What is the CIF condition?

I. What is the CIF condition?

 

CIF (abbreviated from the phrase Cost, Insurance and Freight) is a term used in International Commercial Law that specifies the respective obligations, costs, and risks related to the transfer of goods from the seller to the buyer according to the Incoterms standards published by the International Chamber of Commerce (ICC).

 

Under the CIF condition, the seller is responsible for clearing the goods for export at the port of departure, delivering the goods onto the vessel, and paying for minimum insurance coverage until the goods arrive at the destination port. Although the seller pays for the insurance during the main transport, the risk is transferred to the buyer when the goods are loaded onto the vessel.

 

CIF is used in maritime or inland waterway transport.[1].

 

The representation of the CIF condition in an international trade contract:

 

CIF [named port of destination] Incoterm® 2020

 

For instance, the place of delivery is specified at Tiên Sa Port, Đà Nẵng, located at 01 Yết Kiêu, Thọ Quang, Sơn Trà, Đà Nẵng, Vietnam. The CIF of this international trade contract will be presented as follows: CIF 01 Yet Kieu, Tho Quang, Son Tra, Da Nang, Vietnam Incoterms 2020.

 

II. INSTRUCTIONS

 

1. Regarding the mode of transport: This rule is to be used only for sea or inland waterway transport. Where more than one mode of transport is to be used, which will commonly be the case where goods are handed over to a carrier at a container terminal, the appropriate rule to use is CIP rather than CIF.

 

2. Transfer of goods and risk (CIF - Cost Insurance and Freight): Cost, insurance, and freight mean the seller must deliver the goods onto the vessel or purchase the goods for such delivery. The risk of loss or damage to the goods transfers when the goods are delivered onto the vessel. The seller is required to enter into a contract and pay for necessary costs and freight to bring the goods to the prescribed port of destination.

 

The seller is obligated to enter into an insurance contract to insure the buyer's risks of loss or damage to the goods.

 

In CIF, two ports are important: the port where the goods are delivered on board the vessel and the port agreed as the destination of the goods. Risk transfers from seller to buyer when the goods are delivered to the buyer by placing them on board the vessel at the shipment port or by procuring the goods already so delivered. However, the seller must contract for the carriage of the goods from delivery to the agreed destination. The parties are well advised to identify as precisely as possible the point at the named port of destination, as the costs to that point are for the account of the seller. The seller must make a contract or contracts of carriage that cover the transit of the goods from delivery to the named port or to the agreed point within that port where such a point has been agreed in the contract of sale.

 

3.  Multiple carriers—It is possible that carriage is effected through several carriers for different legs of the sea transport, for example, first by a carrier operating a feeder vessel from Hong Kong to Shanghai, and then onto an ocean vessel from Shanghai to Southampton. The question which arises here is whether risk transfers from seller to buyer at Hong Kong or at Shanghai: where does delivery take place? The parties may well have agreed this in the sale contract itself. Where, however, there is no such agreement, the default position is that risk transfers when the goods have been delivered to the first carrier, i.e. Hong Kong, thus increasing the period during which the buyer incurs the risk of loss or damage. Should the parties wish the risk to transfer at a later stage (here, Shanghai) they need to specify this in their contract of sale.

 

4. Insurance: The seller must also contract for insurance cover against the buyer’s risk of loss of or damage to the goods from the port of shipment to at least the port of destination. This may cause difficulty where the destination country requires insurance cover to be purchased locally: in this case the parties should consider selling and buying under CFR. The buyer should also note that under the CIF Incoterms® 2020 rule the seller is required to obtain limited insurance cover complying with Institute Cargo Clauses (C) or similar clause, rather than with the more extensive cover under Institute Cargo Clauses (A). It is, however, still open to the parties to agree on a higher level of cover.

 

5. Unloading costs: If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed between the parties.

 

6. Export/import clearance: CIF requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.

 

III. THE OBLIGATIONS OF THE SELLER AND THE BUYER​

 

A. THE SELLER’S OBLIGATIONS

 

A1. General obligations

 

The seller must provide the goods and the commercial invoice in conformity with the contract of sale and any other evidence of conformity that may be required by the contract.

 

Any document to be provided by the seller may be in paper or electronic form as agreed or, where there is no agreement, as is customary.

