Incolearn – Learning more about Incoterms 2000

COST INSURANCE AND FREIGHT (CIF) PART I
– Introducing Cost Insurance and Freight
The International Chamber of Commerce (ICC) defines the sixth Incoterm, Cost, Insurance and Freight (CIF) at a named port of destination as “the seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer. However, in CIF the seller also has to procure marine insurance against the buyer’s risk of loss of or damage to the goods during the carriage”. Cost, Insurance and Freight is the second of 4 F-terms also known as the main carriage paid terms, the other being Cost and Freight (CFR), Carriage Paid To (CPT), and Carriage and Insurance Paid To (CIP). It is important to remember that this term can only be used for sea and inland waterway transport. According to Professor Jan Ramsberg, the chairman of the ICC Working Party on Trade Terms, the seller’s primary duty is to contract for carriage and insurance, deliver the goods on board, provide a clean transport document and a cargo insurance policy or certificate, arrange export clearance, and pay unloading costs if for his account under the contract of carriage. The buyer’s primary duty is to accept delivery of the goods upon shipment, to receive the goods from the carrier, and to pay those costs that are not for the seller’s account under the contract of carriage. The documents required in terms of the contract of sale are the commercial invoice, the transport document, an export licence if necessary, an insurance policy (certificate), as well as any other documents needed for the transit of the goods through any country or for import clearance. The three critical points of CIF are firstly, that the carriage and insurance must be arranged by the seller. Secondly, the risk transfers from the seller to the buyer when the goods pass the ship’s rail, and thirdly, the cost transfers at the port of destination, the buyer paying those costs that are not for the seller’s account under the contract of carriage. Next week’s issue will focus on the seller’s obligations under Cost, Insurance and Freight (CIF).