What is CIF?
CIF terms are the earliest terms used by many people engaged in international trade and are also Incoterms that many shippers like to use, but slowly many importers start to use FOB terms.
This blog will tell you the answer.
Definition of CIF :
CIF is COST, INSURANCE, AND FREIGHT (NAMED PORT OF DESTINATION), which means that when the goods cross the ship’s rail at the port of shipment (actually in the shipping hold), the seller completes the delivery. The seller shall pay the freight and insurance premiums for the goods from the port of shipment to the port of destination, but the buyer shall bear the risk of damage and loss after the goods are shipped.
What is CIF in shipping?
In CFR, the seller must pay the freight and expenses required to deliver the goods to the designated port of destination, but the risk of loss or damage to the goods after delivery and any additional costs due to various events are transferred from the seller to the buyer.
However, under the CIF terms, the seller must also take out marine insurance against the buyer’s risk of loss or damage to the goods in transit.
Therefore, it is up to the seller to conclude the insurance contract and pay the insurance premium. Buyers should note that CIF terms only require sellers to take out a minimum level of insurance coverage. If the buyer requires a higher level of insurance coverage, it will need to explicitly agree with the seller, or make additional insurance arrangements on its own.
The formula for calculating CIF price:
CIF = FOB price + freight
1-Insurance rate × (1+Insurance bonus)
CIF = CFR price
1-Insurance rate × (1+Insurance bonus)
FOB, CFR, and CIF Conversion：
The FOB price is converted into other prices CFR price = FOB price + sea freight
CIF price = (FOB price + sea freight)/(1-insurance bonus× insurance rate)
CFR price converted to other prices FOB price = CFR price – sea freight
CIF price=CFR price/(1-insurance bonus×insurance rate)
The CIF price is converted to other prices FOB price = CIF price × (1 – insurance premium × insurance rate) – sea freight
CFR price = CIF price × (1-insurance bonus× insurance rate)
Explanation of CIF TERM:
CIF (Cost Insurance and Freight) is an internationally popular INCOTERMS.
Incoterms are gradually formed in international trade, indicating the special terms expressed in English abbreviations for the division of costs, responsibilities, and risks between buyers and sellers in transactions under different delivery conditions. Incoterms is a kind of international business practice, which is selected and applied by the parties and does not have the effect of compulsory use.
In “2000 Incoterms Interpretation”, CIF is one of the price terms most often chosen by buyers and sellers in international trade, also known as “CIF”. The term applies only to ocean and inland water transport. If the parties do not intend to deliver over the ship’s rail then the CIP term should be used.
CIF TERM: Main obligations of the seller
- Within the time limit stipulated in the contract, deliver the goods conforming to the contract at the port of shipment to the ship destined for the designated port of destination, and give the buyer a shipping notice.
- Responsible for handling the export procedures of goods and obtaining export licenses or other approval （certificates of origin, commodity inspection certificates, etc.)
- Responsible for chartering or booking space and paying the sea freight to the port of destination.
- Responsible for handling cargo transportation insurance and paying insurance premiums.
- Responsible for all costs and risks until the goods pass the ship’s rail at the port of shipment.
- Responsible for providing commercial invoices, packing list， insurance policies, onboard bills of lading, etc.
CIF TERM: Principal obligations of the buyer
Arrange the payment as stipulated in the contract.
- Responsible for handling import procedures to obtain import licenses or other approvals.
- Bear all costs and risks after the goods have passed the ship’s rail at the port of shipment.
- Receive the goods delivered by the seller according to the contract, and accept the documents consistent with the contract.
Why use CIF shipping?
In actual international trade, CIF shipping is also widely used.
For some small buyers, or e-commerce platform sellers, Amazon sellers, are not proficient in international logistics, or how to choose a good shipping company no matter when they import from China or from Cambodia, Malaysia, India, or Thailand.
CIF TERM is especially suitable for these small buyers who would be confused by the multitude of Incoterms.
They will feel that it is more convenient for suppliers to arrange shipments and find freight forwarders, and they are not so sensitive to the price of sea freight or air freight.