 

A2. Delivery

 

The seller must deliver the goods either by placing them on board the vessel or by procuring the goods so delivered. In either case, the seller must deliver the goods on the agreed date or within the agreed period and in the manner customary at the port.

 

The delivery obligation of the seller under the CFR and CIF rules is entirely the same, which is achieved by placing the goods on board the vessel nominated by the seller at the loading port or procuring the goods already so delivered on board the vessel nominated by the seller at the loading port within the agreed-upon timeframe.[2].

 

A3. Transfer of risks

 

The seller bears all risks of loss of or damage to the goods until they have been delivered in accordance with A2, with the exception of loss or damage in the circumstance described in B3.

 

A4. Carriage

 

The seller must contract or procure a contract for the carriage of the goods from the agreed point of delivery, if any, at the place of delivery to the named port of destination or, if agreed, any point at that port. The contract of carriage must be made on usual terms at the seller’s cost and provide for carriage by the usual route in a vessel of the type normally used for the transport of the type of goods sold.

 

A5. Insurance

 

Unless otherwise agreed or customary in the particular trade, the seller must obtain, at its own cost, cargo insurance complying with the cover provided by Clauses (C) of the Institute Cargo Clauses (LMA/IUA) or any similar clauses. The insurance shall be contracted with underwriters or an insurance company of good repute and entitle the buyer, or any other person having an insurable interest in the goods, to claim directly from the insurer.

 

When required by the buyer, the seller must, subject to the buyer providing any necessary information requested by the seller, provide at the buyer’s cost any additional cover, if procurable, such as cover complying with the Institute War Clauses and/or Institute Strikes Clauses (LMA/IUA) or any similar clauses (unless such cover is already included with the cargo insurance described in the preceding paragraph).

 

The insurance shall cover, at a minimum, the price provided in the contract plus 10% (i.e. 110%) and shall be in the currency of the contract.

 

The insurance shall cover the goods from the point of delivery set out in A2 to at least the named port of destination.

 

The seller must provide the buyer with the insurance policy or certificate or any other evidence of insurance cover.

 

Moreover, the seller must provide the buyer, at the buyer’s request, risk and cost, with information that the buyer needs to procure any additional insurance.

 

A6. Delivery/transport document

 

The seller must, at its own cost, provide the buyer with the usual transport document for the agreed port of destination.

 

This transport document must cover the contract goods, be dated within the period agreed for shipment, enable the buyer to claim the goods from the carrier at the port of destination and, unless otherwise agreed, enable the buyer to sell the goods in transit by the transfer of the document to a subsequent buyer or by notification to the carrier.

 

When such a transport document is issued in negotiable form and in several originals, a full set of originals must be presented to the buyer.

 

A7. Export/import clearance

 

a) Export clearance

 

Where applicable, the seller must carry out and pay for all export clearance formalities required by the country of export, such as:

 

• Export licence;

• Security clearance for export;

• Pre-shipment inspection; and

Any other official authorisation.

 

b) Assistance with import clearance

 

Where applicable, the seller must assist the buyer, at the buyer’s request, risk and cost, in obtaining any documents and/or information related to all transit/import clearance formalities, including security requirements and pre-shipment inspection, needed by any country of transit or the country of import.

 

A8. Checking/packaging/marking

 

The seller must pay the costs of those checking operations (such as checking quality, measuring, weighing, counting) that are necessary for the purpose of delivering the goods in accordance with A2.

 

The seller must, at its own cost, package the goods, unless it is usual for the particular trade to transport the type of goods sold unpackaged. The seller must package and mark the goods in the manner appropriate for their transport, unless the parties have agreed on specific packaging or marking requirements.

 

A9. Allocation of costs

 

The seller must pay:

 

a) All costs relating to the goods until they have been delivered in accordance with A2, other than those payable by the buyer under B9;

 

b) The freight and all other costs resulting from A4, including the costs of loading the goods on board and transport-related security costs;

 

c) Any charges for unloading at the agreed port of discharge that were for the seller’s account under the contract of carriage;

 

d) The costs of transit that were for the seller’s account under the contract of carriage;

 

e) The cost of providing the usual proof to the buyer under A6 that the goods have been delivered;

 

f) The costs of insurance resulting from A5;

 

g) Where applicable, duties, taxes and any other costs related to export clearance under A7(a); and

 

h) The buyer for all costs and charges related to providing assistance in obtaining documents and information in accordance with B7(a).

