Under CIF, the risk transfer is at a different point than the cost transfer. The exact details of the contract will determine when the liability for the goods transfers from the seller to the buyer. FCA suits buyers who want more control over the shipping process, especially when multiple transport modes are involved. It’s beneficial for buyers who have specific preferences for logistics providers and who can manage costs and risks from an earlier stage. The insurance needs to be in the currency of the contract, protect the buyer against the risk of loss, and cover the price provided in the contract plus at least 10 percent. It must cover the goods from the point of delivery to at least the named port of destination.
- This is especially beneficial for buyers who lack the infrastructure or expertise to handle complex logistics.
- CIF agreements delineate specific points at which the seller’s responsibilities for costs and risks shift to the buyer, which is essential for both parties to comprehend.
- Under CIF, the seller (at its own cost) must provide the buyer with the usual transport document covering transport to the agreed port of destination.
- Plan to send fewer loads or combine them to save money on fuel fees.
- DDP, on the other hand, is best for buyers who prefer a hassle-free purchasing process.
- Plus, the seller does have to arrange insurance, but you might well need to discuss in detail exactly how much coverage is required.
Disadvantages of DDP
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. Instead, use FCA (Free Carrier), CPT (Carriage Paid To), and CIP (Carriage and Insurance Paid To), which are the correct alternatives as they are meant for containerised freight. CIF Incoterms® should not be used for air or land transportation either. Cost, insurance, and freight (CIF) is an international shipping term that describes the seller’s responsibility for the cost of shipping, freight charges, and insuring the cargo being shipped via ocean or waterway. CIF means that the seller is responsible for the costs of transporting the cargo and obtaining insurance to protect the buyer from any damages to the goods during transport.
The confirming bank forwarded the documents to the issuing bank in Dubai and claimed reimbursement, which was honoured. In short, DDP defines a trade structure where the seller manages the entire shipping process, both financially and logistically, until the goods reach the buyer’s doorstep. For detailed tips and real examples, see the full article on reducing shipping costs from China at IncoDocs.
CIF vs. FOB (Free on Board)
Gain a comprehensive understanding of 409A valuation cost insurance and freight meaning in 2024 – its definition, importance, and applications. Stay current with the latest insights into how companies determine fair market value for their stock options. The only advantage of CIF for the buyer is that they do not need to declare the freight shipment to their own insurer because it is already covered and paid for by the seller. One of the main advantages to the seller is that they often obtain cheap insurance by utilising CIF.
The extra shipping fees between the seller and the buyer can be minimized by using the CIF method. The agreement and contract terms of cost, insurance, and freight dictate the liability requirements of the goods in transport. Within this, it also outlines the seller’s responsibilities for their portion of the journey. In many ways, CIF is very similar to carriage and insurance paid to (CIP), but it only relates to exports needing to use the sea or waterways. Whereas CIP relates to any potential mode of transport, like by a truck for example. In the event of loss or damage, buyers might face difficulties in handling insurance claims.
Considerations for International Trade
To safeguard against liability, Pazago provides access to shipment insurance and supports claims processing, thereby reducing financial exposure in the event of loss or damage. Freight charges are the fees businesses pay to transport goods via land, sea, air, or rail. These charges cover costs like fuel, vehicle operation, handling, and customs.
Delivery vs destination under CIP
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- It is crucial to select and employ the proper mode of transportation while conducting international business and shipping cargo in order to avoid incurring losses.
- In the world of international trade, the Incoterms® rules are well established norms by which you can do business.
They are recognized as the authoritative text for determining how costs and risks are allocated to parties conducting international transactions. CIF and DDP are both Incoterms used in international trade, but they allocate costs and risks very differently. They cannot choose the shipping company or route, which might lead to longer transit times or less efficient shipping methods. Additionally, there may be potential hidden costs not covered in the CIF price, such as local handling fees, which can add unexpected expenses. This method provides financial benefits to the seller while covering the transportation risks up to the destination port.
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The seller notified the buyer on January 24 with all relevant shipment and transport details. Risk transfers at the point of delivery, not at the place of destination. Look for duty exemptions and trade deals that cut down import taxes. Air freight costs more than other methods because planes have less space and use more fuel.
Simplified logistics for buyers
If you’re looking for information on the other Incoterms, take a look at our Incoterms Overview section. In this article, we will cover one of the most common Incoterms – Cost, Insurance, and Freight (CIF). It should be remembered that the prices for certain services can exceed what you had originally estimated and budgeted. Just like with all Incoterms, this one works well in some situations, but it’s definitely not a one-size-fits-all. We’ll also help you compare it to similar terms so you’re not stuck with surprises later. Let’s break it down so it actually makes sense in practice—not just on paper.
Comparison with CIP
AIT’s global team of experienced transportation management is well-versed in the Incoterms rules and all shipping terms. Plus, with built-in tools for insurance and freight cif workflows, you won’t be caught off guard when it’s time to bill or deliver. If you’ve landed on this term in a contract—or you’re shipping goods internationally and someone just tossed “CIF” into the conversation—you need a clear breakdown of what you’re signing up for. This guide covers what CIF means, who handles which part of the shipping journey, and when it makes sense to use this Incoterm. CIF is one of the four terms that can only be used for waterbound shipments, but don’t forget about the seven terms that can be used for any type of shipment.