According to the World Trade Organization (WTO), global trade volumes increased by 4,400% between 1950 and 2023, and the value of global trade has risen an average of 6% per year since 1995.
Many large businesses have extensive experience transporting goods between the WTO’s 166 member countries—but when you’re starting out, navigating international shipping procedures can prove complicated.
Some small businesses use CIF shipping, an ocean freight shipping method, to simplify financial planning and reduce administrative burdens. Learn more about how CIF shipping works, along with the advantages and disadvantages.
What is cost, insurance, and freight (CIF) shipping?
Cost, insurance, and freight (CIF) shipping is an ocean freight shipping agreement in which the seller pays all costs associated with transporting a shipment to a buyer’s destination port. This includes handling, transportation (or freight), and insurance costs.
CIF shipping is one of 11 International Commercial Trade Terms, or incoterms, which are legally binding shipping terms published by the International Chamber of Commerce (ICC), a nongovernmental body promoting international trade. Incoterms clarify who assumes responsibility for the costs and risks associated with international shipments.
Under CIF incoterms, the seller is responsible for all shipment and transit insurance costs until the cargo arrives at the named port of destination in the shipment’s sales contract.
Cost transfer and risk transfer occur at different points. Risk transfers when the shipment is loaded onto the vessel (meaning the buyer assumes the risk of loss or damage, although it’s still the seller’s responsibility to contract insurance). Cost transfers when the cargo arrives at the buyer’s port (meaning the seller assumes responsibility for insurance and transportation costs going forward).
Buyer and seller responsibilities with CIF agreements
Here’s a breakdown of buyer and seller responsibilities for CIF shipments.
Seller’s responsibility under a CIF agreement
Although the seller transfers legal responsibility to a buyer when a shipment is loaded onto the shipping vessel at the port of origin, sellers are responsible for all costs required to move the shipment to its destination port.
- Packaging. The seller covers the cost of packaging a shipment for transport to its destination.
- Delivery to port. The seller also arranges for the transport of the goods to their port of origin and pays associated handling and transportation costs.
- Export customs. The seller is responsible for purchasing export licenses and paying applicable customs duty charges.
- Origin port logistics. Sellers cover loading, storage, or other costs applied by the port of origin.
- Shipping insurance. The seller must provide insurance coverage for transport to the buyer’s port.
- Ocean freight shipment. The seller is responsible for contracting with a sea freight carrier and paying freight charges.
Buyer’s responsibility under a CIF agreement
The buyer takes legal responsibility for shipment once it is loaded onto the shipping vessel at the port of origin and is responsible for all costs after a shipment arrives at the destination port.
- Destination port logistics. The buyer arranges and pays for unloading costs, storage, and any other charges applied by the port of origin.
- Import customs. Buyers are responsible for import customs clearance charges, including applicable import duties, taxes, and fees.
- Final delivery. Buyers arrange delivery of CIF freight to its final destination and pay associated transport costs.
Advantages of CIF shipping
CIF shipping minimizes administrative burdens for buyers and allows both parties to focus on building relationships with local logistics providers on their end. Here are three advantages:
Predictable costs
CIF shipping can simplify financial planning for buyers, allowing them to evaluate the total cost of a potential purchase even if they aren’t familiar with shipping procedures in the country of origin. Sellers—not buyers—are also responsible for any unexpected fees that arise before arrival at the destination port.
Local expertise
CIF shipping offers significant advantages to less experienced buyers and sellers, allowing each party to benefit from its direct access to resources in a country where it regularly does business. Buyers can focus on developing reliable, cost-efficient processes for transporting goods in the destination country, and sellers can focus on processes in the country of origin. It also simplifies customs clearance. Instead of becoming an expert in multiple import and export procedures, you can focus on procedures relevant to your local ports.
Insurance
Although the buyer assumes responsibility for CIF freight when it’s loaded onto a shipping vessel, sellers are legally required by law to provide minimum insurance coverage for transport by the shipping carrier. Coverage can protect buyers from loss or damage to goods due to weather, piracy, or other covered incidents.
Disadvantages of CIF shipping
CIF shipping isn’t always the best choice for buyers who want more control over shipping processes and timelines. Here are a few drawbacks:
Potential for inflated prices
Sellers can offer free CIF shipping or charge for it, and each option can have drawbacks for buyers. Some sellers inflate shipping charges before passing them along, which results in a higher total cost for buyers—and free shipping is never really free.
Instead, sellers roll costs into product prices, making it difficult for buyers to evaluate how much they’re being charged. Uninformed buyers may also interpret free CIF shipping as free delivery to the final destination, which leads to surprise expenses after the cargo arrives at the destination port.
Limited buyer control
Because the seller pays CIF freight, buyers can’t select carriers or specify delivery timelines for CIF shipments. These costs also incentivize sellers to select the most affordable shipping option, which can lead to long delivery times or unexpected shipping delays.
Insurance claim complications
If something goes wrong with a shipment during transit, reimbursement processes can be complicated. Most policies designate the seller as the beneficiary, so buyers who have already paid in full need to seek reimbursement from the seller after the claim has been processed.
Policies also don’t offer insurance coverage for shipments before they are loaded onto the shipping vessel or after they are unloaded. This makes them less appropriate for containerized cargo shipments, which are often stored on land at origin and delivery ports.
Import issues
In some countries, the party that arranges shipping is responsible for import paperwork. The US requires all importers to submit Importer Security Filings (ISFs), for example. The buyer is the importer, but the party arranging the shipping (for CIF shipping, the seller) fills out the filing form on the buyer’s behalf. If the seller fails to file, the buyer can face a US Customs and Border Control fine of $5,000.
CIF shipping FAQ
What does CIF mean in shipping?
Cost, insurance, and freight (CIF) shipping is an international shipping agreement that pertains to ocean and inland waterway shipments. Under a CIF freight agreement, the seller pays all insurance, handling, and freight charges until the buyer’s order arrives at the destination port and retains shipment liability until the goods are loaded onto the shipping vessel.
What is the difference between FOB, CFR, and CIF?
FOB, CFR, and CIF are legally binding international commercial terms that outline the point at which responsibility transfers from the seller to the buyer for goods transported by sea or inland waterways. Here’s the difference:
- Free on board (FOB) shipping. With FOB shipping the seller is responsible for costs and risks until a shipment is loaded onto the shipping vessel.
- Cost and freight (CFR) shipping. The seller is responsible for cost and risks until a shipment arrives at the destination port.
- Cost, insurance, and freight (CIF) shipping. The seller is responsible for risks until a shipment is loaded onto the shipping vessel and costs until it arrives at the destination port. CIF shipping terms also require the seller to provide insurance for transport on the shipping vessel.
Does CIF include customs clearance?
Under CIF shipping, both sellers and buyers are responsible for customs clearance. Charges paid by the seller include export licenses and export customs duty, and the buyer’s responsibilities include import duties and any applicable taxes or fees.
