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Incoterms 2020 CIF: Spotlight on Cost, Insurance and Freight

On: October 4, 2023    |    By: David Noah David Noah    |    8 min. read

Incoterms 2020 CIF: Spotlight on Cost, Insurance and Freight | Shipping SolutionsIncoterms 2020 rules are the latest revision of international terms of trade published by the International Chamber of Commerce (ICC). They are recognized as the authoritative text for determining how costs and risks are allocated to parties conducting international transactions.

Incoterms 2020 rules outline whether the seller or the buyer is responsible for, and must assume the cost of, specific standard tasks that are part of the international transport of goods. In addition, they identify when the risk or liability of the goods transfer from the seller to the buyer.

In this article, we’re discussing the Incoterm CIF, also known as Cost, Insurance and Freight.

There are 11 trade terms available under the Incoterms 2020 rules that range from Ex Works (EXW), which conveys the least amount of responsibility and risk on the seller, to Delivered Duty Paid (DDP), which places the most responsibility and risk on the seller. The Incoterms 2020 Rules: Chart of Responsibilities and Transfer of Risk summarizes the seller and buyer responsibilities under each of the 11 terms.

For a summary of Incoterms 2020 and a short definition of each of the 11 terms, read An Introduction to Incoterms.

Cost, Insurance and Freight Responsibilities and Risk

Under the Incoterms 2020 rules, CIF means the seller is responsible for loading properly packaged goods on board the vessel they’ve nominated, cost of carriage to the named port of destination on the buyer’s side, and insurance to that point. CIF is one of only two Incoterms 2020 rules that identify which of the parties must purchase insurance.

Unlike the Incoterms 2020 change to the term Carriage and Insurance Paid to (CIP), which increases the amount of insurance coverage required on the goods, CIF maintains that the minimum level of coverage identified by Clause C of the Institute Cargo Clauses is enough. That's because CIF is generally used in shipments of lower-value goods than CIP.

In both cases—CIF and CIP—the insurance should cover, at a minimum, 110% of the value of the goods as provided in the sales contract. The insurance should cover the goods at least to the point of delivery.

The risk or liability for the goods transfers from the seller to the buyer as soon as the goods are loaded upon the vessel before the international carriage takes place.

Get an overview of Incoterms 2020 that everyone can understand.

Cost, Insurance and Freight Transportation Options

The ICC has divided the 11 Incoterms into those that can be used for any mode of transportation and those that should only be used for transport by “sea and inland waterway.” That’s because companies were choosing Incoterms where risk and responsibilities transferred at a point that made no sense in a non-ocean journey.

Under Incoterms 2020, CIF should only be used for sea and inland waterway transport.

Using Cost, Insurance and Freight

With all of the C-group terms, including CIF, the seller is responsible for contracting international transportation. The named place where the transfer of responsibility occurs is always on the buyer’s side.

Although buyers and less experienced exporters may prefer an F-group term, C-group terms are preferable to more experienced exporters. These terms allow you to deal directly with the carrier; documentation, bills of lading, and all the information needed for letters of credit originate from a single place. Additionally, using C-group terms gives you more negotiation power, especially if you book a lot of freight.

That being said, like all four of the Incoterms 2020 rules designed for sea and inland waterway transport, CIF is best used in situations where sellers have direct access to the vessel for loading, i.e., bulk cargos or non-containerized goods. For most exports, Carriage Paid To (CPT) might be a better choice.

Buyers should consider CIF if they do not have their own cargo insurance. Risk of loss or damage is greater by ocean freight. The seller can charge for insurance and should provide an insurance certificate. If the buyer wishes to keep the risk with the seller throughout transport, they should instead consider using DAP or DPU. 

CIF Frequently Asked Questions (FAQs)

  • What are the seller's responsibilities under CIF?

    The seller is responsible for the cost of carriage, insurance and freight to bring the goods to the named port of destination. They must arrange for transportation and insurance.

  • What are the buyer's responsibilities under CIF?

