1. Meaning of CIF
For exporters, the use of CIF terms means that they have the additional obligation to handle cargo transportation insurance and pay insurance premiums on the basis of CFR.
The CIF cargo delivery process is shown in the figure below.
1. The exporter charters a ship or an agent, books a container, and pays the freight.
2. The exporter insures the insurance company and pays the insurance premium.
3. The exporter ships the goods and obtains the ocean bill of lading.
4. The exporter submits relevant documents to the importer.
5. The importer receives the documents and pays the purchase price.
6. The importer picks up the goods from the shipping company with the ocean bill of lading.
After clarifying the transaction process of CIF terms, just like the use of the previous two terms, whether you are an exporter or an importer, you must clarify the basic obligations to be fulfilled in the transaction. Next, let’s learn about the content of these obligations:
2. Basic obligations as the exporter
(1) Responsible for chartering or booking a ship and paying the freight.
(2) Deliver the goods to the ship designated by the buyer at the port of shipment in accordance with the customary manner within the time or period specified in the contract. Obtain export licenses or other official approval documents at your own risk and expense, complete all customs formalities required for the export of goods and pay relevant taxes and fees.
(3) Bear all costs and risks until the goods cross the ship’s rail at the port of shipment.
(4) Responsible for arranging cargo transportation insurance and paying the insurance premium.
(5) Provide at your own expense the usual documents proving that the goods have been delivered to the ship. If the buyer and seller agree to use electronic communication, all documents can be replaced by electronic data interchange (EDI) information with equivalent effect.
3. Basic obligations as the importer
(1) Obtain import licenses or other official approval documents at your own risk and expense, complete all formalities required for the import of goods.
(2) Complete the formalities and pay relevant taxes and fees.
(3) Bear all costs and risks after the goods cross the ship’s rail at the port of shipment.
(4) Accept the relevant documents provided by the seller, receive the goods, and pay the purchase price in accordance with the contract.
When using CIF, it should be noted that the exporter cannot guarantee that the goods will be delivered to the destination port, because in the CIF terms, the exporter must deliver the goods to the designated port of shipment within the period specified in the contract, which means that the delivery obligation has been fulfilled. As for whether the ship will sail after delivery, when it will sail, whether there will be risks in the transportation after sailing, or damage caused by objective reasons or human factors, as well as all expenses incurred during the transportation process, the exporter shall not be responsible.
Therefore, a contract under CHF terms is actually a shipping contract. If you estimate that the goods may be affected by external factors before reaching the destination, you can negotiate with the exporter, or change the CIF terms contract, or simply do not use this clause.
In fact, in actual operation, when encountering some specific situations, the CIF terms will have many variations, which can be transformed into the following four situations:
1. CIF IinerTerms (CIF liner terms), under this term, the seller will bear the cost of unloading.
2. CIF landed (CIF unloaded to shore), under this term, the seller will bear the cost of unloading and freight.
3. CIF Under Ex Trackle (CIF delivery under the hook), a variation of this term, the seller will bear the cost of unloading, but if lightering is required, the cost will be borne by the buyer.
4. CIF Ex Ship’s Hold (CIF delivery on the bottom of the hold), under this term, the buyer will bear the cost of unloading. There are many variations of CIF trade terms, which usually change the cost borne by the buyer and seller, and do not change the place of delivery and the boundary of risk division. Therefore, even if the four variations of CIF terms are traded, they cannot be confused with other terms.