CIF (Cost, Insurance, And Freight)

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Russian: CIF Стоимость, страхование и фрахт (...названный порт назначения)


Contents

General Provisions

In accordance with rules of Incoterms® 2010,[1] the CIF (Cost, Insurance, And Freight) rule is to be used only for sea or inland waterway transport. The seller delivers the goods on board the vessel or procures [5] the goods already so delivered. The reference to "procure" in the CIF rule caters for multiple sales down a chain ('String Sales'), particularly common in the commodity trades. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination. The seller also contracts for insurance cover against the buyer's risk of loss of or damage to the goods during the carriage.

The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements. When CPT (Carriage Paid To), CIP (Carriage And Insurance Paid To), CFR (Cost And Freight), or CIF are used, the seller fulfills its obligation to deliver when it hands the goods over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination.There are two critical points, because risk passes and costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk passes to the buyer. If the shipment port is of particular interest to the buyer, the parties are well advised to identify it as precisely as possible in the contract.

The parties are well advised to identify as precisely as possible the point at the agreed port of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties.

The CIF rule may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such circumstances, the CIP (Carriage And Insurance Paid To) rule should be used. The CIF rule requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities.


Table 1. Seller's/Buyer's Responsibilities Allocation for Carriage Arrangements, Transaction Costs, and Risk Transfer as Stated by the CIF rule of Incoterms® 2010
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Customs.jpg

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Delivery.png Craneto.jpg Onboard.png Ship.png

Plane.png

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Onboard.png Cranefrom2.png De.png

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Customs.jpg

Papers1.jpg

Importer1.png

Importer.png

Seller (Exporter), Named Place, Seller's Facilities Export Documents, Formalities, and Duties (if any) Pre-carriage to Named Place, Not Unloaded Delivery at Named Place / Port, Unloaded Ready for Loading at Named Place / Port of Shipment Loaded on Bord of Ship or Vehicle Transport by Air, Rail, Road, Water, or Multimodal On Board Ship or Vessel, Not Unloaded Discharging (Unloading) at Named Place / Port of Destination Delivery at Named Place / Terminal Onward Carriage to Named Place, Not Unloaded Import Documents, Formalities, and Duties Buyer (Importer) - Named Place, Unloaded
Seller's/Buyer's Responsibilities Allocation for a Contract for the Carriage of Goods as Stated by the CIF rule of Incoterms® 2010
Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► ●●Buyer► ●●Buyer► ●●Buyer► ●●Buyer► ●●Buyer►
Seller's/Buyer's Responsibilities Allocation for Transaction Costs as Stated by the CIF rule of Incoterms® 2010
Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► ●●Buyer► ●●Buyer► ●●Buyer► ●●Buyer► ●●Buyer►
Seller's/Buyer's Transaction (Loss/Damage of Goods) Risk Transfer as Stated by the CIF rule of Incoterms® 2010
Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► Seller►►► ●●Buyer► ●●Buyer► ●●Buyer► ●●Buyer► ●●Buyer► ●●Buyer► ●●Buyer►
Seller’s responsibility to insure the goods under the CIF Rule of Incoterms® 2010
Buyer’s insurable interest [10]

Summary on Buyer's and Seller's Responsibilities under CIF Rule in Incoterms® 2010

