CIF – Cost, Insurance and Freight

CIF – Cost, Insurance and Freight: This is the most widely used form of International Sales Contract. As its name implies, it involves the seller in the arrangement of the carriage and the insurance as well as the provision of the goods. The price of goods sold CIF will be considerably higher than the same goods sold FOB, as these elements will have to be included in the selling price. The contract is based on the discharge port rather than the load port. This enables the seller to buy goods afloat, if necessary, to fulfill his contract with the buyer. The seller is under an obligation to ship goods of the contract description, in accordance with any further stipulations in the contract of sale as to time, place, etc. He must arrange a contract of carriage on the usual conditions for the trade in question. Similarly he must arrange an assignable insurance for reasonable value on the usual terms for the trade in question. He must then prepare an invoice for the goods that he is selling in accordance with any stipulations in the contract of sale. Finally, the seller must tender all the relevant documents to the buyer (or his agent, or his bank). The relevant documents are the Invoice, the Bill of Lading and the Policy of Insurance. The buyer must accept the documents and pay the price. He may of course refuse to accept the seller’s documents if they are not in accordance with the contract, though they may be re-tendered by the seller in a satisfactory condition within the contract period. Property passes when the documents are transferred. Risk, however, and this should be specifically noted, is deemed to have passed at the moment of shipment. If anything has happened to the goods during the voyage, the buyer will be protected, as he will receive the insurance policy when the documents are transferred. It should be noted that the transfer of the documents is, in law, the transfer of the goods, so even if the goods are lost, the sale can be performed by the transfer of the documents. The CIF contract has been judicially described as a ‘contract for the sale of goods performed by the sale of documents’.

CFR – Cost and Freight:  It will be self-evident that in this variation of the CIF contract it is for the buyer to arrange the insurance. This form is popular in those countries that like to ensure that importing  buyers  place  insurance  on  all  consignments  with  their  own  national insurers. Once again, as in the CIF contract, property passes and the price becomes payable upon transfer of the documents, and risk is deemed to pass as from shipment.