF is specific to transportation via waterways, and CIP is used for all modes of transport. And with CIP, the seller bears the responsibility of delivery, delivery costs, and insurance till the cargo reaches the first shipper nominated for further transportation.
Which is Better, CIF or FOB
CIF (Cost, Insurance, and Freight value) and FOB (Free On Board) are shipping agreements between the buyer and seller. These shipping agreements are part of 12 internationally recognized norms developed and standardized by the International Chamber of Commerce for shipping operations across the globe. These agreements designate various responsibilities and nominate liabilities to the buyer and the seller. And they also specify where the duties and liabilities start and end.
With CIF, the seller takes responsibility for paying the insurance and freight charges till the buyer receives the goods. Whereas, with FOB, the liability and responsibility get sided with the buyer once the cargo is loaded onto the shipping vessel. The price for the rest of the operations falls under the buyer's responsibility. These agreements can affect the overall shipping price. For instance, with CIF, the seller might choose their desired carrier and mark up prices for profit. In comparison, FOB leaves it to the buyer to designate a carrier of their choice and provides the opportunity to pre-negotiate the costs. This will result in the expenses being reduced substantially. But CIF might be preferable, considering the seller might already have an existing agreement with customs clearance to make cross-border shipping simpler.