And they don’t want to spend too much time looking for logistics providers when sending sales goods, such as air freight less than 50kgs or C goods of 0.4 cubic meters. Of course, for such small goods, the difference between their FOB and CIF sea freight is not that big, of course. LCL may also reach hundreds of dollars. even you ship 0.4CBM goods.
This is ignored by many small importers, that is, for LCL goods, we strongly recommend the use of FOB terms.
Including the current global port congestion due to COVID-19, the prolonged average berthing time of ships, the shortage of containers, the increase in sea freight, and the unstable shipping schedule, these factors make the original FOB shipping freight forwarder unable to provide the original stable services, such as From China and other Asian countries to the United States, some importers will also start to use CIF shipping to ship their containerized goods, to compare with Fob shipping.
In the past, these FCL stipulated goods are usually FOB terms, and these importers have their own destination freight forwarder or their own China freight forwarder.
Why import purchases through CIF TERMS?
CIF terms are also a good option if the quantity of goods purchased is small, or for newcomers to the trade.
You need to wait for the goods at the port of destination or door, without going through the responsible shipping process.
Of course, under the circumstance that the sea freight is so high now, the shipping cost is likely to exceed the value of the goods.
Of course, if your purchase quantity starts to increase, we do not recommend CIF terms.
The forwarder and the supplier you choose as the usual supplier will add double profit, on the sea freight, so why is the CIF’s shipping rate is so high.
And once there is a problem with the goods, the processing time will be slower, and it is difficult for you to track the overall progress of the goods.
This is why if you have your own shipping agent, your delivery will become easier. Of course, it is not easy to find a freight forwarder with scale, compliance, and good price in the current situation.
According to CIF terms, the supplier will send the goods to the destination port and the destination airport. In addition to the timely arrival of the goods, various customs clearance documents, bills of lading, commercial invoices, packing lists, certificates of origin, and relevant certifications are all indispensable. If the arrival is delayed, it will cause Destination port regular additional DET, DEM, warehouse fees. This will greatly reduce the profit.
Why is FOB shipping widely used?
The most common Incoterms in the world are still FOB terms.
Advantages of FOB shipping:
Importers can control and choose the sea freight and air freight themself, which is conducive to cost control.
Importers can choose their own carrier, freight forwarders, routes, and the best loading ports.
Importers can flexibly purchase insurance
Importers can better control the entire process of international shipments.
Choose a global forwarder, you only need to contact a forwarder, you can handle the goods shipped from China, Malaysia, Vietnam, Thailand, Myanmar, Cambodia. You don’t need to contact a lot of forwarders and spend more time, you can use the forwarder’s branch network and mature agency network.
The importer can completely change the shipping service provider if he thinks the price is too high, unlike CIF shipping, the importer needs to pay the freight and insurance to the consignor, and the consignor arranges the freight, which is very inflexible.
When you purchase from China and you have many suppliers in different cities, you need to use EXW or FOB shipping. Your freight forwarder will coordinate multiple suppliers for a combined delivery. This is not possible under CIF terms, because Few suppliers are helping with this extra work only in fulfilling deliveries, and they usually don’t want to be involved in the shipment of goods that don’t belong to them.
Importers have better control over their cargo rights under FOB shipping, compared to CIF shipping.
Under what circumstances should I not use the FOB term?
For new importers, we do not recommend using FOB shipping because they lack the experience and ability to deal with international logistics contingencies.
If you don’t know much about the responsibility of international ocean and air freight, you can ask the supplier to arrange CIF shipping and transfer part of the responsibility to the shipper.
Why use the CIF term?
For experienced importers or buyers who regularly import from overseas, it is recommended to use FOB shipping.
The high shipping costs of CIF shipping are not accepted by these importers, they have better logistics strategies, logistics resources, and price channels， they may also have their own shipping agent to handle their cargo.
These importers will let their freight forwarders buy insurance, and they can become the beneficiaries of the insurance themselves, not the sellers. They know how to solve the shipping costs and make better profits instead of wasting a lot of money when importing from overseas.
