What is Cost, Insurance, and Freight (CIF)?

Article reviewed by Tomas Pernias - Market Intelligence Analyst

Cost, Insurance, and Freight (CIF) is a shipping term that defines the responsibilities of buyers and sellers in international trade.

Under CIF terms, the seller handles the cost of transporting goods to the destination port, as well as the cost of insuring the shipment while in transit. Once the goods are loaded onto the vessel, however, the responsibility (i.e. risk of loss or damage) transfers to the buyer, who must also pay the costs of unloading goods and final delivery.

Understanding CIF: Cost, Insurance, and Freight in International Trade

Cost, Insurance, and Freight (CIF) is one of eleven Incoterms established by the International Chamber of Commerce (ICC) in 1936 to standardize global trade practices. These terms help prevent misunderstandings and maintain trust between buyers and sellers engaged in international trade.

CIF is exclusively used for goods shipped via waterways, like ocean and sea freight. Under these terms, the seller arranges transportation, covers freight costs, and secures insurance to protect the shipment against potential loss or damage. The buyer, on the other hand, is responsible for all costs and risks beyond the destination port, including customs clearance and inland transportation.

For example, if a company in Brazil sells sugar to a buyer in Germany under CIF terms, the Brazilian sugar exporter must pay for ocean freight and insurance to the agreed German port. Once the goods are on the ship, however, the buyer assumes any potential risks associated with damage, delays, or additional costs incurred upon arrival.

How does Cost, Insurance, and Freight work in B2B transactions?

CIF clearly outlines the responsibilities of buyers and sellers in B2B transactions, helping prevent misunderstandings and uncertainties related to shipping and insurance.

Seller’s responsibilities

In a CIF transaction, the seller’s responsibilities include:

• Securing export licenses: The seller must obtain all necessary export permits and ensure the goods comply with local and international regulations before shipping.
• Facilitating inspections: If required, the seller arranges product inspections to confirm they meet industry standards and buyer specifications.
• Shipping and loading costs: The seller pays for transportation and loading the goods onto the shipping vessel.
• Handling customs clearance & duties: The seller covers the costs of any export duties, taxes, or customs fees needed to release the goods from their country.
• Paying for main carriage: The seller pays for shipping the goods from their port to the buyer’s destination port.
• Providing insurance: The seller is required to insure the shipment against loss or damage while in transit.
• Covering damage until shipment: The seller covers costs if the goods are damaged or lost before being loaded onto the vessel.
• Timely delivery: The seller must ensure goods are shipped within the agreed timeframe and provide proof of delivery.

Buyer’s responsibilities

In a CIF transaction, the buyer is responsible for:

• Unloading goods: The buyer arranges and pays for unloading the goods from the vessel.
• Handling terminal transfers: The buyer covers costs for moving the goods within the terminal and transferring them to the final delivery site.
• Paying import duties and fees: The buyer is responsible for all import taxes, duties, and customs charges required to bring the goods into their country.
• Final transportation: Once cleared, the buyer must arrange for transportation from the port to the final destination.

What are the advantages and disadvantages of CIF agreements?

CIF terms can benefit both buyers and sellers, however they can also have certain drawbacks that must be considered.

Advantages for buyers

Some potential benefits of CIF terms for buyers include:

Insurance protection

One of the key benefits of CIF for buyers is the inclusion of insurance coverage. Since the seller is responsible for insuring the shipment until it reaches the destination port, buyers gain an extra layer of protection against loss or damage during transit.

Simplified logistics

For buyers, CIF reduces the burden of handling complex shipping arrangements. The seller manages transportation, insurance, and export compliance, which means the buyer only needs to handle customs clearance, unloading, and final delivery. This simplified shipping process can be especially beneficial for buyers who are less experienced in international shipping.

Advantages for sellers

Some potential benefits of CIF terms for sellers include:

Greater control over shipping

Under CIF terms, sellers arrange export logistics, including carrier selection, shipping routes, and insurance arrangements. Since many sellers have established relationships with carriers, they may be able to secure better rates and reduce overall costs.

Provide added value to buyers

Offering CIF terms can add value to buyers and make a seller’s products more attractive. By handling shipping and insurance costs, sellers make the transaction process more convenient and low-risk. This can be especially appealing for buyers who lack experience in global logistics.

