Benefits of Cost Insurance Freight Agreement to the Seller

What is CIF (Cost, Insurance and Freight)?

Cost, insurance and freight, commonly known as CIF is an international shipping agreement. It indicates the responsibilities of the seller in an import or export transaction. In simple terms, CIF is an agreement that outlines the extent to which buyers and sellers are held responsible for the cargo while in transit. It is to be noted that cost, insurance, and freight are only applied to goods transported via a waterway, ocean, or sea.

The agreement states the official duties of a seller from when the cargo is packed, loaded, and in transit till the time it reaches its destination. The buyer’s liabilities start once the goods have reached their destination, that is, the point of delivery. Thereafter, the risk of all expenses shifts to the buyer.

CIF is an Incoterm (International Commercial Terms) developed by the International Chamber of Commerce.

Responsibilities of the Seller in a CIF Agreement

Every commercial transaction involves a set of responsibilities that needs to be fulfilled. A seller’s responsibilities in a CIF agreement are no exception. Some of the responsibilities include.

- Procuring the requisite export licenses

- Ensuring proper packaging

- Mentioning the correct address across all the consignments

- Ensuring safe delivery of goods at the point of dispatch and seamless uploading of the same

- Bearing all the costs involved in the shipping activity

- Bearing all insurance expenses till goods reach the final destination

Benefits of Cost, Insurance and Freight for the Buyer

For smaller businesses (especially buyers), CIF is quite popular as the buyer manages a relatively smaller part of the process, and most of the risk and work is in the hands of the seller. Thus, the seller is charged with making the arrangements for shipping, and insurance of the goods. This leads to an added opportunity for the seller to improve his profit figures. The seller is likely to keep some buffer to make up for the time spent streamlining the things.

Also, the seller has the complete right to retain the transfer of goods till the buyer does not pay for the consignment.

Cost Insurance Freight Price Calculation

Cost insurance freight (CIF) value is the actual value of the goods at the time of shipping. For cost, insurance, freight price calculation, the freight and insurance costs are to be added to the actual cost of goods. 

For example, for the invoice value of INR 1,00,000, 20% is taken as the freight and 1.125% as the insurance cost. Thus, the freight amount comes to INR 20,000(1,00,000 x 20%) and insurance cost as INR 1,125 (1,00,000 x 1.125%). Hence,

CIF = 1,00,000 + 20,000 + 1,125 = INR 1,21,125

Cost, insurance, freight price calculation are very crucial as duties are calculated based on the CIF value.

Conclusion

Marine insurance is critical for every business as it helps reduce the financial loss aspect in case of damage or loss of critical cargo. Different types of marine insurance are available based on the need and coverage required. Marine insurance cost or premium thus depends on various factors and is not universal throughout.