In addition to the price, experienced buyers care about the overall logistics progress control and the control of the cargo rights.
They care more about their reputation, try their best to get the goods to the port on time, and also try to get the supplier to provide some import customs clearance documents quickly.
They will not be overly dependent on sellers due to logistics. These importers have their own freight forwarders, and they can contact their own freight forwarders at any time. Usually, they will look for freight forwarders in their own countries. Some smart importers will choose a China logistics company or a specialized one to handle the cargo from China. The shipping company responsible for shipping from Asia is responsible for its own door-to-door and port-to-door logistics from overseas.
For imports, the shipping cost of CIF shipping is high, usually, shippers prefer their own freight forwarders and have some interests with each other. Additional air freight, sea freight, and LCL freight will be charged.
Especially for importing OOG, dangerous goods, Oversized cargo， project cargo， FR container, RF containers, and OT container and breakbulk cargo, many importers can’t find professional freight forwarders. They still choose CIF shipping. As a result, they pay a very high additional shipping fee to the supplier，
When they can’t find a person they can really trust, or they are afraid to take these logistics risks, or they don’t know how to operate these special goods, then CIF shipping is the only option, and they have no choice.
After solving the delivery at the port of departure, the customs clearance at the port of destination will also become faster and more controllable.
For exported goods, we recommend sellers to use CIF shipping, CIF shipping sellers can have the opportunity to earn more profits.
For imported goods, we recommend buyers use FOB shipping. FOB allows buyers to save more shipping costs.
Notes for CIF SHIPPING:
In terms of CIF and FOB, the delivery point and the risk point are both on the ship at the port of shipment. The seller completes the seller’s obligations when the goods are safely loaded onto the ship at the port of shipment. The seller is no longer responsible for the possible risks of the goods after shipment. The seller will hand over the insurance policy, bill of lading, etc. to the buyer, and the risk claim will be handled by the buyer. After the seller loads the goods at the port of shipment, the seller obtains the ocean bill of lading and sends the main shipping documents to the bank or to the buyer by himself. After the underwriting insurance obtains the insurance policy and pays the sea freight and the local fee for the shipment, all delivery obligations are completed.
Under CIF conditions, the seller can book the ship independently, choose the shipping company or freight forwarder, pay the sea freight, terminal fee, etc. Generally, the freight forwarder/shipping company designated by the buyer is not accepted. In actual business, customers will choose Maersk with better service abroad. , MSC and other well-known shipping companies generally confirm the freight with the buyer, which is acceptable after the shipping date, but generally cannot be shipped by the freight forwarder designated by the buyer. The seller shall update the buyer in time after the shipment has been shipped.
The seller handles insurance at the port of shipment:
Generally, when concluding the contract, the insurance amount, the type of insurance and applicable insurance terms, as well as the start and end period of the insurance liability are specified, and the insurance policy must be endorsed and transferred to the bank when it is presented. buyer. The seller is not responsible for guaranteeing that the goods will arrive and when they will arrive at the port of destination. The seller is not responsible for the damage, dampness, loss, etc.
Unloading costs: terminal operation fees, etc. CIF generally uses the PORT TO PORT clause, the cost of the port of departure shall be borne by the seller, and the cost of the port of destination shall be borne by the buyer.
Shipping notice, transit of goods, arrival date, etc.
If the goods have been damaged or lost when the seller submits the documents, the buyer still has to pay against the bill of lading. The buyer can claim damages from the insurance company with the bill of lading from the shipping company/shipping agency and the insurance policy but cannot file a claim with the seller.
In actual business, it is unreasonable for the buyer to claim that the goods are in the transit port, and the goods are not transited or changed on time, and the goods are delayed for two or three transits on the way to the port, which affects the delivery of their garments/finished products. If the seller fails to deliver the goods to the destination port in time due to the delay at the transit port, he can sign a liability waiver agreement in the contract.