    The buyer is responsible for paying the price of the goods and any applicable taxes, as well as obtaining any necessary licenses or permits. They are also responsible for unloading the goods from the arriving means of transport.

  • What are the risks and transfer of ownership under CIF?

    Risk transfers from the seller to the buyer once the goods are on board the vessel at the port of shipment. Ownership of the goods also transfers to the buyer at this point.

  • Is CIF suitable for all types of goods?

    CIF is most commonly used for bulk commodities and goods that are shipped in large quantities, such as oil, coal and grain. However, it can also be used for other types of goods if both parties agree to the terms.

  • Can CIF be used for containerized shipments?

    Yes, CIF can be used for containerized shipments, as long as both parties agree to the terms. However, it is important to note that containerized shipments may require additional fees and charges, such as container handling fees, that must be accounted for in the contract.

  • Can CIF be used for air freight?

    No, CIF is not suitable for air freight. CIF is specifically designed for sea and inland waterway transport. For air freight, you might consider EXW (Ex Works), FCA (Free Carrier), CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To), DAP (Delivered At Place) and DDP (Delivered Duty Paid). 

  • Can the parties modify the CIF terms?

    Yes, the parties can modify the CIF terms to suit their specific needs as long as they agree on the modifications and include them in the contract. 

  • What are the advantages of using CIF?

    CIF can be advantageous for both the seller and buyer in certain situations. For the seller, it allows for a straightforward shipment process and reduces the risk of damage or loss during transit. For the buyer, it provides a clear price and transfer of risk, making it easier to plan and budget for the shipment.

  • Who chooses the insurance under CIF?

    The seller is responsible for obtaining insurance for the goods under CIF. However, the buyer may request a specific type of insurance or a specific insurance provider, as long as they agree to pay for any additional costs.

  • CIF vs. CFR: What’s the difference?

    CIF and CFR are both used for sea and inland waterway transport. The key difference between them is that under CIF, the seller is also responsible for obtaining insurance for the goods. CFR does not include an insurance requirement.

  • CIF vs. FOB: What’s the difference?

    Purchasing goods with FOB is preferable for experienced traders. Under FOB, the seller's responsibility concludes upon delivering the goods to the nearest port on their end. Once the goods cross the ship's rail, they are considered delivered. Consequently, the buyer assumes the responsibility of covering the ship's freight and insurance costs, enabling the buyer to secure better deals on freight services. With CIF, the buyer is dependent on the seller's chosen freight services, and the seller may aim to generate profit from the freight services. 

  • CIF vs. CIP: What’s the difference?

    CIP can be used for any mode of transport, where CIF is only used for sea and inland waterway. With CIF, responsibility transfers when the goods are onboard the vessel. With CIP, it transfers at any agreed-upon location in the origin country.

Learn More about Incoterms 2020 Rules

If you are regularly involved in international trade, you need to understand the risks and responsibilities as defined by Incoterms 2020 rules, not just pick the term you always use. Start by getting a copy of ICC's Incoterms® 2020 Rules book.

For a more detailed understanding of which term or terms make the most sense for your company, register for an Incoterms® 2020 Rules seminar or webinar offered by International Business Training. If you don't want to attend a half-day class, you can get the book provided at these seminars and webinars: Incoterms® 2020 for Importers and Exporters.

Read our articles about each of the Incoterms 2020 rules here:

If history is any indication, the Incoterms 2020 rules will be around for at least a decade. Now seems like the perfect time to make sure you understand each of the terms, so you can make sure you’re speaking the same language as your international trading partner.

Like what you read? Subscribe today to the International Trade Blog to get the latest news and tips for exporters and importers delivered to your inbox. 

This article was first published in March 2017 and has been updated and revised based on the changes made with the release of the Incoterms 2020 rules.

David Noah

About the Author: David Noah

David Noah is the founder and president of Shipping Solutions, the #1 selling export documentation software that develops and sells export documentation and compliance software targeted at U.S. companies that export. David is a frequent speaker on export documentation and compliance issues and has published several articles on the topic.

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Incoterms 2020 Chart of Responsibilities | Shipping Solutions

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