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CIF (cost insurance and freight)

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CIF (cost insurance and freight)


CIF COST, INSURANCE AND FREIGHT
(... named port of destination)



"Cost, Insurance and Freight" means that 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.

Consequently, the seller contracts for insurance and pays the insurance premium. The buyer should note that under the CIF term the seller is required to obtain insurance only on minimum cover1. Should the buyer wish to have the protection of greater cover, he would either need to agree as much expressly with the seller or to make his own extra insurance arrangements.

The CIF term requires the seller to clear the goods for export.

This term can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the CIP term should be used.

This is perhaps the most usual and important term used in sales contracts involving carriage by sea. This term is basically the same as C & F, but with the addition that the seller has to procure insurance against the risk of loss or damage to the goods during the carriage. The seller contracts with the insurer and pays the insurance premiums. These, then, are included in the price for the goods.

The original contract of sale in international trade was probably FAS or FOB where the buyer would have chartered a vessel and called at the ports of shipment taking the goods into his care. The buyer would have been the shipper. In the late 19th century the CIF transaction developed mainly because of the development of good communication links and banking services. In modern international trade, this is by far the most common form of term of trade in a contract of sale. Because the essence of the system is that the system of documentary credits is used through banks, the CIF term also leads to the potential of maritime and documentary fraud because the banks are paying for documents, not for the physical goods.

This INCOTERM can be classified in a group where the main carriage is paid by the seller and it is suitable for transport by sea and inland waterway.

 

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