What is CIF (Cost, Insurance and Freight)?

CIF looks like a delivered price, but it is not. The seller pays for the journey, yet the buyer carries the risk of it. That gap is the main thing to understand. For the other rules, see what are Incoterms.

This is a general explanation, not legal, insurance or customs advice. Check the ICC's own text for your shipment.

Why CIF matters

Buyers like CIF because the quote includes freight and insurance, so offers from different suppliers compare on one footing.

The risk is in the detail. The seller pays freight to the destination port, but if the goods are damaged at sea, it is the buyer's loss. The insurance is there to cover that, and the buyer is the one who claims on it.

Who does what under CIF

The seller

• Delivers the goods on board the vessel at the port of shipment, or procures goods already shipped.
• Books the carriage and pays the freight to the named destination port.
• Buys cargo insurance and gives the buyer the policy or other evidence of cover.
• Clears the goods for export and pays for the export formalities.
• Supplies the commercial invoice and the transport document, such as the bill of lading, plus anything else the contract asks for, such as a packing list.

The buyer

• Carries the risk of loss and damage from the moment the goods are on board.
• Clears the goods for import and pays import duties and taxes.
• Pays unloading charges at the destination port, unless the seller's contract of carriage already covers them.
• Takes delivery of the goods from the carrier at the named destination port.

The insurance rule

Under Incoterms 2020, CIF requires only minimum cover: Institute Cargo Clauses (C), for at least 110% of the contract price, in the currency of the contract. Clauses (C) give the narrowest cover of the standard cargo clauses. If the buyer wants wider cover, such as Clauses (A), it can ask the seller to arrange it at the buyer's cost, or buy it separately.

Where risk passes

Risk passes when the goods are on board the vessel at the port of shipment. The named place in a CIF quote is the destination port, for example "CIF Hamburg", but that is where the seller's freight cost ends, not where the risk ends.

An example from product sales

Say a seller quotes 10 pallets for $12,000 at the factory. It adds $650 for haulage and export clearance, $1,400 for sea freight and $150 for insurance. The CIF price is $12,000 + $650 + $1,400 + $150 = $14,200.

The minimum insured value is 110% of that: $14,200 × 1.10 = $15,620. If the goods are damaged at sea, the buyer claims on the policy. The buyer then pays import duties and local costs on top of the $14,200.

Common mistakes with CIF

• Thinking the seller carries risk to the destination. It does not.
• Using CIF for containers handed over at a terminal. The ICC notes that CIF may not suit goods handed to a carrier before they are on board, and points to CIP. Under CIP 2020 the seller must buy wider cover, Clauses (A), so the insurance cost changes too.
• Not checking the cover. The seller owes only minimum cover. A buyer with fragile or high-value goods may want more.
• Dropping the destination port. Always name it.

How CIF changes the price you quote

A CIF price includes everything in an FOB price, plus freight and insurance. It is still not a delivered price, since import duties and delivery inland are not in it. For delivery to the buyer's door, DAP or DDP fit, and only DDP includes the import duties. For the buyer's full cost, work out the landed cost.

Related terms

• Incoterms: the 11 rules CIF belongs to.
• FOB: the same delivery point, without the freight and insurance.
• CFR (Cost and Freight): identical to CIF except that the seller buys no insurance.
• Bill of lading: the transport document the seller hands over under CIF.

How PromptLab handles it

Record CIF in the trade terms field on the sales order, which lists the 11 Incoterms 2020 rules, and put the destination port in the order's notes and the quote's notes. The quote is built from products and the customer's price list, and the policy, the bill of lading and other files go on the account's Files tab beside the order.

Frequently asked questions

What does CIF stand for?

CIF stands for Cost, Insurance and Freight. The seller pays the freight and buys minimum insurance to the named destination port.

Who pays for insurance under CIF?

The seller buys and pays for it, but it protects the buyer. The buyer is the one who is exposed to the risk once the goods are on board.

How much insurance does the seller have to buy under CIF?

Under Incoterms 2020, at least Institute Cargo Clauses (C), covering at least 110% of the contract price, in the contract currency.

What is the difference between CIF and CFR?

They are identical except for insurance. Under CIF the seller buys cargo insurance for the buyer. Under CFR the seller does not.

Is CIF a delivered price?

No. The seller pays for carriage to the destination port, but risk has already passed to the buyer at loading, and the buyer pays import duties and taxes.