Variation of CIF TERM:
Under CIF conditions, the issue of cost burden refers to sea freight and unloading charges. According to the meaning of CIF, the seller is responsible for chartering or booking energy and paying the sea freight. . During transportation, the ship may encounter bad conditions, or the ship fails. The freight that needs to be sheltered or repaired is called abnormal freight.
Unusual freight should be borne by the buyer, which should be clearly stipulated in the contract. Regarding the burden of unloading charges, each port has different practices. In order to distinguish the responsibilities of buyers and sellers, in the CIF contract of bulk cargo transaction or Breakbulk shipping, it should be clearly stipulated who should pay the unloading fee to avoid disputes in the future. The method to clarify who should pay the unloading fee is to add various additional conditions after the CIF Incoterms, which form the deformation of the CIF Incoterms.
CIF Liner Terms:
It means that the goods are shipped according to the liner conditions, and the unloading cost after the goods arrive at the destination port has been included in the freight, that is, the ship is borne. In fact, the unloading fee is borne by the seller.
CIF Ex Ship’s Hold:
This means that after the goods arrive at the port of destination, the unloading costs from the bilge lift to the unloading terminal shall be borne by the buyer.
CIF Ex Tackle:
It means that after the goods arrive at the port of destination, the seller only pays the cost of lifting the bilge of the ship until the ship is unloaded from the hook. If the ship cannot be docked, the barge fee and terminal fee shall be borne by the buyer.
Refers to the seller to bear the cost of unloading the goods to the port of destination. Including the barge fee and wharf fee for renting a barge to the shore due to the inability of the ship to dock, the seller shall bear it.
The following introduces the common differences between CNF, CIF, FOB, CFR, and CIP:
What is the meaning of CNF, CIF, FOB Term related to shipping?
CNF=C&F means Cost and Freight plus freight; compared with CIF, CNF lacks I, that is, Insurance;
CIF=Cost, Insurance & Freight. CNF belongs to the past tense, according to the “2000 Incoterms”.
CFR trade term is the abbreviation of Cost and Freight (… named port of destination) (the outdated abbreviations C&F, C and F, CNF or C+F should no longer be used) This term means that the seller must pay for the delivery of the goods to the agreed port of destination required cost and shipping. According to the “2000 Incoterms”, this term can only be applied to sea and inland shipping.
The difference between CIF and CIP:
CIP and CIF have similarities in that their price structure includes the usual ocean freight and agreed on insurance premiums, and contracts concluded under both terms are shipment contracts.
However, the terms of CIP and CIF have obvious differences in terms of delivery location, risk division, and responsibilities and expenses borne by the seller, mainly in:
CIF is applicable to water transportation. The place of delivery is at the port of shipment. The risk division is based on the port of shipment and boarding the ship. The seller is responsible for chartering and booking space, paying the freight from the port of shipment to the port of destination, applying for water transportation insurance, and paying insurance premiums.
The CIP term is applicable to various modes of transportation. The delivery location should be agreed upon by both parties according to the different modes of transportation. The risk is transferred when the carrier controls the goods. The insurance provided by the seller is not only water transportation insurance but also includes various transportation insurance. But the actual international logistics summary, the frequency of CIF shipping is much higher than that of CIP shipping.CIF term, FOB term, EXW term are the three most popular Incoterms in international trade.
CIF TERM VS FOB TERM:
The differences between CIF SHIPPING and FOB SHIPPING in actual international trade and operations are described below.
FOB Term(free onboard):
That is delivery on board at the port of shipment (but when dealing with North American countries, it should be followed by FOB +vessel means delivery on board). Therefore, the seller will deliver the goods that meet the contract to the designated buyer at the time and port of shipment specified in the contract. onboard and promptly notify the buyer. Shipping and insurance after that are not the seller’s responsibility.
CFR (cost and freight formerly called C&F, “90 General Rules” changed to CFR):
Cost-plus freight, the seller is responsible for the transportation of the goods and bears the freight to the designated port of destination, ships within the shipping port specified in the contract and within the specified shipping period, inform the buyer, submits relevant documents, and is responsible for completing the delivery obligation after customs clearance. Not responsible for insurance.
