Definition (plain): CIF — Cost, Insurance, and Freight — is an Incoterm (international commercial term) used for sea and inland-waterway shipments. Under CIF the seller contracts and pays for the carriage of goods to the named port of destination, and also buys marine insurance for the buyer’s benefit. Risk of loss or damage, however, passes from seller to buyer once the goods are loaded on board the vessel at the port of shipment.
Why CIF matters
– It allocates who pays for what and who bears risk at each stage of a sea shipment.
– It changes pricing language: a quoted “CIF [port]” price includes the seller’s costs, the freight, and the insurance premium to the destination port.
– It is valid only for sea or inland waterway transport (not for air, road, or multimodal shipments).
Key obligations (concise)
Seller (under CIF):
– Deliver goods, packed and ready, to the ship within the agreed shipment window.
– Arrange and pay for carriage to the named destination port (freight).
– Obtain and pay for marine insurance covering the goods to the destination port and provide policy/insurance certificate and transport documents (e.g., bill of lading) to the buyer.
– Complete export formalities (export customs clearance).
Buyer:
– Take delivery at the destination port and pay any import customs duties, taxes, and related costs.
– Handle unloading, on‑carriage (inland transport from the destination port), inspection and licensing at destination.
– Bear risk for any loss/damage from the moment the goods are loaded on board at origin (even though seller still pays freight and insurance to destination).
Transfer of risk vs transfer of cost (short)
– Risk transfers at loading on board the vessel at the port of shipment.
– Cost transfer (i.e., what the seller pays) covers freight and insurance up to the named destination port.
Special considerations
– Insurance: Incoterms 2020 raised the required level of insurance cover the seller must obtain compared with older versions. Parties should specify the minimum level and type of policy in the contract (named clauses, coverage limits, and beneficiary).
– Containers and pre-carriage: CIF can create gaps for containerised cargo if goods sit in a container before vessel loading. Since risk transfers when loaded on board, damages occurring while goods are in a container at origin may be borne by the buyer even though the seller arranged insurance—so confirm who covers pre-loading storage and stuffing.
– Use CIF only for sea/inland waterway transport—not for multimodal shipments that include non‑water modes unless explicitly agreed.
– If you want the seller to bear risk until arrival, consider different Incoterms (or add contractual protections).
CIF vs closely related terms (brief)
– CIF vs CFR (Cost and Freight): CFR requires seller to pay cost and freight but the seller is not required to procure insurance. Under CIF the seller must also buy insurance.
– CIF vs FOB (Free on Board): Under FOB the seller’s obligation normally ends once the goods are loaded on board; the buyer arranges and pays freight and insurance. Under CIF the seller arranges freight and insurance to destination.
Does CIF include import duty?
– No. CIF requires the seller to pay freight and insurance to the destination port and to handle export formalities; import duties, taxes, customs clearance at destination, unloading and inland delivery remain the buyer’s responsibility.
Checklist — what to include in the sales contract when using CIF
– Clearly state “CIF” plus the named port of destination and the Incoterms edition (for example, “CIF Rotterdam, Incoterms 2020”).
– Specify who arranges pre-shipment packing,
– Specify who arranges pre-shipment packing, marking and labeling (and to which standards, e.g
e.g., ISPM 15 for wood packaging, buyer’s retail labeling, or hazardous‑goods marking). Also state who bears cost for special packing and any certification.
– Specify loading point and who pays for terminal handling charges at origin (THC). State whether the seller’s obligation ends at the ship’s rail or when goods are on board (Incoterms 2020: risk passes when goods are on board the vessel).
– Define required shipping documents and who must provide them:
– Clean on‑board bill of lading (or sea waybill) — who obtains and whether it must be negotiable.
– Commercial invoice and packing list.
– Insurance policy or certificate (see insurance details below).
– Certificate of origin, inspection certificates, phytosanitary or other regulatory docs.
– Any export licences or declarations (seller normally handles export formalities).
– Specify insurance cover: type, amount and beneficiary.
– CIF requires the seller to contract for insurance on behalf of the buyer to cover the buyer’s risk during carriage. Specify whether you require Institute Cargo Clauses (A, B or C) or “all‑risks,” and the insured amount (commonly 110% of the invoice value).
– State who pays the insurance premium (seller under CIF) and whether the buyer may demand more extensive cover at their own cost.
– Define claim procedures and which currency the policy and claims should be settled in.
– Clarify freight arrangements:
– Named port of destination must be explicit (for example “CIF Rotterdam, Incoterms 2020”).
– Specify whether carriage allows transshipment and who bears additional costs for transshipment or diversion.
– For containerized traffic note that CIF was designed for bulk/seaborne cargo — confirm suitability or opt for FCA/CPT/CIP depending on container logistics.
– Declare who is responsible for export formalities and who handles pre-shipment inspection/costs.
– Import-side responsibilities (buyer unless otherwise agreed):
– Import duties, VAT, customs clearance, unloading at destination port and final inland delivery.
– Specify who pays demurrage, detention, port storage or quarantine charges at destination if delays occur.
