CIF Incoterms 2020 – what does the Cost Insurance and Freight rule mean?

In international maritime trade, clearly defining the responsibilities of the parties is key to a safe and profitable transaction.

One of the formulas used in Incoterms 2020 for the carriage of goods by sea is CIF. This rule combines costs, insurance and freight, setting the boundary of responsibility between the seller and the buyer.

Understanding exactly what Cost Insurance and Freight entails allows you to avoid mistakes when concluding contracts and to plan your delivery logistics effectively. In the following sections, we will explain who is responsible for what under CIF terms, when the risk passes to the buyer, and how to optimally tailor this rule to the needs of your business.

Definition of CIF Incoterms 2020 in a nutshell

CIF Incoterms 2020 is an international trade rule which stipulates that the seller delivers the goods to the ship at the port of loading, covers the costs of transport to the port of destination and must take out insurance for the duration of the transport.

This is one of the key formulas in maritime transport, regulating the division of costs and risks between the parties to the contract.

In practice, this means that the seller bears the costs of sea freight and insurance of the goods until the cargo reaches the port of destination. However, the risk passes to the buyer from the moment the goods are loaded on board the ship (crossing the rail) – even if the seller has organised the transport and paid the costs.

In short: CIF is an Incoterms formula in which the seller pays for loading, transport and insurance to the designated port of destination, and the buyer assumes the risk of loss or damage to the goods already at the stage of sea transport.

Seller’s obligations under CIF Incoterms 2020

Under CIF Incoterms 2020, the seller is obliged to arrange for the carriage of goods by sea, deliver them on board the ship at the port of loading and cover the costs of transport – at least to the port of destination. They must also take out insurance covering the risk of loss or damage to the goods during sea transport, in accordance with the Institute Cargo Clauses.

They are responsible for the proper conduct of export clearance, preparation of the commercial invoice and transfer of documents such as the bill of lading or insurance certificate to the buyer.

It is also important that the seller delivers the goods within the agreed shipping date and ensures that they are properly packaged and labelled. They must ensure that the goods are in a suitable condition for transport and that no additional costs arise from errors in the preparation of the cargo.

In summary: this means that the seller covers all costs related to loading the goods on board the ship, sea transport and insurance to the designated port of destination. This gives the buyer the certainty that the goods will actually reach their destination, although the risk of loss or damage to the goods passes to the buyer at the time of loading.

Buyer’s obligations in CIF (sea transport)

The buyer in CIF is obliged to collect the goods at the agreed port of destination and bear the costs associated with unloading, customs formalities and customs duties, as well as any import fees. They must also ensure that the goods are taken over quickly after delivery in order to avoid additional storage costs or delays in transit.

The buyer also bears the risk of loss or damage to the goods from the moment the seller delivers them on board the ship at the port of loading. In practice, this means that although the seller pays the costs of transport and insurance to the port of destination, the risk associated with the transport is already borne by the buyer.

Proper organisation of these activities allows you to avoid unnecessary delays and additional costs.

When does the risk pass to the buyer in CIF?

The risk of loss or damage to the goods passes to the buyer when the seller delivers the cargo on board the ship at the port of shipment.

From that moment on, the buyer is responsible for any damage or loss of goods during sea transport, even though the seller bears the costs of transport and insurance to the port of destination.

Transport costs in CIF Incoterms – buyer vs. seller

The division of costs in the CIF rule allows for predictability in transport budget planning and helps avoid disputes over responsibility for expenses during sea transport.

However, it is worth remembering that the buyer assumes the risk at the moment of loading the goods, even though the seller bears the costs up to the port of destination as the agreed destination.

Obligations and costs associated with the delivery of goods in CIF Incoterms

The table below shows the basic division of costs and risks in transactions concluded under CIF terms:

Cost/risk element	Seller	Buyer
Organisation of sea transport	✅	❌
Loading of goods at the port of loading	✅	❌
Export customs formalities	✅	❌
Sea freight to the port of destination	✅	❌
Insurance of goods	✅	❌
Risk of loss or damage to goods from the moment of loading	❌	✅
Unloading at the port of destination	❌	✅
Import customs clearance and customs duties	❌	✅
Further transport to the designated destination	❌	✅

In short: The seller covers the costs until the goods are delivered to the port of destination, while the buyer is responsible for all expenses after delivery and for the risk of loss or damage from the moment of loading onto the ship.

When to choose CIF?

CIF is a good choice when the seller is able to effectively organise sea transport and insure the goods, and the buyer wants to be sure that the shipment will be delivered to the port of destination without having to get involved in the transport process. It is a good solution for importers who prefer to minimise the formalities associated with freight and insurance.

This rule works particularly well in international trade, when the parties want to clearly define the transport costs and scope of responsibility at the contract signing stage. However, it is worth remembering that although the seller bears the costs to the port of destination, the risk of loss or damage to the goods passes to the buyer when the cargo is loaded onto the ship.

CIF is particularly recommended when the buyer has no experience in organising sea freight or when the seller has better transport conditions at the port of loading and can offer competitive terms of delivery and insurance for the goods.

Summary – CIF Cost Insurance and Freight

The CIF Incoterms 2020 rule clearly defines the division of costs and risks in sea transport. The seller organises the transport of goods, covers the costs of transport and insurance to the port of destination, and ensures that export clearance is carried out correctly.

The buyer, on the other hand, assumes the risk at the moment of loading onto the ship, and their financial obligations begin only at the port of destination, covering unloading, customs duties and further transport to the designated destination.

In the event of damage to the cargo during transport, the buyer can make use of the insurance that the seller is obliged to provide. Clear arrangements regarding the delivery date and precise procedures for receiving the goods help to avoid disputes and additional costs.

Frequently asked questions

What does CIF Incoterms mean?

In CIF Incoterms, the seller bears the costs of transport, sea freight and insurance of the goods to the agreed port of destination.

The risk is transferred to the buyer upon delivery of the goods on board the ship, and further costs of transport, unloading and customs formalities are borne by the buyer only from the moment the goods are delivered to the designated destination (port of destination).

What is the difference between CIF and FOB?

The basic difference between CIF and FOB concerns costs and insurance. In CIF, the seller covers the costs of sea transport and insurance to the port of destination, and the risk passes to the buyer upon loading onto the ship.

In FOB, the seller is only responsible for delivering the cargo on board at the port of loading – further costs and insurance are borne by the buyer.

What are the differences between Incoterms CIF and CFR?

In both rules, the seller bears the freight costs to the port of destination, but only in CIF is the seller required to take out insurance to protect the cargo during sea transport.

In CFR, the insurance of the goods is the responsibility of the buyer, who must independently protect themselves against the risk of loss or damage to the goods. Therefore, the choice between CIF and CFR depends on who is to bear the insurance costs and how the parties want to protect the cargo in the event of possible losses.

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