Seller's Responsibilities (in brief) Buyer's Responsibilities (in brief)
Goods - Payment
  • Pay for the goods as provided in the sales contract.
Licenses, Security, and Customs Formalities
Carriage
  • Contract or procure a contract for the carriage of the goods from the point of delivery to the named port of destination.
  • Buyer has no obligation [1] to the seller.
Insurance
  • Obtain and pay for minimum cover cargo insurance (Coverage C of the Institute Marine Cargo Clauses) from a reputable insurance company or underwriter [7].
    • Insurance must provide coverage at least to the named port of destination, entitle the buyer to make a claim directly to the insurer, be for a minimum of 110% of the contract amount, and be in the currency of the sales contract.
  • Provide the buyer with an insurance policy or evidence of insurance [8].
  • Provide information to enable the buyer to obtain additional insurance [2].
  • Buyer has no obligation [1] to the seller.
Delivery - Taking Delivery
  • Deliver the goods on board the ship at the port of shipment
    • or "procure [5] goods already so delivered."
* Take delivery of the goods at the named port of destination as provided in the contract.
Risk Transfer
  • Assume all risks of loss or damage to the goods until they have been delivered on board the ship [3] at the port of shipment (not destination), within the agreed-upon time stipulated in the sales contract.
  • Assume all risk of loss or damage from the time the goods have been delivered on board the ship [3] at the port of shipment (not destination).
Costs
  • Pay all costs until the goods have been delivered on board the ship at the port of shipment.
  • Pay all costs of loading and carriage to the named port of destination.
  • Pay for the cost of insurance as described above.
  • Pay for costs of unloading if unloading is included in the contract for main carriage.
  • Pay all costs relating to export, including customs formalities, duties, and taxes, as well as costs required for transshipment through any country up to the named port of destination.
  • Pay any additional costs for the goods, other than main carriage, once they have been delivered on board the ship at the port of shipment.
  • Pay costs of unloading, lighterage, and wharfage at the port of destination
    • unless such costs were to be paid by seller under seller’s contract for carriage.
  • Pay all costs relating to import formalities, duties, fees, and taxes.
  • Pay costs of onward carriage.
Notice to the Buyer - Notice to Seller
  • Provide notice that enables the buyer to take timely possession of the goods at the named port of destination.
    • If, according to the sales contract, the buyer is entitled to specify a time for shipping or the point of receiving the shipment at the named port of destination, to give seller sufficient notice.
Delivery and Transport Documents - Proof of Delivery
  • Provide the buyer with a transport document, dated within the period agreed, that allows the buyer to claim the goods at the named port of destination and (unless otherwise agreed) allows the buyer to sell the goods while in transit through the transfer of the document or by notification to the sea carrier.
* Accept the seller’s delivery document [9] if it is in conformity with the sales contract.
Checking, Packing, Marking - Inspection(s)
  • Pay all costs associated with checking the quality and quantity of the goods to be in conformity with the sales contract.
  • Provide pre-shipment inspections as required for export formalities.
  • Package the goods, unless the goods are conventionally sold unpackaged.
  • Package the goods as the seller deems appropriate for transport, unless the buyer has given specific requirements prior to the finalization of the sales contract.
  • Provide marking appropriate to the packaging.
Other
  • Timely provide the buyer, at the buyer’s request and cost, assistance in securing information and documents, including security information, required by the buyer for import and transport of the goods from the named port to the final destination.
  • Reimburse the buyer for buyer’s costs related to securing information and documentation, including security information the seller requires for export formalities, transport, security clearance, and transshipment to the named port of destination.
  • Timely advise the seller of any security-related data requirements.
  • Reimburse the seller for seller’s costs related to securing information or documentation, including security information, that the buyer requires for import formalities, security clearance, and transport of the goods to the final destination.
  • Timely provide the seller, at the seller’s request and cost, with any documents and information required for export, transport, and security clearance of the goods to the named port of destination.

Examples [6]

  • CFR, Terminal 1, Port of Nakhodka, Nakhodka, Russia
  • CFR, AAA Terminal, Port of Busan, South Korea