 

A10. Notices

 

The seller must notify the buyer that the goods have been delivered in accordance with A2. The seller must give the buyer any notice required to enable the buyer to receive the goods.

 

B. THE BUYER’S OBLIGATIONS

 

B1. General obligations

 

The buyer must pay the price of the goods as provided in the contract of sale.

 

Any document to be provided by the buyer may be in paper or electronic form as agreed or, where there is no agreement, as is customary.

 

B2. Taking delivery

 

The buyer must take delivery of the goods when they have been delivered under A2 and receive them from the carrier at the named port of destination.

 

B3. Transfer of risks

 

The buyer bears all risks of loss of or damage to the goods from the time they have been delivered under A2.

 

If the buyer fails to give notice in accordance with B10, then it bears all risks of loss of or damage to the goods from the agreed date or the end of the agreed period for shipment, provided that the goods have been clearly identified as the contract goods.

 

B4. Carriage

 

The buyer has no obligation to the seller to make a contract of carriage.

 

B5. Insurance

 

The buyer has no obligation to the seller to make a contract of insurance. However, the buyer must provide the seller, upon request, with any information necessary for the seller to procure any additional insurance requested by the buyer under A5.

 

B6. Delivery/transport document

 

The buyer must accept the transport document provided under A6 if it is in conformity with the contract.

 

B7. Export/import clearance

 

a) Assistance with export clearance

 

Where applicable, the buyer must assist the seller at the seller’s request, risk and cost in obtaining any documents and/or information related to all export clearance formalities, including security requirements and preshipment inspection, needed by the country of export.

 

b) Import clearance

 

Where applicable, the buyer must carry out and pay for all formalities required by any country of transit and the country of import, such as:

 

• Import licence and any licence required for transit;

• Security clearance for import and any transit;

• Pre-shipment inspection; and

• Any other official authorisation

 

B8. Checking/packaging/marking

 

The buyer has no obligation to the seller.

 

B9. Allocation of costs

 

The buyer must pay:

 

a) All costs relating to the goods from the time they have been delivered under A2, other than those payable by the seller under A9;

 

b) The costs of transit, unless such costs were for the seller’s account under the contract of carriage;

 

c) Unloading costs including lighterage and wharfage charges, unless such costs and charges were for the seller’s account under the contract of carriage;

 

d) The costs of any additional insurance procured at the buyer’s request under A5 and B5;

 

e) The seller for all costs and charges related to providing assistance in obtaining documents and information in accordance with A5 and A7(b);

 

f) Where applicable, duties, taxes and any other costs related to transit or import clearance under B7(b); and

 

g) Any additional costs incurred if it fails to give notice in accordance with B10, from the agreed date or the end of the agreed period for shipment, provided that the goods have been clearly identified as the contract goods.

 

B10. Notices

 

The buyer must, whenever it is agreed that the buyer is entitled to determine the time for shipping the goods and/or the point of receiving the goods within the named port of destination, give the seller sufficient notice.

 

Below are the advantages and disadvantages of the CIF condition:

 

Advantages

Disadvantages

1. The seller is responsible for and bears the cost of transporting the goods and purchasing insurance for the goods to the destination port, helping the buyer save costs and time in transport and insurance procurement.   2. Export procedures of goods and transport to the port are managed and controlled by the seller, reducing responsibilities and tasks for the buyer.   3. CIF is a widely used and easily understood delivery condition, thus minimizing the risk of disputes between the parties.

1. The buyer is responsible for and bears the cost of importing the goods into the destination country, including taxes and relevant import fees.   2. The insurance purchased by the seller may not be sufficient to protect the buyer from risks during the transport of the goods.   3. The buyer may encounter difficulties in handling customs procedures and transport-related issues from the port to the final destination.

 

Therefore, when using the CIF condition, the buyer needs to have knowledge and experience in managing transport and import procedures. Additionally, it is essential to ensure that the seller uses reputable transport and insurance services to guarantee safe and timely delivery of the goods.

 

Above is a collection of information to help everyone understand more about the CIF Incoterms® 2020 condition. In general, each Incoterm clearly expresses the responsibilities of the seller and the buyer in commercial activities. Therefore, if there are any questions or concerns regarding import and export of goods, feel free to contact FDVN for the most comprehensive consulting support.

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