CIF

What it means

CIF, cost, insurance and freight, is an Incoterms rule for sea and inland waterway transport. The seller pays carriage to the port of destination and insures the goods, but risk passes to the buyer once the goods are loaded at the port of shipment.

The rule therefore has two different points: costs are the seller's up to the destination port, risk is the buyer's from the port of shipment. If goods are damaged at sea, the buyer claims under the insurance the seller arranged.

Under CIF the seller need only provide minimum insurance cover. It is related to FOB, under which the seller pays neither carriage nor insurance.

How it works in practice

CIF is used mainly in commodity trading and container shipments from Asia. The buyer receives the bill of lading and insurance certificate from the seller, often also needed under a letter of credit.

For the customs value on import into the EU, a CIF price is convenient because it already includes freight and insurance to the EU border. With other rules these costs must be added.

For containers handed over at a terminal, CIP is recommended instead of CIF, as it suits any mode of transport and requires higher insurance.

What to watch out for

Buyers often wrongly assume that under CIF the seller bears the risk until the destination port. For damage at sea they must turn to the insurer, not the seller.

Minimum cargo insurance under CIF may not suffice for valuable goods. The buyer should negotiate higher cover or take out additional insurance.