Disadvantages for buyers

Some potential drawbacks of CIF terms for buyers include:

Higher costs

Buyers often pay a premium for CIF shipments because sellers incorporate shipping and insurance costs into the product price. This can make CIF less cost-effective than other Incoterms, such as Free on Board (FOB), where buyers can negotiate their own freight rates.

Limited control over shipping

Since the seller chooses the carrier and shipping method, buyers have little say in transit times or route selection. This can lead to delays or the use of lower-rated carriers that the buyer would otherwise prefer to avoid.

Potentially insufficient insurance coverage

While CIF includes insurance, the coverage can be minimal depending on what the seller chooses. In some cases, buyers might find that the policy doesn’t fully compensate for loss or damage. 2020 Incoterms state a minimum level of insurance that covers at least 110% of the contract value.

Risk transfers at point of shipment

Under CIF, the risk transfers to the buyer once the goods are loaded onto the ship. This means buyers are responsible if something happens during transit, even though they have limited control over the shipping process and insurance provided.

Disadvantages for sellers

Some potential drawbacks of CIF terms for sellers include:

Higher upfront costs

Sellers must cover shipping and insurance expenses, which can impact cash flow or reduce profit margins – especially if freight rates increase unexpectedly.

Insurance liability risks

Since sellers are responsible for arranging insurance, any gaps in coverage or disputes over claims could lead to financial or reputational risks. For example, buyers may hold sellers accountable for inadequate insurance.

Dependence on third parties

Sellers rely on carriers, freight forwarders, and insurers to ensure smooth and timely delivery. Any disputes in relation to delays, mishandling, or insurance, can negatively impact a seller’s credibility, even though they’re outside their direct control.

Potential for miscommunication

Since buyers have limited involvement in the shipping process, misunderstandings can arise in relation to freight arrangements, insurance terms, or delivery expectations. This can lead to conflicts between buyers and sellers, especially if goods arrive late or damaged.

What’s the difference between CIF and FOB?

Cost, Insurance, and Freight (CIF) and Free on Board (FOB) are both international shipping agreements that define responsibilities between buyers and sellers. The main difference between them is when liability and costs transfer from the seller to the buyer.

Cost, Insurance, and Freight (CIF)

In a CIF arrangement, the seller is responsible for shipping costs, insurance, and freight until the goods arrive at the buyer’s destination port. Ownership transfers to the buyer once the goods are loaded onto the shipping vessel, but the seller still covers the cost of transportation and insurance against potential loss or damage during transit.

Once the goods reach the destination port, the buyer assumes responsibility for:

• Import duties, taxes, and customs clearing
• Unloading fees and inland transportation to the final destination
• Additional costs related to inspection or licensing.

Since the seller handles most logistics, CIF can be convenient for buyers. However, it can also come at a higher cost since the seller has more control over shipping expenses.

Free on Board (FOB)

With a FOB agreement, the seller’s responsibility ends once the goods are loaded onto the shipping vessel. From that point, the buyer assumes all risks and costs, including:

• Freight charges from the seller’s port to the destination port
• Insurance (optional but recommended)
• Unloading, customs clearance, and final delivery costs.

FOB gives buyers more control over shipping logistics and costs, however it also means they have more responsibility throughout the process. For that reason, it’s more suitable for buyers who are confident with international shipping or those engaging global trade finance solutions.

What’s the difference between CIF and CIP?

Carriage and Insurance Paid To (CIP) is another Incoterm that outlines buyer and seller responsibilities in shipping and insurance. The main difference between CIP and CIF revolves around insurance coverage and risk transfer points.

CIF is exclusively used for sea and inland waterway transport. To recap, under CIF, the seller covers:

• Cost and freight to the buyer’s destination port
• Insurance up to the port of arrival
• Export duties and loading charges.

With CIF arrangements, risk transfers to the buyer once the goods are loaded onto the shipping vessel at the port of origin. This means that if something happens during transit, the buyer is responsible beyond the seller’s minimum insurance coverage.

CIP, on the other hand, applies to all modes of transport – including air, rail, road, and sea. Under CIP, the seller:

• Pays for transportation to the agreed-upon final destination
• Provides insurance covering the entire journey, not just up to the port
• Covers export customs clearance and loading costs.

Unlike CIF, risk transfers under CIP when the goods are handed over to the first carrier, not when they are loaded onto the vessel. This means the buyer has less exposure to risk while the shipment is in transit.