Cost, Insurance, Freight Contract (CIF)

                    Cost, Insurance, Freight Contract (CIF)

CIF Contract: CIF stands for “ Cost, Insurance, and Freight” This type of contract is quite popular in Mercantile Transactions. A contract on CIF terms means contract at a price to cover cost, insurance and freight. A CIF contract is one in which the seller agrees to sell the goods at a price which is inclusive of the cost of goods, insurance and freight.

    The essential feature of CIF is the contract performance is satisfied by the delivery of document, and not by the actual delivery of the goods. A CIF contract is however not mere sale of documents, though the buyer has to pay against the delivery of documents. In other words, delivery of documents is only a symbolic delivery of the goods.

     The CIF agreement is usable for transporting goods by sea or inland waterway, Usually the seller goes for this agreement, if they have direct access to the ship, and it is makes easier for seller to load the cargo onto the vessel. It is also usable for non- containerized and bulk cargo.

For Example: A contract is entered into for the sale on C.I.F. terms of specific goods afloat, the seller being at the time in possession of the relative documents which he indorses over to the buyer. Unknown to the parties the carrying vessel had become a total loss before the bargain was struck. Under such circumstances, it was argued in Couturier v. Hastie that the purchaser bought, in fact, the shipping documents, the rights and interests of the vendor; “but the argument was rejected by the House of Lords on the ground that the parties contemplated the existence of the goods.

Thus, although a CIF contracts involves an original shipment of goods, it does not necessarily imply that such goods continue to exist at the time when the contract is made.

 Seller's Responsibilities Includes:

• Purchasing export licenses for the product

• Providing inspections of products

• Any charges or fees for shipping and loading the goods to the seller's port

• Packaging costs for exporting the cargo

• Fees for customs clearance, duty, and taxes (for exporting)

• Cost of shipping the freight via sea or waterway from the seller's port to the buyer's port of destination

• Cost of insuring the shipment up until the buyer's port of destination

• Covering the cost of any damage or destruction to the goods

• The seller must deliver the goods to the ship within the agreed-upon timeframe and provide proof of delivery and loading.

Buyer’s Responsibilities Includes:

• The buyer only has to pay any customs or other duties, which may impose in a CIF contract. 

• He is bound to do so even if the goods are destroyed, for he has a remedy against the insurer of goods.

     It's important to note that when shipping internationally, there can be different risk and cost transfer points between the buyer and seller, depending on the type of shipping agreement. Under CIF, the risk transfer is at a different point than the cost transfer. The exact details of the contract will determine when the liability for the goods transfers from seller to buyer.

      Since the seller pays the shipping, freight, and insurance costs until the cargo arrives at the buyer's destination port, the cost transfer occurs when the goods have arrived at the buyer's port. However, the risk transfer occurs from the seller to the buyer when the goods have been loaded on the vessel. Although the seller must purchase insurance, the buyer has ownership of the goods once loaded onto the ship, and if the goods have been damaged during transit, the buyer must file a claim with the seller's insurance company.

     The goods in CIF agreement, the seller assumes the costs and risks associated with transport until delivery, which is when the buyer assumes responsibility. If the goods are not in accordance with the contract then the property does not passes to the purchaser. With this CIF responsibility transfers to the buyer when the goods reach the point of destination.