In the world of international trade, the Incoterms® rules are well established norms by which you can do business. They clearly state who is responsible for each part of the delivery process – whether the buyer or the seller handles the various stages.
CIF is one of those terms. Here’s an introduction to what it means.
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There are 11 Incoterms® rules in total, and CIF – standing for cost, insurance and freight – is one of four that relate only to waterbound transportation.
That means either sea freight or transportation via inland waterways. CIF shouldn’t be used for air or land transportation, or for containerized goods.
So, who does what under the CIF rule?¹ ³ ² ⁴
The seller is responsible for:
- Insuring the goods for their main carriage.
- Clearing the goods for export.
- Loading the goods onto the vessel.
- Getting the goods to the destination port.
The buyer is responsible for the process once the goods have arrived at the destination port, including handling customs there.
However, risk transfers at an earlier point. The buyer is responsible for risk from the moment the goods are loaded onto the vessel – so the risk during the main carriage is the buyer’s.
There are a few things to bear in mind if you’re considering using CIF:
- According to the CIF rule, insurance coverage can be quite minimal, and only needs to cover the main, seabound portion of the delivery. If a greater level of insurance coverage is desired, that should be specified separately in the contract.¹ ² ³ ⁴
- The seller loads the goods onto the vessel, so they’ll need to have direct access to it.¹ ² ³ ⁴
- Note that the risk transfers once the goods are loaded onto the vessel. That’s one reason why CIF shouldn’t be used with shipping containers, where it’s hard to tell exactly when damage has occurred to the goods inside. CIP or CPT might be decent alternatives.¹ ² ³ ⁴
The Incoterms® rules are usually updated by the ICC every 10 years, and a new set was published in 2020. The previous set was in 2010. Incoterms® 2015, Incoterms® 2016, and so on, don’t exist.⁵
So long as you specify which set of rules you’re using, there’s no obligation for you to use the latest set of rules in a contract. Just make sure all parties know what you’re talking about.
Were there any key changes in 2020? As far as CIF goes, not really – but there’s one thing to bear in mind.
CIF and CIP (“carriage and insurance paid to”) are the only two rules that specify that the seller is responsible for insurance. In the Incoterms® rules 2020 update, the minimum level of insurance under CIP was increased. However, the same change didn’t occur for CIF – the minimum insurance level for CIF remains relatively low.⁶
Be careful when using CIF, as the rules aren’t totally intuitive. While the seller pays costs up to the end of the main carriage, the buyer assumes risk at an earlier stage.
Plus, the seller does have to arrange insurance, but you might well need to discuss in detail exactly how much coverage is required.
CIF is one of the four terms that can only be used for waterbound shipments, but don’t forget about the seven terms that can be used for any type of shipment. It could be worth checking out CIP instead, which now requires the seller to take out a higher level of insurance.
1.Shipping Solutions - Incoterms 2020 CIF: Spotlight on Cost, Insurance and Freight
2.Freightos - CIF Incoterms: Cost Insurance & Freight Shipping
3.Incoterms Explained - Cost Insurance & Freight
4.Investopedia - Cost, Insurance, and Freight (CIF) Definition
5.International Chamber of Commerce (ICC) Incoterms® 2020
6.ICC - What are the key changes in Incoterms® 2020?
All sources checked 14 May 2020
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
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