CIF (cost, insurance, and freight):
Cost, insurance, and freight, as the name suggests, are more insurance than the CFR Term. That is, the seller is responsible for entering into a transportation contract from the origin to the destination, and pays the normal transportation costs. In the CIF term, the seller is more responsible for handling cargo insurance. , pay the corresponding insurance premium.
What are the similarities between CIF TERM and FOB TERM?
1) The place of delivery of these terms is at the port of shipment, and both apply to water transportation.
2) Even if CIF is responsible for the cost of insurance, the risk transfer is based on the port of shipment and shipment on board. In other words, once the shipment is completed, the seller has nothing to do.
3) In order to clarify the burden of loading fees or unloading fees, and to simplify complex transactions, these three terms have their corresponding deformations.
4) Contracts concluded under these terms are all shipping contracts.
How do FOB TERM and CIF TERM benefit shippers and consignees?
Choosing to trade at FOB price is beneficial to yourself in the volatile market conditions of freight and insurance premiums. But there are also many passive aspects, such as: due to the delay of the importer in dispatching the ship, or the delay of the shipment due to various circumstances, the change of the name of the ship will cause the exporter to increase the expenses of storage and other expenses, or to receive the payment late. resulting in loss of interest.
In terms of the exporter’s control over the exported goods, under the FOB term, since the importer and the carrier contact their own FOB forwarder to arrange the shipping, once the goods are loaded, the exporter even wants to resell the goods in transit or at the destination. , or take other remedial measures, it will take some troubles and generate more costs.
Under the condition of exporting at CIF price, the problem of cargo connection can be solved better, so that exporters have more flexibility and mobility. In general, as long as the exporter guarantees that the goods shipped conform to the contract, and as long as the documents submitted are complete and correct, the importer must pay.
After the goods have passed the ship’s rail, even if the goods are damaged or lost at the time of payment by the importer, the importer shall not refuse to pay the payment due to the damage.
That is to say, an export contract concluded at CIF price is a specific type of “sale of documents” contract. A shrewd exporter should not only be able to grasp the quality and quantity of the goods he sells, but also grasp every link in the process of the goods arriving at the destination and the payment collection process.
The loading, transportation, and risk control of goods should be controlled as much as possible so that the profit of trade can be guaranteed. This is why CIF terms are suppliers’ favorite Incoterms, compared to Fob term， that mature importers should avoid using CIF terms.
CIF term FAQ guide:
What does CIF Bangkok or CIF Shanghai mean?
The most common understanding is that the suppliers in Bangkok and Shanghai are responsible for sending the container or LCL goods from the factory or warehouse to the destination port, and paying the sea freight and purchasing insurance.
Containers delivered to Bangkok Port or Shanghai Port:
FCL: The importer pays the local cost of the shipping company, completes the customs clearance, and picks up the goods.
LCL: The importer pays the port of destination fee for LCL and completes customs clearance and picks up the goods.
Will the CIF terms appear on the bill of lading, when shipping from China？
No， the bill of lading will only show ocean freight collected and prepaid. Generally speaking, if it is CIF shipping, usually the bill of lading shows ocean freight prepaid.
Does CIF Term affect the letter of credit?
There is no impact, just provide the invoice, packing list, insurance policy, letter of credit, and customs declaration required by the letter of credit.
What are the most common shipping terms?
1 CIF is suitable for primary importers, and the import of small quantities of goods.
2 FOB is more suitable for intermediate-advanced, mature, and experienced importers, as well as global sourcing importers.
Does Incoterms 2020 have any major updates and changes to the interpretation of the CIF term?
In fact, not much has changed. In practice, you can still refer to Incoterms 2010.
How is the CIF term insurance premium calculated?
CIF insurance premium = total commercial invoice value * 110%, 10% is used to pay for unpredictable expenses
We suggest that no matter who buys the insurance, the beneficiary should be the importer, then the claimed efficiency will be greatly improved if the claim address is the destination port.
