Cost Insurance and Freight – Definition

Cite this article as:"Cost Insurance and Freight – Definition," in The Business Professor, updated January 24, 2020, last accessed August 14, 2020, https://thebusinessprofessor.com/lesson/cost-insurance-and-freight-definition/.

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Cost, Insurance, and Freight (CIF) Definition

Cost, Insurance and Freight (CIF) which can also be known as “port of destination” is a rule which makes the seller of a commodity pay for all costs and Freight, including insurance against commodity loss or damage that might affect the quality of a buyer’s order, so that he can bring his commodities to the port of destination. In simple terms, the seller of a good bears all costs associated with sending the goods, and all costs relating to damage or loss to the good while the goods are being loaded onto a transport ship. However, once the goods are successfully loaded on the transport ship, all risk associated with the good is transferred to the buyer.

Terms of Cost, Insurance, and Freight

CIF Terms for the Seller.

CIF requires the following from the seller:

  • Insuring the goods under at least the minimum cover of the Institute Cargo Clauses of the Institute of London Underwriters or any other akin set of clauses, for 110% of their value. The policy should be in a similar currency as the contract.
  • To acquire goods from the carrier or declare claims against an insurer, all necessary documents must be given to the buyer by the seller. As a minimum, the documents to be given to the buyer include: invoice, insurance policy and loading bill. All three documents are a representation of the cost, insurance and Freight.
  • Once the documents have been handed over to the buyer, the seller’s duties come to an end.

CIF Terms for the buyer

  • The buyer must pay the price stated in the contract for the goods. The rule doesn’t specify when or how the payment is to be made. These should be listed in the contract.
  • Apart from the buyer taking responsibility of the goods after the seller has successfully loaded them on the transport ship, the buyer must also receive the goods from the carrier at the named destination port.
  • The goods have been successfully delivered once they have been released from the seller’s control, and not when they reach the named destination port.
  • All risks of loss or damage to the goods is born by the buyer once the seller has delivered them.

The ICC and Cost, Insurance and Freight

Cost, Insurance and Freight is one of the International Commercial Terms’ (Incoterm) predefined commercial terms issued by the International Chamber of Commerce (ICC) in 1936, in relation to international commercial law. Incoterms rules were created in detail to communicate tasks, costs, and risks related to global transportation and goods delivery. Although they don’t conclude a contract themselves, they give informed sales contracts and govern contract laws. These rules are accepted worldwide by governments, legal authorities ad practitioners for interpreting most used international trade terms. They are used to remove or reduce confusion due to different rule interpretations by different countries. It gives the Cost, Insurance and Freight its terms of contract as stated above.

Fast Facts

  • Cost, Insurance and Freight is one of the International Commercial Terms’ (Incoterm) predefined commercial terms issued by the International Chamber of Commerce (ICC) in relation to international commercial law.
  • In CIF, the seller of a good bears all costs associated with sending the goods, and all costs relating to damage or loss to the good while the goods are being loaded onto a transport ship.
  • The buyer bears the risk of loss or damage to the goods from the agreed date or at the end of the agreed period if he doesn’t inform the seller about the destination port or the point within that destination port, thereby, making the seller unable to deliver the goods.

Real World Example

For example, Lin-Fa orders Thai spices from Spice Story in Thailand using CIF  to Shanghai Port, China. Spice Story delivered the order to the port and successfully loaded them unto the Myanmar Express. Lin-Fa took responsibility for all the costs required to get the goods to its final destination. Unfortunately, water got in one of the cargo bays and Lin-Fa’s spices order was damaged while some got lost. Since Lin-Fa used Cost, Insurance and Freight shipping, they were in charge of the safety of the goods getting to the destination port without damage while en route. Lin-Fa will, therefore, take responsibility of all costs caused by the damage instead of Spice Story.

References for “Cost, Insurance and Freight – CIF”

https://www.investopedia.com/terms/c/cif.asp

https://www.morethanshipping.com/should-i-buy-cif-or-fob/

https://www.tradefinanceglobal.com/freight…/cif-price-cost-insurance-and-freight/

https://www.incotermsexplained.com/the-incoterms-rules/…/cost-insurance-freight/

www.businessdictionary.com/definition/cost-insurance-freight-CIF.html

https://internationalcommercialterms.guru/incoterms-cif/

https://www.nasdaq.com/investing/glossary/c/cost-insurance-and-freight

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