Cost, Insurance, and Freight (CIF) Meaning

In simple words, it is an expense incurred by the supplier for covering all the costs, such as freight and insurance against the loss of goods due to damage, theft, etc., to a purchaser’s order when the goods are in transit. CIF contract term defines that the liability of a buyer begins from the time when the liability of a seller ends.

How does It Work?

  • Cost, insurance, and freight are confined to commodities transported by the inland waterway or sea. In this, a seller will need to arrange and pay for expenses for the transportation of goods to the export port mentioned in the sales contract. The contract seller will deliver the goods specified in the sales contract. The risk of the goods will remain with the seller until the buyer does not receive the goods from the export port.The seller is responsible for all the related costs and liabilitiesLiabilitiesLiability is a financial obligation as a result of any past event which is a legal binding. Settling of a liability requires an outflow of an economic resource mostly money, and these are shown in the balance of the company.read more (if any) until the buyer receives the goods. Once the buyer receives the goods, the risk passes on to the buyer of the goods. It means that the moment the goods are received by the buyer, the seller’s responsibility will end, and the buyer’s responsibility will begin. The contract seller will not be liable for the loss, damage, or theft of goods once loaded onboard for being transported to the export port provided in the sales contract.

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CIF vs. FOB

  • It is the short term used for Cost, Insurance, and Freight, whereas FOB is the short form used for Free on BoardFree On BoardFree On Board Destination implies that the ownership of the goods supplied from a foreign country is transferred to the purchaser of the goods only when the goods reach the buyer’s specified location. Hence, the seller bears all the goods losses that occur during the transit.read more. In this system, it is the responsibility of the seller to bear all the costs and liabilities of the goods till the time the buyer does not receive the same, whereas, in a FOB or free onboard mechanism, things are quite the opposite since it is the buyer who is responsible for bearing the costs and liabilities about goods transported and not the contract seller.Cost, Insurance, and Freight option gets relatively more expensive for buyers than the Free Onboard Option. The former puts a burden on the seller for the shipped goods. Whereas the latter, in a way, relieves the stress of the seller once the goods are loaded on board.

CIF Rules

The rules are as follows:

  • General Obligations- The seller must abide by the rules of CIF and must necessarily provide a commercial invoice to the buyer of the goods.Delivery- The delivery of the goods will start when the goods are loaded on the board and not when the goods reach the export port mentioned in the sales contract.Transfer of Risk- The seller will have to bear all the risks of the loss, theft, or damage of goods until and unless the buyer does not receive the same.Carriage– The seller will be responsible for the carriage of the contracted goods from his place to the export port.Insurance- The seller is also responsible for the insurance of goods, and he will need to get it all done at his own expense.Delivery or Transport Document- The seller is also responsible for providing the buyer of the goods with the documents about transport or delivery.Export or Import Clearance- The seller will have to take care of all the formalities about export at his risk and expenses.Checking or Packaging or Marking- The seller will have to pay the costs of checking the goods’ quality, packaging, or marking.Allocation of Costs- The contract seller must bear all the expenses till the time goods are not delivered to the buyer. These costs will also include expenses for freight and insurance.Notices- The contract seller must issue a notice to the buyer confirming the delivery of the goods.

Advantages

  • The seller is being charged with making the arrangements for carriage, and insurance of the goods will have an added opportunity to enhance his profit figures.The seller will not have to bear any risk during the time the goods are in transit.The seller has full rights to retain the transportation of goods until and unless the buyer does not pay for the goods.The buyer will not need to stress about the transportation of the goods.

Disadvantages

  • It can be an expensive option for the buyer of the goods. It is because the seller might charge the buyer of the goods more to earn more profits from the transaction.The buyer and seller of a contract might also face communication issues.The buyer might also have to bear extra costs at the export port about custom fees and dock fees before the clearance of the goods.

Conclusion

The full form of CIFFull Form Of CIFCIF stands for Cost, Insurance, and Freight. CIF is an expense that comprises costs, insurance, and freight that must be borne by the seller of the products until the goods are loaded on board the vessel, at which point the seller’s liability for the goods is transferred to the buyer.read more is cost, insurance, and freight. In this option, the contract seller will take responsibility for the goods and ensure that the same are insured against loss, theft, or damage when these are loaded onboard to be transported to the export port specified in the sales contract.  The seller will take care of the expenses about the costs, insurance, and freight of the goods, and as soon as the buyer receives the goods, the responsibility will pass on to the buyer. The seller will be relieved of this responsibility.

This article has been a guide to What is Cost Insurance & Freight and its Meaning. Here we discuss how it works, its rules, and its advantages and disadvantages. You can learn more about it from the following articles –

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