How to buy cargo insurance under CIF?
In the case of CIF, the buyer or seller can be allowed to apply for insurance, and the beneficiary of the insurance can be the payer of the insurance premium.
In international trade operations, there is still a big difference from the theory.
What is CIF Delivery?
This is a shipping term under CIF which states that the seller should be responsible for delivering the goods to the port of destination.
Under CIF Delivery, the buyer has to organize the inland transportation of the goods until they reach the final destination from the port
How does risk transfer in CIF term happen?
Under the CIF, there are two levels of risk transfer from one party to the other.
From the seller’s point of view, the transit process is carried out by the seller from the origin to the destination port.
Therefore, during this period, the CIF risk of the shipment is borne by the seller.
But once the seller loads the goods on a ship bound for the buyer’s country, the risk shifts to the importer.
The uncertainty of damage to the goods and tariffs are therefore passed on to the importer.
In this case, if the buyer fails to clear the customs in time, the damage and loss shall be borne by the buyer.
How does freight collect and freight prepaid differ?
Generally speaking, in the case of FOB term and EXW term, the sea freight is displayed on collect on Bill of lading，and the consignee pays it to the forwarder.
In the case of CIF term, the sea freight is prepaid, paid by the consignee to the consignor, and the consignor is entrusted to arrange the freight, then the freight forwarder is selected by the consignor.
Importing from China, is it a good idea to use CIF TERM?
For newcomers to international trade, and for small quantities of goods, the CIF term is a good choice when you ship from China.
You can be protected from some risks. The damage of the goods in transportation is also the responsibility of the shipper. You don’t need to think too much. Just wait for the goods to arrive at the destination port, bring the customs clearance documents provided by the supplier, and let your customs clearance broker clear the goods fast.
Of course, the overall logistics cost for the CIF term is relatively high, compared to choosing your own China shipping agent.
Are CIF terms suitable for air freight or express delivery?
Theoretically not, because Incoterms stipulates that CIF is generally used for LCL and FCL for ocean freight.
However, in practice, CIF terms are also widely used for air shipments. The importer asks the shipper to arrange air shipments imported from overseas. There are still many small differences between the actual trade and freight operations and the International Chamber of Commerce (ICC) regulations.
Express delivery rarely uses CIF terms in actual operation. Express delivery is in the form of door-to-door by default. For a small number of goods, the division of responsibilities is also different from that of air freight.
CIF terms, customs duty, VAT relationship:
When the goods are delivered to the destination port of the importing country, the task of the consignor is over, and the importer needs to find a customs clearance broker, clear the goods, and pay the corresponding customs duties and value-added tax according to the HS-CODE of the product. These are all borne by the importer and have nothing to do with the seller.
Are CIF terms suitable for container shipping?
For the shipper, the risk from the place of shipment to the port of destination lies with the shipper. They want to ensure that the goods will not be damaged during transportation, so they will purchase insurance and take photos before shipment such as loading inspection.
Moreover, the container goods of CIF shipping are relatively expensive, and the current ocean freight is 5-10 times that before COVID-19, so the best container shipping terms are still FOB shipping.
What does CIF destination mean?
In international shipping, cargo is always designed to stop at a specific port in the country of destination.
Therefore, the CIF destination simply refers to the final destination port to which the goods are finally delivered at the end of the transit process, which is the specific place where the goods are finally unloaded from the ship after reaching the destination port.
In simple terms, it refers to the transfer of risk from the seller to the buyer’s port of import.
In this case, it is always important for the buyer to provide the correct port of destination for the goods.
Regardless of whether to use CIF or FOB to ship your goods, different importers and exporters still have to choose according to their actual situation.
Choose a compliant freight forwarder, strictly implement the export declaration and import customs clearance process, assist you in reviewing export declaration documents and import customs clearance documents, provide stable, reliable, and cheap sea freight, and use the professionalism and resources of the freight forwarder Network.
Simplify your own import affairs and reduce your hassle with shipping arrangements.