Notes

  1. According to Incoterms rules, seller and buyer have reciprocal responsibilities only. The "no obligation" term often used in the rules of Incoterms means that one party has not obligation to the other party. In the CIF case (Art. B.3.А - Incoterms® 2010) the buyer has obligation neither to arrange nor to pay the contract on carriage. The "no obligation" term has the same understanding for the buyer in the case of insurance. However, the "no obligation" term being applied to the buyer does not mean that the task performance is out of the buyer’s interests (Articles B.3.A and B.3.B in Incoterms® 2010). So, for the case of the CIF rule, despite the fact that the buyer has not responsibility to the seller for the contract on carriage and insurance contract, it is clear, that the buyer has an interest to have such contracts that will deliver the goods to the buyer’s place of destination safely (insured in the most suitable manner) and in the time stipulated.
  2. For the CIF rule, the buyer must provide the seller (upon request), with any information necessary for the seller to procure any additional insurance[2] as request by the buyer and the seller must provide the buyer with the insurance policy or other evidence of insurance cover, as well as any information that the buyer needs to procure any additional insurance. The seller is required to obtain cargo insurance complying at least with the minimum cover provided by Coverage C of the Institute Marine Cargo Clauses.[3] However, this is the minimum level of insurance and covers only major casualties, such as total loss of cargo. The buyer also has the option of requiring that the seller provides, at the buyer's expense and where procurable, any additional cover, for example, cover provided by Institute Marine Cargo Clauses. Coverage A of the Institute Marine Cargo Clauses[4] or Coverage B of the Institute Marine Cargo Clauses[5] or any similar clauses and/or cover complying with the Institute War Clauses and/or Institute Strikes Clauses[6]) / (Air Cargo[7]) or any similar set of clauses. This acts as a sort insurance "bolt-on", but the buyer will be required to pay more for this. If the buyer wishes for the seller to arrange for this "bolt-on" insurance, it is recommended that this is included in the sale contract.
  3. The previous CIF risk transfer formula, - Risk transfer from the seller to the buyer when the goods pass the ship's rail, - is cancelled because for the modern ship the rail is something image and so poorly identified for any disputes and arbitrations.
  4. Original document, original of document, or, simply, original means in the context of international trade are presented by a signed (executed) and, usually, stamped official document which may be reproduced as facsimiles. An original document can exist as two or more 'copies,' each one of them marked 'original' and having equal legal force.[8] One overview of the current status of electronic public procurement in Europe[9] states that the use of original certificates is rare,and electronic certificates are equally uncommon. All correspondents indicate that original certificates are rarely required, and that copies are usually sufficient. It follows that, in an electronic context, unsigned scans would also be permissible. Indeed, in EU, 9 out of 32 countries (28%) explicitly indicate that unsigned scans or unsigned PDF files would also be permissible in most procurements. When electronic certificates are used, unsigned copies or unsigned originals are usually permitted, which substantially reduces crossborder interoperability difficulties. The recognition of e-documents in an international business (logistics) is based on the same pillars as e-commerce does. Namely, in the European Union, as is the case for the e-Commerce Directive,[10] the Model Law[11] also embraces the concept of functional equivalence. I.e., traditional paper-based concepts such as "writing" (Article 6), "signature" (Article 7) and "original" (Article 8) are redefined in a way that allows electronic versions of these concepts to have the same legal value, provided that these can serve the same basic purposes and offer the same guarantees as in their traditional form. Therefore, EDI option is acceptable to produce e-documents in international/domestic transactions (sales contracts).
  5. The seller’s option to "procure goods already so delivered", existing now in a number of Incoterms® 2010 rules, is concerned to the sale, and successive resale, of a single shipment of goods while en route from place of shipment to final destination (so named string sales). This is common in the commodity trade (futures trade), where oil, grain, and ore shipments are sold and resold before the vessel arrives in port.
  6. The examples given hereto are to illustrate purposes concerning the syntax of Incoterms® 2010 rules and could conform with any real data occasionally only.
  7. The insurance shall be contracted with underwriters or an insurance company of good repute and entitle the buyer, or any other person having an insurable interest in the goods, to claim directly from the insurer.
  8. An evidence of insurance or certificate of insurance is a document issued by or on behalf of an insurance company to a third party who has not contracted with the insurer to purchase an insurance policy. The most common type of certificate is that provided for informational purposes to advise a third party of the existence and amount of insurance issued to the named insured.[12]
  9. Delivery document term used as the heading to article A8 (Incoterms® 2010) means a document used to prove that delivery has occurred. For many of the rules of Incoterms® 2010, the delivery document is a transport document or corresponding electronic record. Nevertheless,[13] with EXW, FCA, FAS and FOB rules, the delivery document may simply be a receipt. A delivery document may also have other functions, for example as part of the mechanism for payment declaration: refers to comply with customs regulations and have met some of the requirements, including the notes, Enron, information or physical inspection of the obligation. Such requirements are particularly common in construction contracts with large contractors, government entities, and major corporations.
  10. While the seller is responsible for procuring and paying for insurance cover during the voyage to the named port of destination, the buyer may exercise prudence and purchase additional insurance coverage.[14]

References

  1. Incoterms® 2010: ICC rules for the use of domestic and international trade terms – ICC Publication No 715E
  2. INCOTERMS 2010 – What you need to know (Part 2) | http://www.reedsmith.com/publications/search_publications.cfm?widCall1=customWidgets.content_view_1&cit_id=29497
  3. INSTITUTE CARGO CLAUSES (C), 2009 | http://www.coast-uw.com/cargo/clauses/download/ICC(C).pdf
  4. INSTITUTE CARGO CLAUSES (A), 2009 | http://www.coast-uw.com/cargo/clauses/download/ICC(A).pdf
  5. INSTITUTE CARGO CLAUSES (B), 2009 | http://www.coast-uw.com/cargo/clauses/download/ICC(B).pdf
  6. INSTITUTE STRIKES CLAUSES (CARGO), 2009 | http://www.coast-uw.com/cargo/clauses/download/Strikes(Cargo).pdf
  7. INSTITUTE STRIKES CLAUSES (AIR CARGO), 2009 | http://www.coast-uw.com/cargo/clauses/download/Strikes(Air).pdf
  8. http://www.businessdictionary.com/definition/original.html
  9. Preliminary Study on the electronic provision of certificates and attestations usually required in public procurement procedure / European Commission Internal Market and Services DG, Brussels, 2008 – p.33. | http://ec.europa.eu/internal_market/publicprocurement/docs/eprocurement/ecertificates-study_en.pdf
  10. E-Commerce Directive | http://ec.europa.eu/internal_market/e-commerce/directive_en.htm
  11. UNCITRAL Model Law on Electronic Commerce Guide to Enactment 1996 with additional article 5 as adopted in 1998 | http://www.uncitral.org/pdf/english/texts/electcom/05-89450_Ebook.pdf
  12. Windt, A.D. Insurance Claims and Disputes: Representation of Insurance Companies and Insureds, 5th ed., Clark Boardman Callaghan, 2009
  13. Financial terminology | http://financialterminology.info/2011/06/incoterms-2010-international-edition-b/
  14. Critical Points in International Transport / http://www.teamworklogistics.in/critical%20points.pdf
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