CIF (Cost, Insurance and Freight): what it means in grain trade
5 min read
Under CIF the seller pays for freight and insurance to the destination port, but risk passes to the buyer at loading. Here is how CIF works for bulk grain and what to check in the contract.
CIF stands for Cost, Insurance and Freight. It is one of the 11 Incoterms 2020 rules of the International Chamber of Commerce (ICC). Under CIF, the seller delivers the goods on board the vessel at the port of shipment, pays for freight to the named port of destination and buys cargo insurance for the buyer.
The named place in a CIF price is the destination, for example "per tonne CIF Alexandria". This is the main source of confusion: the seller pays all the way to the destination, but risk passes to the buyer much earlier, when the goods are on board at the port of shipment.
Who does what under CIF
| Obligation | Seller | Buyer |
|---|---|---|
| Export clearance and export documents | yes | no |
| Loading on board at the port of shipment | yes | no |
| Chartering the vessel and paying freight | yes | no |
| Cargo insurance, minimum cover | yes | no |
| Unloading at the port of destination | only if included in the freight | otherwise yes |
| Import clearance and duties | no | yes |
| Risk | until the goods are on board | from the moment they are on board |
Insurance under CIF
CIF requires only minimum cover: Institute Cargo Clauses (C), for at least 110% of the contract value. This covers major events such as sinking or fire, but not many common cargo risks. If the buyer needs broader cover, for example Clauses (A), it should be stated in the contract. CIP, unlike CIF, already requires Clauses (A) by default.
Documents the buyer receives
CIF is a documentary sale. The buyer usually pays against documents, often under a letter of credit, while the vessel is still at sea. The typical set is:
- bill of lading;
- insurance policy or certificate;
- commercial invoice;
- certificates of quality, weight, origin and phytosanitary condition.
What to agree in a CIF grain contract
- the port of destination and, if needed, the berth;
- the discharge rate, laytime and demurrage at the destination port;
- who pays for unloading, for example liner terms or free out;
- the insurance cover and the currency of the policy;
- where quality and weight are final: at loading or at discharge;
- the payment terms and the document list.
CIF, CFR and FOB
| FOB | CFR | CIF | |
|---|---|---|---|
| Freight paid by | buyer | seller | seller |
| Insurance | buyer, in its own interest | buyer, in its own interest | seller, minimum cover |
| Risk passes | on board, port of shipment | on board, port of shipment | on board, port of shipment |
| Named place | port of shipment | port of destination | port of destination |
CFR is CIF without insurance. Buyers who already have an annual cargo policy often prefer CFR. More on the seller's side of the same trade: FOB: what it means in grain trade.
CIF offers on INBULK
A CIF price already includes freight and insurance, so it is not directly comparable with an FOB price. On INBULK, every offer states its basis and place, so you can see what is included before you negotiate. How INBULK works.