Legal Definitions - CIF destination

The term CIF stands for Cost, Insurance, and Freight. When a contract specifies CIF destination, it refers to a shipping agreement where the seller is responsible for paying the costs of the goods, the insurance to cover them during transit, and the freight charges to transport them to a named port or place of destination.

However, it's crucial to understand that while the seller pays for these expenses up to the destination, the risk of loss or damage to the goods typically transfers from the seller to the buyer much earlier – specifically, once the goods are loaded onto the vessel at the port of shipment. This means the buyer assumes the risk during the main carriage, even though the seller has paid for the insurance and transport to the destination.

Here are some examples to illustrate this concept:

• Example 1: Electronics Shipment

  An electronics distributor in the United States orders a large quantity of smartphones from a manufacturer in South Korea. Their agreement specifies "CIF Los Angeles Port." This means the South Korean manufacturer pays for the cost of the smartphones, arranges and pays for insurance coverage for the journey, and covers the shipping costs to get the phones to the port of Los Angeles. However, once the smartphones are loaded onto the cargo ship in South Korea, the risk of any damage or loss during the ocean voyage transfers to the US distributor. If the ship encounters a storm and some cargo is damaged, the US distributor, not the South Korean manufacturer, would be responsible for filing a claim with the insurer.

• Example 2: Coffee Bean Import

  A coffee roasting company in Italy purchases a bulk shipment of green coffee beans from a supplier in Brazil under "CIF Genoa Port" terms. The Brazilian supplier is obligated to pay for the cost of the beans, secure insurance for their transit, and cover the freight charges to deliver them to Genoa, Italy. Despite this, the moment the coffee beans are loaded onto the vessel at the Brazilian port, the risk of any issues – such as spoilage, theft, or damage during the sea journey – shifts to the Italian coffee company. If the beans arrive in Genoa in a compromised state due to an incident at sea, the Italian company bears that loss and would pursue a claim against the insurance policy arranged by the seller.

• Example 3: Industrial Machinery Parts

  An Australian mining operation buys specialized replacement parts for heavy machinery from a German manufacturer, with the contract stating "CIF Fremantle Port." The German manufacturer is responsible for the cost of the parts, arranging and paying for insurance, and covering the freight expenses to transport the parts to Fremantle, Australia. Nevertheless, the manufacturer's responsibility for the physical safety of the goods ends once the parts are loaded onto the ship at the German port. If the parts suffer damage during the long sea voyage to Australia, the Australian mining operation, as the buyer, is the party that has incurred the loss and would need to make a claim under the insurance policy that the German manufacturer had put in place.