CIF Incoterms® and Cost, Insurance and Freight shipping explained
CIF (Cost, Insurance and Freight) Incoterms® is an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer's order while the cargo is in transit. Once the goods have reached the buyer's port of destination, the buyer assumes costs and liabilities for unloading and delivering the shipment to the final destination. CIF only applies to goods transported via a waterway, sea, or ocean.
What is CIF (Cost, Insurance and Freight) in Shipping?
CIF shipping Incoterms® is one of the 11 Incoterms rules set by the International Chamber of Commerce. It follows the same procedure as “Cost and Freight”, but the seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the transportation. In this guide, you’ll learn all about CIF (Cost, Insurance and Freight) meaning in shipping, including when to, and when not to use it.
When do you use CIF Incoterms® (Cost, Insurance and Freight)?
What is the meaning of CIF Incoterms® in shipping? CIF is one of the 11 established Incoterms by which you can do business, and is one of the four terms that can only be used for water-bound shipments.
CIF Incoterms® (Cost, Insurance and Freight) should be used when the seller has direct access to the vessel for loading including non-containerised goods. The seller assumes costs and liabilities for the transport to the named port, the loading on board the vessel, and the clearing of the export. Similar to FOB shipping, the risk transfers from seller to buyer once the goods have been loaded on board, however, the seller also arranges and pays for insurance for the goods for transportation to the named port. The insurance should cover, at a minimum, 110% of the value of the goods as provided in the sales contract, and cover the goods to the point of delivery.
When NOT to use CIF Incoterms® in shipping
Given the risk transfers to the buyer, once the goods are loaded onto the vessel, CIF (Cost, Insurance and Freight) should not be used for containerised goods since it can be difficult to tell exactly when damage has occurred to the goods inside a container. It is more suitable for bulk and breaks bulk cargo. In fact, a common mistake with Incoterms is to use a traditional “sea and inland waterway only ” rule such as CIF for containerised goods, instead of the “all transport modes” rule. This can expose the seller to unnecessary risks. Instead, use FCA, CPT, and CIP which are the correct alternatives as they are meant for containerised freight. CIF Incoterms® should not be used for air or land transportation either.
Please note: At Twill, we are not offering all Incoterms® globally. For example, EXW and DDP are not offered in most countries. If you want to know which Incoterms® are offered in your region, please reach out to a local Twiller.