“What is CIF: The Definitive Guide
What is CIF?
CIF, or Cost, Insurance, Freight, is an Incoterm that describes a contract in which the seller is responsible for covering transportation to the port of origin, primary transportation, and minimum insurance.
What are the responsibilities of the buyer and seller of a CIF agreement?
Let’s explore the personal responsibilities of sellers and buyers when agreeing to sell under the CIF incoterm.
Seller’s responsibility
When sellers use CIF as their shipping Incoterms, they agree to take full responsibility for exporting and shipping the goods until they arrive on board. Once the goods are safely loaded onto the ship, the buyer takes over responsibility for the shipment and assumes responsibility for importing and shipping the product to its final destination.
The seller’s responsibilities go well beyond ensuring that the goods are placed on the container ship. Their full responsibilities include:
Export Packing: Make sure the goods are adequately packed and ready for export. In some cases, exporting countries require specific markings on their products or packaging. This party is responsible for ensuring that the goods can be properly exported.
Loading Charges: Any charges associated with loading the goods from the seller’s warehouse to the first carrier.
Shipping to Port/Location: All shipping costs associated with shipping the goods from the seller’s warehouse to the port.
Export duties, taxes and customs clearance: Any customs charges associated with exporting goods. In the event of customs inspections and additional charges, the responsibility rests with that party.
Origin Station Charges: These are the handling charges at the port of loading.
Loading on Carriage: Costs associated with loading cargo onto a ship.
Shipping Charges: Shipping charges to transport the goods from the port of loading to the port of destination.
Insurance: According to CIF Incoterms, it is the seller’s responsibility to purchase an insurance policy for the goods up to the port of destination.
Buyer’s responsibility
As soon as the goods are loaded onto the ship, the seller transfers the goods and all risk to the buyer. When the buyer controls the goods, their responsibilities are as follows:
Destination Terminal Charges: Also known as Destination Handling Charges or DTHC, these are charges associated with unloading and transshipping cargo within a terminal.
Delivery Destination: Organize logistics to transport the goods from the port to the final delivery destination.
Destination Unloading: Any charges associated with unloading the truck after the shipment has reached the delivery destination.
Import duties, taxes and customs clearance: All import requirements, including customs clearance, duties and taxes. If there is a problem with customs inspection or importation, this party is responsible for correcting the problem.
Significance of choosing a CIF
Under CIF, the buyer takes ownership of the goods only at the port of destination. The seller is responsible for cost and shipping, and the transfer of title takes place at the port of destination. This is usually subject to a third person, usually a customs agent whose consignee is listed on the bill of lading.
This means that the agent, not the buyer, has the legal right to claim against the goods. The agent will then ask the buyer to pay for the destination, including customs clearance, taxes, etc.
Many novice buyers find this option particularly advantageous because they are relatively not responsible for the goods – logistically and financially. Also, Chinese suppliers often offer lower prices if buyers agree to CIF Incoterms.
Why are you so obsessed with CIF?
As you can imagine, there is a problem with choosing a CIF. This is a pretty bad practice for imports from China. Here are some features of CIF incoterm:
Prices for purchasing items under CIF are very low and competitive – often much lower than under FOB incoterms.
You usually don’t know about item management as this is handled by the seller.
You are also often unaware that the consignee on the bill of lading is listed as the clearing agent (at destination), not yourself. (This applies to MBL or Carrier B/L)
After the goods arrive at the port of destination, certain decisions made by the agent may result in you having to pay five times the actual required fee. In addition to the arrival fee that every importer should pay above, you run the risk of ending up having to pay more. These include handling fees, exit fees, entry fees, etc. – basically the agent’s concept of “”owning”” to drive up prices, or unexpected surcharges on standard fees such as terminal fees.
Plus, having control over merchandise means they have better control over time. This means they may be in their favor – waiting for your item to arrive before notifying you. This will incur additional charges because you do not have enough time to schedule the delivery. This results in delays and additional charges that you must pay and settle before picking up your shipment.
How do you calculate CIF fees?
To calculate the CIF fee, you need to use the following formula;
Invoice of goods + insurance + freight + ex-factory fee.
In other words, the CIF cost is the sum of all the elements above.
Ideally, the goods invoice refers to the value of the item listed on the commercial invoice.
Insurance is the value charged by the respective insurance company for a specific product you ship.
In many cases, the cost of insurance is usually based on a percentage of the consignment value.
Shipping is the amount you pay the shipper to transport the goods from the port of origin to the port of destination.
Factory charges are the cost of shipping the product from the seller’s premises to a specific location.
Essentially, when calculating this cost, you have to make sure you get it right, as the duty payable is tied to value.
in conclusion
Whether you choose CIF, FOB or any other Incoterm, a better option to go through the import process is to hire the services of a competent freight forwarder.
These agents will complete the rigorous customs clearance process on your behalf.
They deliver goods to your door at affordable rates.
The freight forwarder will only invoice you after the goods have been delivered to you.
The invoice contains a list of all customs, taxes and port duties.
I highly recommend that you consider tj-chinafreight at least for your first few overseas purchases.
Freight forwarders are relatively affordable considering the hassle of customs clearance you will go through if you decide to do everything yourself.
Now it is your turn…”
