Maybe you know about Incoterm, but you've never looked at it in detail, we explain more about One of the 11 Incoterms: Cost, Insurance and Freight (CIF) in this article.

Definition

CIF stands for "Cost, Insurance, and Freight." It is a term used in international trade to indicate that the seller is responsible for the costs, insurance, and freight necessary to bring goods to the port of destination. Once the goods arrive at the destination port, the risk and responsibility shift to the buyer.

CIF Incoterm Example

A company in China sells textiles to a buyer in the United States.

Seller's Responsibilities

Cost: The seller covers all costs to transport the textiles to the port of shipment in China and loads them onto the ship.

Insurance: The seller provides insurance for the textiles during transit to the destination port in the United States.

Freight: The seller pays for the freight charges to ship the textiles to the port of destination in the U.S.

Buyer's Responsibilities

Import Duties and Taxes: The buyer is responsible for any import duties and taxes once the textiles arrive at the destination port.

Unloading and Transport: The buyer handles the unloading of textiles from the ship and arranges for transport to the final destination.

Risk Transfer: Risk transfers to the buyer once the textiles are loaded onto the ship at the port of origin in China.

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Key differences between FOB and CFR

Many people will confuse FOB and CIF trade terms, remember, you cannot have FOB terms with CIF terms in the same shipment.

FOB terms transfer ownership of the goods to the buyer when they are loaded onto the vessel, while CIF terms transfer ownership of the goods to the buyer when they are delivered to the port of destination. The responsibility for paying the costs of transportation and insurance also differs between the two terms.

Key differences between CIF and CFR

The primary difference is that under CIF, the seller provides insurance for the goods during transit, whereas under CFR, the buyer is responsible for arranging insurance.

Whether you are a buyer or a seller, knowing the Incoterms will always help you avoid extra costs in transportation.

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