COST, INSURANCE AND FREIGHT (CIF) PART V
– Summary and Conclusion
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”. The only difference between the Cost and Freight (CFR) and the CIF term is that the latter requires the seller to also obtain and pay for cargo insurance. Previously we introduced CIF and then considered the definition by Professor Jan Ramsberg, the chairman of the ICC Working Party on Trade Terms, of the 10 obligations that the seller and buyer might need to fulfil in terms of CIF. In accordance with the description of CIF, it can be used only for sea and inland waterway transport. If the contracted parties do not intend to deliver the goods across the ship’s rail, the CIP term should be used. CIF is the second of the four C-terms also known as a main carriage paid term, requiring the seller to clear the goods for export. Cost, Insurance and Freight is the second of four 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. If the contracting parties do not intend to deliver the goods across the ship’s rail, the CIP term should be used. In summary, the seller’s primary duty is to contract for carriage, to deliver the goods on board, to provide a clean transport document and a cargo insurance policy or certificate, to arrange export clearance, and to pay the unloading costs if for his account under the contract of carriage. The buyer’s primary duty is to accept the 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 should be the commercial invoice, transport document, an export licence if necessary, and an insurance policy (certificate). Other documents that could be considered for stipulation in the contract of sale could be those needed for the transit of the goods through any country or for import clearance. The three critical points of CIF are firstly, that the seller must arrange the carriage and insurance. Secondly, that the risk transfers from the seller to the buyer when the goods pass the ship’s rail, and thirdly, that the cost transfers at the port of destination, with the buyer paying those costs that are not for the seller’s account under the contract of carriage. Next week’s column will define the seventh Incoterm – Carriage Paid To (CPT).
