CIF is one of the most common terms used in the shipping industry. While everyone in the industry is familiar and uses this term on a daily basis, it can be quite confusing for the newbies. If that’s your concern, you’re in the right place.
This article contains everything you need to know about the term CIF and its usage in the shipping industry.
Cost, Insurance and Freight (CIF) is among the most used incoterms in the shipping industry.
Understanding CIF Meaning
In simple words, CIF is an incoterm that is devised by the International Chamber of Commerce. For those who don’t know, incoterm is a short form of International Commercial Terms which are used as a common trade and delivery language across the globe. These terms are standard and free from language restrictions, hence used worldwide.
Usually, when negotiating a global trade deal, there are multiple factors that you need to determine the right shipping terms for balancing your cost, profits and risks associated with that deal.
The Cost, Insurance and Freight (CIF) incoterm is suitable for negotiating your deal as it defines all the liabilities from the sender’s as well as buyer’s end. This term is applicable for shipping through the air, road as well as waterways.
What Is CIF Meaning in The Shipping Industry?
CIF is an incoterm that is widely used for shipments made through waterways but can also be used in other ways as well. This agreement requires the seller to arrange, pay and finish the delivery to the agreed port and also load the package to the vessel arranged by the buyer.
Moreover, the seller is compelled to make sure that the packages are against the damages and loss during the movement in the sea.
Besides, any unexpected rerouting, documentation, customs duties and paperwork that occurs during the movement, is also counted as the responsibility of the seller.
Seller’s Duties According To CIF Meaning
According to CIF meaning, the seller takes most liability, which means they must complete a number of duties in order to comply with the terms of the document. Here are the necessary duties :
- Arrange and pay all the charges incurred in shipment processing up to the agreed port.
- Ensure goods are loaded in the vessel within the agreed time limit.
- Ensure goods are cleared for export.
- Provide the buyer with proof of loading, delivery and enough notice.
- Make sure goods are free from damages and loss during transit.
Apart from these, the seller is also responsible for packing the goods in the right manner so that they stay safe and protected during the transition. Further, the fragile and hazardous cargo should be packed in special boxes such as a hazmat box for dangerous goods with proper labels.
Besides, the fresh goods also need to be packed in styrofoam packaging with shock absorption and insulation features that keep the goods safe from poor weather and rough movements.
Buyer’s Duties According To CIF Meaning
Once the packages are loaded aboard, the risk and responsibility are transferred to the buyer, who will cover the expenses beyond this point. These expenses include payment for goods, inland transportation, taxes, inspection and customs charges.
Advantages and Disadvantages of CIF Term
Benefits of CIF
CIF can be beneficial for inexperienced buyers who don’t know how to handle logistics in the country they are importing from. Further, CIF insurance is also helpful while shipping goods that are prone to damage. The potential advantage of CIF for sellers includes more profit because these terms are generally more costly for the buyers.
Disadvantages of CIF
As discussed above, CIF can be costly for a buyer. There is no doubt that adding a CIF term in the contract eliminates the risk and reduces the entire shipping cost, but there are some drawbacks that make CIF unsuitable for some types of shipments.
Because the seller takes the responsibility for transportation and insurance, this cost is often added to the price of goods to cope with the financial risks of the sellers. This means buyers may have to pay more than the actual price of goods in the market.
To reduce the overall shipping cost, some sellers opt for the cheapest shipping method which may result in unnecessary delays and non-protected transit.
Because the buyers have less control over the shipping process, there is a greater risk of damage. For some fragile cargoes like pharmaceuticals and electronic goods, proper packaging is extremely crucial.
Sometimes the sellers are unaware of the import cost and customs regulations at the destination country, which results in unexpected fines and duties.
These are a few things you should know and understand about CIF meaning. Also know that CIF is not a compulsion. It is not suitable for containerized cargo because the shipments are held on the terminal for days before being loaded on the carrier vessels. It is mostly used in the cases of bulk freight including goods and locations where the seller controls or operates the port.
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