Incoterm – Cost, Insurance, and Freight (CFR)
Under Cost, Insurance, and Freight (CIF), the seller manages origin clearance, loads the cargo onto the vessel, and covers insurance up to the minimum requirement at the discharge port. While the seller handles insurance for the primary transport, the buyer assumes risk once the goods are onboard. CIF applies solely to ocean and inland waterway shipping.
In Incoterms 2020, Group C, CFR and CIF share similar rules. The main difference is the insurance. For CFR, insurance is not obligated for the seller. Therefore, the buyer will either waive the cargo insurance or have to arrange themselves. Whereas for CIF, the seller is responsible for providing cargo insurance.
Choosing Cost, Insurance, and Freight
- If the buyer accepts using maritime and waterborne shipping methods.
- If the buyer is new to importing, CIF only requires the buyer to understand only the import process instead of export.
- If the buyer has a higher budget, CIF puts less work on the buyer and generally has higher expenses than other self-arranged services. Collaborating with a dedicated freight forwarder can help identify cost-effective shipping methods.
Understanding the Responsibilities
Seller’s Responsibilities: Under CIF, the seller’s primary responsibility is to manage the entirety of the export procedure until the goods have arrived at the destination port, including the cargo insurance.
Packaging
The seller must prepare the goods according to different origin's export packaging standards.
Carriage Loading Charges
When the goods depart from the seller's site, the seller is responsible for expenses encompassing any charges related to placing the cargo onto the initial carrier for its journey to the export location.
Delivery Charges
The seller is responsible for transporting goods to the agreed export location, including the fees involved in the process.
Duties, Taxes, and Custom Clearances
The seller is responsible for the export procedure, including the documentation preparation, expenses, and other examination processes.
Transportation Charges
The seller is responsible for the inland expenses from the seller's premises to the carriage, including costs like loading onto the truck.
Carriage Charges
The seller is responsible for covering all freight costs, specifically from the port of origin to the destination.
Insurance
The seller is obligated to purchase cargo insurance up until the destination port.
Terminal Charges
The seller is responsible for expenses at the origin terminals, including fees for loading shipment to the vessel and transporting it within the harbor.
Buyer’s Responsibilities: Once the seller loads the goods onto the carrier, the risk is then transferred to the buyer. Responsibilities are as follows:
Duties, Taxes, and Custom Clearances
The buyer is responsible for the import procedure, including the documentation preparation, expenses, and other examination processes.
Unloading Charges
The buyer must cover charges for unloading at the destination from the final carrier.
Terminal Charges
The buyer is responsible for expenses at the destination terminals, including fees for unloading shipment from the destination vessel and transporting it within the harbor.
Transportation Charges
The buyer is accountable for the transportation charges from the point of the destination port to the final stop.
Please note that even though the seller is responsible for the freight cost of sending the goods to the destination port, the risk will fall on the buyer’s side once the goods are loaded on the carrier.
Pros and Cons for Buyers
Responsibility Reduction
The seller bears all expenses for transporting and exporting goods from the origin. This is particularly beneficial when the buyer lacks experience and local contacts for handling transportation and exports in the origin country.
Risk Reduction
CIF places minimal risk on the buyer, especially when uncertain about export requirements, dealing with hazardous materials, or navigating unfamiliar regulations.
Insurance Coverage
In the event of sea-related issues like piracy, adverse weather, or any unforeseen incidents, insurance paid for by the seller can mitigate potential losses.
Utilizing Existing Resources
Buyers with established relationships with third-party logistics providers for import and domestic shipments can leverage these resources without needing new contacts in the origin country.
Potential for Inflated Prices
Relying on the seller to manage shipping can result in inflated costs, especially in countries with common kickbacks and commissions.
Inefficient Shipping Methods
Sellers often choose the least expensive shipping method, leading to longer shipping times and delays caused by weak shipping companies.
Hidden Destination Handling Costs
Buyers may be responsible for destination handling charges, which can create an additional, unforeseen cost unless discussed beforehand.
Insurance Claim Challenges
CIF typically designate the seller as the beneficiary in insurance claims, potentially complicating claims in the event of damaged cargo.
Limited Applicability
CIF exclusively pertains to maritime logistics, excluding other modes of transport like air or land.
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