When you're dealing with international shipping, understanding the terms of trade is crucial. One of the most commonly used terms is Cost Insurance and Freight (CIF). Whether you're a first-time exporter or someone managing logistics regularly, knowing what is cost insurance freight can help you navigate deals more effectively and avoid unnecessary financial risks.

What is CIF in shipping?

CIF is one of the Incoterms (International Commercial Terms) published by the International Chamber of Commerce. It defines the responsibilities of buyers and sellers in global trade, particularly when transporting goods over the sea. 

To put it simply, CIF stands for Cost Insurance and Freight. It means that the seller takes on the responsibility of:

• Paying the cost of the goods
• Covering the freight charges to transport the goods to the destination port
• Providing minimum insurance coverage for the goods during transit

So, under CIF, the seller bears the cost of the goods until they reach the buyer's port. Once they arrive, the buyer assumes all responsibilities, including customs clearance and further inland transport.

CIF is only applicable for sea and inland waterway transport; it is not used for air, road or rail.

How it works:

• The seller ships the goods and covers all costs up to the destination port
• The seller buys insurance to cover the goods during transit
• The risk is transferred to the buyer once the goods are loaded on the shipping vessel
• The buyer takes care of customs clearance and delivery from the port to the final destination

This term helps streamline negotiations and ensures clarity on who pays and who bears the risk during each phase of delivery.

Responsibilities of the seller:

• Secure export licences and handle customs formalities in the country of origin
• Arrange and pay for transport to the port of shipment
• Load the goods onto the ship
• Paying for freight and arranging insurance for the goods
• Provide the buyer with documents such as the invoice, bill of lading, and insurance certificate

Responsibilities of the buyer:

• Handling import duties and taxes at the destination
• Clear the goods through customs
• Arrange further transport from the port to the final delivery location

When is CIF used in trade

CIF is widely used in international trade, especially when the seller has better access to freight and insurance services in their country.

Common situations where CIF is used:

• When goods are transported over long distances via sea
• When the buyer is new to international shipping and prefers the seller to manage logistics
• When sellers can secure lower shipping and freight insurance costs due to local contacts
• In cases where buyers want to limit their risk exposure during the sea voyage

Why sellers prefer CIF:

• Allows them to control shipping and insurance providers
• Can negotiate better freight rates and include mark-ups
• Builds trust with new buyers by offering end-to-end service

Why buyers choose CIF:

• Simplifies the purchasing process
• Reduces the need to coordinate with multiple service providers
• Offers cost predictability up to the destination port

Using CIF can simplify the buying process. But as a buyer, you should be aware that the insurance provided under CIF usually offers only minimal coverage. You may need to arrange additional marine insurance depending on the value and nature of your goods.

Benefits of CIF for buyers:

• Hassle-free shipment process
• Reduced logistical burden
• Predictable costs up to the port of destination

However, there are downsides too:

• Limited control over freight and insurance providers
• Minimal insurance cover may not be sufficient
• Potential higher costs, as the seller may build in extra margins

CIF in marine insurance

Let’s now take a closer look at how CIF relates to marine insurance:

Under CIF contracts, the seller is responsible for arranging insurance coverage for the goods until they reach the destination port. This coverage is usually the minimum required to meet the CIF agreement. The buyer should be aware that this might not be enough in case of high-value or sensitive shipments.

What is freight insurance under CIF?

What is freight insurance in the context of CIF? It refers to a policy that protects the cargo owner (usually the buyer) against loss or damage during transit. However, in CIF arrangements, it's the seller who buys this insurance.

• The insurance is usually of the "minimum cover" type, also known as Clause C in marine insurance terms.
• It may not cover damage from handling, rough seas or theft.
• Buyers are advised to assess the risk and consider additional marine freight insurance for better protection.

When should buyers consider additional insurance?

• High-value goods
• Fragile or perishable items
• Risky shipping routes
• Delicate machinery or electronics
• Extended transit durations

Conclusion

Understanding what is CIF in freight or what is CIF in shipping is essential for anyone involved in international trade. It defines the cost and risk responsibilities between the buyer and the seller, making transactions smoother and more transparent. To sum it up, what is cost insurance and freight refers to a trade agreement where the seller pays for shipping and insurance to the buyer’s port.

What is CIF freight involves both the freight charges and the insurance coverage provided by the seller, while what is freight insurance means protection of goods during transit—typically offered at a basic level in CIF terms. As a buyer, you should always review the terms of insurance under CIF and consider opting for comprehensive marine freight insurance to safeguard your goods. 

Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.