– Payment terms and documentary specifics:
– State the currency, payment method (e.g., documentary letter of credit), and the exact documents required to trigger payment.
– If using a letter of credit, align the document list and timing with the bank’s requirements — banks scrutinize “clean” on‑board bills of lading and insurance certificates.
Worked numeric example (illustrative only — not investment advice)
– Contract: 1,000 widgets at $10.00 each = $10,000 (FOB origin price component).
– Freight quoted (seller pays under CIF): $1,000.
– Insured amount: 110% of invoice value + freight = 1.10 × ($10,000 + $1,000) = $12,100 insured value.
– Insurance premium rate (example) = 0.5% of insured value → premium = 0.005 × $12,100 = $60.50 (paid by seller).
– CIF price delivered to named port = goods ($10,000) + freight ($1,000) + insurance premium ($60.50) = $11,060.50.
– Buyer’s additional costs at destination (example): import duty 5% of CIF value = 0.05 × $11,060.50 = $553.03; customs clearance $200; inland transport $300. Total buyer extra = $1,053.03.
– Total landed cost to buyer = CIF + buyer extras = $11,060.50 + $1,053.03 = $12,113.53.
Key legal/operational notes
– Risk transfer: under CIF the seller’s risk ends when the goods are on board the vessel at the origin port; after that the buyer bears loss/damage (even though seller
arranges and pays the insurance premium but the buyer bears loss after the goods are loaded.
Additional practical implications and points to check
– Applicability: CIF (Cost, Insurance and Freight) applies only to transport by sea or inland waterway. For multimodal transport, use other Incoterms (e.g., CPT/CIP). Confirm which Incoterms edition the contract references (Incoterms 2010 vs 2020), because wording and obligations have changed over editions.
– Insurance scope: Under customary practice the seller contracts and pays for marine insurance providing “minimum” coverage. Incoterms generally require only basic cover (often aligned with Institute Cargo Clauses (C)), while buyers who want broader cover (e.g., clauses A or B) should request it explicitly or arrange their own additional policy. Sellers frequently arrange insurance for about 110% of the invoice value in the contract currency, but the exact coverage and amount must be specified in the sales contract.
– Documents the seller must provide: commercial invoice, packing list, on-board (clean) bill of lading showing goods loaded, insurance policy or certificate, and any other documents required by the buyer or their bank (for example under a letter of credit). The bill of lading is key: it evidences that the goods were shipped and is often required to
be presented to the buyer (or to the buyer’s bank) before payment is released. A negotiable, on‑board (clean) bill of lading functions as a document of title: whoever holds the original bill can claim the goods at destination. That’s why banks under letters of credit often insist on specific wording on the bill of lading (for example, “on board,” ship name, and shipment date) and why discrepancies between documents and the LC terms can cause payment delays.
Risk vs. cost under CIF
– Risk passes from seller to buyer when the goods are loaded on board the vessel at the port of shipment. “Risk” means who bears the loss or damage to the goods during transit.
– Cost and arrangement responsibilities differ: the seller pays and arranges carriage and insurance to the named port of destination, and must provide required documents (invoice, bill of lading, insurance certificate). The buyer is responsible for import clearance, duties, and any further transport from the arrival port.
– Insurance under CIF: the seller must obtain minimum coverage (typically matching Institute Cargo Clauses C—basic cover—unless the contract specifies broader cover). Many sellers insure for roughly 110% of the invoice value; however, the contract must state the required clause and amount.
Checklist — seller’s typical CIF obligations
1. Contract
1. Contract — specify and document key terms
– Name the exact Incoterms rule and version (e.g., “CIF [named port of destination], Incoterms 2010/2020”) so parties know which standard definitions apply.
– State the named port of destination (e.g., “Hamburg, Germany”).
– Specify the insurance clause required (e.g., “Institute Cargo Clauses (C)” or “Clause A”) and the insured amount (common practice: 110% of invoice value).
– Agree currency, payment terms, delivery window, and quality/packaging specifications.
– Require what documents the seller must provide (invoice, clean on-board bill of lading, insurance policy/certificate, packing list, certificate of origin, any inspection certificates).
2. Deliver goods on board at the port of shipment
– The seller loads the contracted goods onto the vessel at the agreed port of shipment and obtains a bill of lading showing “shipped on board” or equivalent.
– Risk transfers from seller to buyer at the moment the goods cross the ship’s rail (or as defined by applicable law/contract), even though seller pays freight and insurance.
3. Arrange and pay carriage to the named port of destination
– Seller contracts and pays the carrier for transport to the specified port. This cost is included in the invoice price under CIF.
4. Obtain and pay for insurance
– Seller buys insurance covering the buyer’s risk during main carriage to the named port. Unless the contract requires broader cover, sellers often purchase minimum cover (e.g., Institute Cargo Clauses C), but parties can agree on A or B.
– Typical commercial practice: insure for 110% of invoice value to protect against under-insurance and cover freight/profit; the contract should confirm the percentage and coverage details.
5. Provide necessary documents to the buyer
– At minimum, the seller must deliver: commercial invoice, clean on-board bill of lading (or equivalent transport document), insurance policy or