Because risk is transferred to the buyer once the shipment is loaded, the risk is relatively low. Until the shipment is loaded, the seller is responsible for any loss or damage. In CIF agreements, the sales contract is often made well in advance of the actual shipping date. Given that the seller is responsible for paying various costs, any fluctuation in currency exchange rates can impact the final amount the buyer has to pay, adding cost insurance and freight meaning another layer of financial uncertainty. Since the seller handles all the shipping arrangements, there may be additional costs like port charges or handling fees at the destination that are not included in the CIF price. The difference between the two agreements, though, lies in one additional responsibility that falls on the shipper (seller), who must also provide a minimum amount of marine insurance on the goods being shipped.

  1. An exporter, company A from Texas signs a contract with the importer company B in Finland, to ship their goods from the US to Finland.
  2. A delivers the goods cleared for export onboard the vessel at the Houston port.
  3. Prior to TFG, Deepesh worked at Travelex where he was responsible for the cards business and the Travelex Money app in Europe, NAM, UK and Brazil.
  4. The seller must deliver the goods, clear them for export, and load them onto the transport ship.
  5. Usually, this includes providing the required customs forms to clear the cargo through the customs inspection process.
  6. This can sometimes lead to higher expenses, especially if the seller marks up these services.

CIF is only used when shipping goods via ocean or waterway, meaning CIF cannot be used for air freight. CIF can be easier for buyers who don't want to go through the trouble of obtaining insurance, paying freight charges, and assuming all of the responsibility for shipping internationally. There are certain situations when CIF is the better option to use when shipping and receiving goods. It's a good idea to use a https://adprun.net/ CIF contract when buyers deal with international suppliers, especially when sellers have easy and direct access to shipping vessels. CIF agreements cut down the need for buyers to take care of logistics in areas where they may not have experience, so all they need to do is simply take possession of the shipment once it arrives. Keep in mind, though, that CIF agreements are normally much more expensive than others.

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. Add cost, freight and insurance to one of your lists below, or create a new one. Delivery is considered to be accomplished, and responsibility for the goods transferred from the shipper to the buyer or receiver, at the point when goods are loaded aboard the ship at the designated port of origin. There are 11 Incoterms in total developed by the International Chamber of Commerce.

That's because the buyer can negotiate a cheaper price for the freight and insurance with a forwarder of their choice. In fact, some international traders seek to maximize their profits by buying FOB and selling CIF. CIF is commonly used for large deliveries, including oversized goods, that are shipped by sea. The seller also obtains the necessary documentation, licenses, and inspections that may be required.

Scaling orders volumes whilst saving time and money on fulfilment

For example, with containerized cargo shipments, the goods may sit in a container for days before being loaded onto the vessel at the seller's port. Under CIF, the buyer would be at risk since the goods would not be insured while they sit in the container waiting to be loaded on the vessel. As a result, CIF agreements would not be appropriate for shipments, including containerized cargo. Buyers generally consider FOB agreements to be cheaper and more cost-effective.

This is because the total cost is known upfront, allowing for more accurate budgeting and financial planning. In a CIF agreement, the seller usually provides real-time tracking options, offering both the business and the end customer the ability to monitor the shipment. This feature is particularly beneficial for platforms where customer expectations for timely and transparent delivery are high.

Cost and Freight

The two are part of a larger group of international trade rules known as Incoterms. These global guidelines for traders were devised by the International Chamber of Commerce (ICC), with the first version published in 1936. However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place. Manufacturers who order low shipping amounts are at a very low risk that their goods will be damaged. However, for those who ship regularly from Chinese ports, there’s a risk that at some point they’ll have broken goods that they’ll have to file a claim for.

All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional. In this article, we’ll explain what CIF means in more detail, how it benefits buyers and sellers, and when it’s suitable to use.

When Should I Use CIF?

Since the seller pays the shipping, freight, and insurance costs until the cargo arrives at the buyer's destination port, the cost transfer occurs when the goods have arrived at the buyer's port. However, the risk transfer occurs from the seller to the buyer when the goods have been loaded on the vessel. Although the seller must purchase insurance, the buyer has ownership of the goods once loaded onto the ship, and if the goods have been damaged during transit, the buyer must file a claim with the seller's insurance company.

The seller is also responsible for any additional costs that come with transporting the goods. This includes any extra paperwork required for customs or inspections or any rerouting that must be done during transport. The receiver—or buyer—assumes responsibility once the goods are loaded on the vessel. All remaining costs including those for unloading and any further transportation costs are assumed by the receiver or buyer. For goods transported internationally by sea or inland waterways, there are three other Incoterms that are closely related to CFR and are frequently used in trade contracts.

There are seven Incoterms 2020 rules for any type of transport and four Incoterms rules for sea and inland waterway transports. The specific definitions vary somewhat in every country, but both contracts generally specify origin and destination information that is used to determine where liability officially begins and ends. They also outline the responsibilities of buyers to sellers, as well as sellers to buyers. Free on board refers to a shipping arrangement in which the seller or shipper retains ownership and responsibility for the product only until they are loaded on board a shipping a vessel.

Many manufacturers work with the same forwarders for years because they’re reliable. If you don’t want to cut ties with your forwarder, ask them to add an insurance policy to your shipping cargo and request a copy of the insurance plan. Forwarders can offer you insurance that extends beyond the ports and covers the inland road transportation between the factory and the loading port. Ocean freight insurance costs vary based on the shipping forwarder and insurance coverage. To estimate the total freight insurance cost, you need to consult your forwarder/shipping agency and ask for a quote on insurance.

Any logistical hiccups, such as delays or mishandling, can directly impact delivery timelines and product integrity. Since the seller's reputation is closely tied to the delivery experience, any negative incidents during transit can lead to customer dissatisfaction and potential harm to the brand image. By incorporating all costs, including shipping insurance, into the product price, eCommerce companies can improve cash flow management.