CIF: Cost, Insurance, and Freight

CIF Cost, Insurance, and Freight: The Safety Net

Under CIF cost insurance and freight, the seller not only arranges and pays for transport (like CFR) but also provides insurance against the buyer’s risk of loss or damage to the goods during transit. Picture a tightrope walker with a safety net below. That’s the essence of CIF. Here, Incepted in 1936, CIF is the cautious sibling of CFR, adding an extra layer of security to the journey.

Seller’s Obligations:

Deliver the goods on board the vessel at the port of shipment.

Pay for the cost of transport and insurance to the named port of destination.

Clear the goods for export.

Buyer’s Obligations:

Clear the goods for import, paying any customs duties.

Bear all risks of loss or damage from the port of shipment.

CIF Cost, Insurance and Freight Costs and Risks for buyer and seller

CIF instance:

The seller: An international motor producer’s factory in China

The buyer: An importer in Poland

Shipping incoterm: CIF for 1000 pieces of small-size precision motors

Here’s how the costs would break down:

Product Cost: Agreed price for the coffee beans is $50,000.
Local Logistics: Costs for delivering goods from the farm to the port in China (seller’s responsibility), let’s say $2,000.
Export Customs Clearance: Costs for the goods to be cleared for export by China customs (seller’s responsibility), let’s say $1,000.
Freight Charges: Cost of shipping goods across the ocean to the destination port in Poland (seller’s responsibility under CIF), let’s say $5,000.
Insurance: The cost of insuring the goods during transit (seller’s responsibility under CIF), let’s say $500.

So, the total cost to the seller (CIF price) is $50,000 (Product Cost) + $2,000 (Local Logistics) + $1,000 (Export Customs Clearance) + $5,000 (Freight Charges) + $500 (Insurance) = $58,500.

Shipping:

Under CIF, the seller has the obligation to arrange and pay for the carriage of the goods to the agreed port of destination, and also to procure insurance against the buyer’s risk of loss of or damage to the goods during the carriage. The risk transfers from the seller to the buyer once the goods are loaded on the ship at the port of origin.

Therefore, the total cost to the buyer is the CIF price ($58,500). The buyer will be responsible for import clearance and any applicable local taxes or import duties, as well as the cost of transporting the goods from the port of destination to their final location.