(1) Regarding the division of costs and risks
The division of costs and risks in CIF terms is separated, that is, it contains two key points:
The first is the key point of cost division – the designated port of destination. Under CIF terms, the exporter must fulfill the obligation to deliver the goods at the designated port of shipment and bear the normal freight and insurance premiums from the designated port of shipment to the port of destination. The normal freight here refers to the normal freight that the exporter must pay for shipping the goods to the designated port of destination in the usual manner and along the usual route, excluding other additional costs. However, after the goods are delivered at the port of shipment, the risk of loss or damage and the additional costs caused by accidents shall be borne by the importer.
The second is the key point of risk division – delivery on board the ship at the port of shipment. That is, the risk before the goods are loaded on board is borne by the exporter, and the risk after the goods are loaded on board is borne by the importer. This is the same as the FOB term. Based on the above, under the CIF contract, the exporter should be particularly cautious about the obligations that exceed the above-mentioned key points of cost and risk division.
(2) Under CIF terms, in order to clarify who shall bear the unloading costs, there are also variations of CIF terms. The common variations are:
① CIF Liner Terms, which means that the unloading costs shall be borne by the party paying the freight (i.e. the seller) according to the liner terms.
② CIF Ex Ship’s Hold, which means that the buyer shall bear the costs of lifting the goods from the bottom of the hold to the dock.
③ CIF Ex Tackle, which means that the seller shall bear the costs of lifting the goods from the bottom of the hold to the side of the ship until they are unloaded from the hook.
④ CIF Landed, which means that the seller shall bear the costs of unloading the goods to the shore of the destination port, including barge fees and dock fees.
(3) About insurance
The “T” in CIF terms stands for Insurance. In terms of price composition, this refers to the insurance premium, which means that the price of the goods includes the insurance premium; in terms of the seller’s responsibility, he is responsible for arranging freight insurance. The type of insurance must be clearly specified when arranging insurance. Different types of insurance have different scopes of liability assumed by the insurer and different insurance premium rates are charged. In transactions under CIF terms, when signing a sales contract, the insurance clause of the contract generally specifies the type of insurance, the amount of insurance, etc. In this way, the seller should arrange insurance in accordance with the provisions of the contract. However, if the contract fails to make specific provisions on the type of insurance, etc., it should be handled according to relevant practices. According to the interpretation of CIF in the 2010 Incoterms, the seller only needs to insure the lowest type of insurance, but can add war, strike, riot and civil unrest insurance when the buyer requests and at the buyer’s expense. The insurance amount purchased by the seller should be 10% of the CIF price.
(4) Symbolic Delivery
In terms of delivery method, CIF is a typical symbolic delivery. The so-called symbolic delivery is in contrast to the actual delivery (Physical Delivery), which means that as long as the seller completes the shipment at the agreed place on time and submits the relevant documents stipulated in the contract, including the property rights certificate, to the buyer, the delivery obligation is fulfilled without guaranteeing the arrival of the goods. The actual delivery means that the seller shall submit the goods that meet the contract requirements to the buyer or his designated person at the specified time and place, and cannot replace the delivery with the delivery of documents. It can be seen that under the symbolic delivery method, the seller delivers the goods on the basis of the documents and the buyer pays on the basis of the documents.
As long as the seller submits the full set of qualified documents stipulated in the contract to the buyer on time (documents with the same name, content and number of copies), the buyer must fulfill the payment obligation even if the goods are damaged or lost during transportation. On the contrary, if the documents submitted by the seller do not meet the requirements, even if the goods are delivered to the destination intact, the buyer still has the right to refuse to pay. However, it must be pointed out that under the CIF terms, the seller’s fulfillment of its obligation to deliver documents is only a prerequisite for obtaining payment from the buyer. In addition, he must also fulfill the obligation to deliver. If the goods submitted by the seller do not meet the requirements, the buyer can still file a claim against the seller according to the provisions of the contract even if he has paid.