Legal Definitions - CIF

CIF stands for Cost, Insurance, and Freight.

CIF is a common international shipping term, primarily used for goods transported by sea. When a seller and buyer agree to a CIF contract, it means the seller's quoted price for the goods includes three key components:

• The Cost of the goods themselves.
• The Insurance coverage for the goods during their journey to a specified destination port.
• The Freight (shipping) charges to transport the goods to that same destination port.

Under CIF terms, the seller is responsible for arranging and paying for the transportation and insurance up to the named port of destination. However, it's important to note that the risk of loss or damage to the goods typically transfers from the seller to the buyer once the goods are loaded onto the vessel at the port of shipment, even though the seller continues to pay for the freight and insurance to the destination.

Examples:

• Electronics Manufacturer Exporting to Europe:

  A technology company in South Korea sells a large shipment of smart televisions to a retail chain in Germany. They agree on a CIF price to the port of Hamburg. This means the South Korean manufacturer's invoice includes the price of the televisions, the cost of insuring them during the sea voyage, and all shipping fees to get them to Hamburg. Once the televisions are loaded onto the cargo ship in South Korea, the German retailer technically assumes the risk for any damage or loss, but the manufacturer has already paid for the insurance and freight to Hamburg, simplifying the logistics for the buyer.

  This illustrates CIF because the seller (South Korean manufacturer) covers the cost of the goods, arranges and pays for insurance, and pays the freight charges all the way to the destination port (Hamburg), even though the risk transfers earlier.

• Raw Material Import for Production:

  An apparel factory in Bangladesh needs a bulk quantity of cotton from a supplier in India. The Indian supplier quotes a CIF price to the port of Chittagong. This means the Indian supplier is responsible for the cost of the cotton, securing an insurance policy for the shipment against potential damage or loss during transit, and paying for the shipping costs to the port in Bangladesh. The apparel factory in Bangladesh receives the cotton at their port without needing to arrange or pay for the main international shipping or insurance themselves.

  This demonstrates CIF as the seller (Indian supplier) takes on the responsibility for the goods' cost, insurance, and freight expenses up to the specified destination port (Chittagong).

• Industrial Machinery Sale Across Continents:

  A specialized machinery manufacturer in Italy sells a large piece of industrial equipment to a construction company in Brazil. They agree on a CIF price to the port of Santos. The Italian manufacturer's price therefore covers the cost of the machinery, the insurance premium for its journey across the Atlantic Ocean, and the freight charges to deliver it to the port in Santos. The Brazilian company can then focus on customs clearance and inland transport from Santos, knowing the international shipping and insurance costs are already handled by the seller.

  This example highlights CIF by showing the seller (Italian manufacturer) managing and paying for all expenses related to the goods, insurance, and shipping to the agreed-upon destination port (Santos), providing a comprehensive price to the buyer.