Legal Definitions - cost, insurance, and freight

CIF stands for Cost, Insurance, and Freight.

This is a common term used in international trade contracts, specifically when goods are transported by sea or inland waterway. It clearly defines the responsibilities of both the seller and the buyer regarding the costs, insurance, and delivery of goods.

Under CIF terms, the seller has several key responsibilities:

• They must prepare the goods for export and handle all necessary customs clearances in the country of origin.
• They are responsible for arranging and paying for the transportation of the goods by ship to a specified port of destination.
• They must also purchase and pay for marine insurance that covers the goods against loss or damage during their journey to the destination port, with the buyer as the beneficiary of this insurance.
• The seller's obligation for delivery is considered complete, and the risk of loss or damage to the goods transfers to the buyer, once the goods have been loaded onto the ship at the port of shipment (the origin port).

Even though the seller pays for the freight and insurance up to the destination port, the buyer assumes the risk of the goods once they are on board the vessel at the origin. If any damage or loss occurs during the sea voyage, the buyer is responsible for filing a claim with the insurance company that the seller arranged.

Here are some examples:

• Example 1: Importing Raw Materials
  A furniture manufacturer in the United States orders a large shipment of exotic hardwood from a supplier in Brazil. Their contract specifies CIF Port of Miami. The Brazilian supplier is responsible for ensuring the wood is cleared for export, arranging for its shipment by sea to Miami, and purchasing insurance to cover the wood during transit. Once the hardwood is loaded onto the cargo ship in Brazil, the risk of any damage (e.g., from a storm at sea) transfers to the US manufacturer. If the wood arrives in Miami water-damaged, the US manufacturer would file a claim with the insurance company the Brazilian supplier arranged, rather than demanding new wood from Brazil.
• Example 2: International Retail Order
  An electronics retailer in Germany places an order for a container of smartwatches from a factory in China, agreeing to CIF Hamburg. The Chinese factory must arrange for the smartwatches to be loaded onto a vessel in Shanghai, pay for the ocean freight to Hamburg, and secure an insurance policy for the journey. The moment the container is loaded onto the ship in Shanghai, the risk of the smartwatches being lost or damaged during the sea voyage shifts to the German retailer. If the container falls overboard or is damaged en route, the German retailer would be responsible for making a claim against the insurance policy provided by the Chinese factory.
• Example 3: Specialized Equipment Purchase
  A construction company in Australia purchases a specialized crane component from a manufacturer in Japan. The contract specifies CIF Sydney. The Japanese manufacturer's duties include preparing the component for export, arranging and paying for its shipment by sea to Sydney, and providing insurance coverage for the component during its transit. The critical point is that as soon as the crane component is safely loaded onto the ship in a Japanese port, the risk of any damage or loss during the sea journey passes to the Australian construction company. If the component arrives in Sydney with dents from rough seas, the Australian company would use the insurance policy arranged by the Japanese manufacturer to cover the repair costs.