Detailed explanation of CIF terminology: division of costs, risks and obligations

In international trade, the term CIF (Cost, Insurance and Freight) is widely used in maritime or inland waterway transportation. It not only clarifies the responsibilities, costs and risks of the buyer and seller, but also involves the specific delivery method. This article aims to comprehensively analyze the precautions under the CIF terminology and help relevant practitioners better understand and apply this terminology.

Division of costs and risks

According to CIF terminology, there are two key points in the division of costs and risks: the cost division point is at the designated port of destination, and the risk division point is on the ship at the port of shipment. This means that the exporter needs to bear the normal freight and insurance charges for the goods from the port of shipment to the port of destination, but the risk of loss or damage after the goods are loaded on the ship and additional costs caused by accidents are borne by the importer. The normal freight here only refers to the transportation cost of standard routes, excluding any additional charges.

Transformation of CIF terminology

In order to further clarify the bearer of unloading costs, various variations of the CIF term have been derived in practice:

• CIF Liner Terms: The seller is responsible for paying unloading charges.
• CIF Landed: The seller is responsible for all costs of unloading the goods from the ship to the port shore.
• CIF Ex Tackle: The seller bears the cost of lifting the goods from the hold to the dock.
• CIF Ex Ship’s Hold: The buyer is responsible for the cost of picking up the goods from the bottom of the hold.

Although these deformations change the specific details of cost sharing, they do not change the point at which cargo risks are transferred.

About insurance

In a CIF transaction, “Insurance” refers to the seller’s responsibility to insure the goods and ensure that the insurance amount is at least the CIF value plus a 10% bonus. Normally, the seller only needs to purchase the minimum insurance, but if the buyer requests, it can also add war, strike and other related insurances at the buyer’s expense.

Token delivery

CIF is a form of symbolic delivery, which means that the seller can be deemed to have completed delivery by submitting documents that comply with the contract without ensuring that the goods actually arrive. As long as the documents are complete and correct, the buyer still has to fulfill his payment obligation even if the goods are damaged or lost during transportation; conversely, even if the goods arrive in good condition, the buyer has the right to refuse payment if the documents are incorrect.

Overview of the obligations of both parties

Exporter’s obligations

• Rent a ship or book a space and pay the freight.
• Delivery at the port of shipment within the specified time and undertake the corresponding export procedures.
• Apply for transportation insurance and pay the premium.
• Provide documents proving that the goods have been shipped.

Importer’s obligations

• Obtain import licenses and related documents, and pay appropriate fees.
• Accept documents and pay for goods.
• Assume all risks after the goods pass the ship’s rail from the port of shipment.

In summary, when using the CIF terminology, you need to pay attention to its specific risk and cost allocation rules, as well as possible deformation clauses. Additionally, understanding each party’s obligations is critical to ensuring a smooth transaction.