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Incoterms Definitions Part 2: CFR, CIF, CPT, CIP

  
  
  

What do these incoterms mean?

IncotermsToday we continue our incoterms blog series going through Group C incoterms. If you're just finding us, you can click here to see Incoterms Definitions Part 1 which covered Group E and Group F.

For an introduction and overview of incoterms, click here.

Now to Group C incoterms. Terms from this group have one thing in common, they are all terms used when the seller can arrange to pay all the fees up to delivery at a foreign port.

Here's what they mean:

1. CFR: Cost and Freight, aka C&F, aka CNF

Definition:  This acronym means that the seller covers all the costs of bringing goods from their origin to the port of destination, including carriage costs and clearing the goods for export except for the insurance.[1]

Note: Even though the seller takes care of the actual loading and transportation of goods up to the port of destination, the buyer pays the insurance (and therefore assumes the risk) from the moment the goods are loaded onto the vessel at the port of origin throughout their transit to the port of destination and beyond.[2]  This term is used exclusively for maritime and inland waterway trade.

2. CIF: Cost Insurance and Freight

Definition: This term is identical to the one preceding it – with exception for the insurance portion. With a CIF arrangement, the seller (not the buyer) assumes the risk (and therefore is responsible for purchasing insurance) for the goods during transit from origin to the port of destination. 

Note: This term too applies solely to maritime and inland waterway trade. However, CIF may 
not be appropriate where the goods are handed over to the carrier before they are loaded on the vessel - the usual 
container scenario.[3]

3. CPT: Carriage Paid To, aka DPC

Definition: This term indicates that the seller assumes most of the cost of transportation of the goods including export fees, carriage charges, and fees at the port of destination. Seller does not pay for insurance - that is the buyer’s obligation.

Note: The moment that the risk of loss or damage is transferred from seller to buyer is when the goods are loaded onto the first carrier vessel, despite the seller paying the carriage charges.[4] CPT can be used for all modes of transportation, including container or roll-on roll-off traffic.[5]

4. CIP: Carriage and Insurance Paid To

Definition: Carriage and insurance paid is much like CPT in that the seller assumes most of the costs of transportation including export fees, carriage charges, and fees at port of destination. For CIP arrangements, however, the seller is responsible for purchasing insurance for the goods during the carriage.[6]

Note: While the seller is required to buy insurance for the carriage, the risk of loss or damage is transferred from seller to buyer when the goods are loaded onto the first carrier vessel.[7] CIP can be used for all modes of transport but is most common for intermodal (i.e. container) shipping.[8] 

Further Insight into 2011 changes

A member of the 2010 Incoterms drafting committee noted the motives behind some of the changes made in 2011 to the official Incoterms concerning container freight and the term CIF.

“It was clear from the outset that the new rules have a clear educational mission. It is well known that "traditional" Incoterms 
such as CIF continue to be used inappropriately in a world where containerized and multimodal movements of goods 
are the norm. So the rules are now separated into two sections, clearly labeled "Rules for any mode or mode of transport"
 and "Rules for sea and inland waterway transport".[9]

Next week we will round out the Incoterms, explaining the last 3. We will also cover briefly which changes were made and why.

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Comments

Defining of incoterm CIF is not correct.  
In case of CIF, the risk transfer from seller to Buyer as soon as goods are shipped on board. 
If any damage occured during sea transit, buyer have to claim it from insurance company and seller have no role here.
Posted @ Tuesday, April 23, 2013 5:32 AM by Vinay
Thank you for chiming in on this, Vinay. 
 
The responsibility of the goods transfer to the buyer, not when they are shipped on board in a CIF arrangement, but when the goods leave the ship at the destination port. 
 
Until the goods reach the destination port and actually cross the rail of the ship, the seller is responsible for the insurance cost.
Posted @ Tuesday, April 23, 2013 6:42 AM by Jared
I like it, easy to absorb & understand. Excellent & thanks so much. Rgds/ JT
Posted @ Tuesday, May 07, 2013 4:08 AM by Juanda Tambunan
Thanks for commenting, Juanda. We're glad you found this useful.
Posted @ Tuesday, May 07, 2013 8:00 AM by Jared Vineyard
I am a commercial peoples, thus i want to know the commercial terms 
Posted @ Sunday, June 02, 2013 7:30 AM by jahan
I would like to know more about INCOTERMS.
Posted @ Monday, July 22, 2013 3:36 AM by Michael Dagne
exact definition of incoterms CFR
Posted @ Tuesday, August 13, 2013 3:07 AM by RAMSEY LAMINGTON
this piece has been very useful to me. very easy to understand. grateful.
Posted @ Monday, August 26, 2013 8:44 PM by REXFORD OWIREDU
very simple and easy to understand. thanks
Posted @ Monday, August 26, 2013 8:46 PM by rexford
hi, 
this is in refrence to the post by vinay on 23rd april,i too agree with vinay that the risk transfers to buyer once the goods are delivered to the carrier at origin and not when the goods reach at the port of destination. I have checked it with many reference books too.Kindly clarify
Posted @ Wednesday, October 23, 2013 6:53 AM by amit somani
Thanks Amit. 
 
The strict interpretation of CIF is that these three things (Cost, Insurance, and Freight) are included from the seller in the deal. In practice, there is likely variation as the buyer has a vested interest in the shipment and may insure the goods in the voyage from origin to destination. But strictly speaking from the definition of CIF, the buyer becomes responsible for all import clearance, costs, delivery, and so on of goods once they arrive at the port of destination.
Posted @ Thursday, October 24, 2013 2:26 AM by Jared
Sorry to insist, but vinay and amit are right. Freight and insurance costs are paid by the seller, but once the goods are delivered to the mean of transportation, all risks of loss or damage, or any additional costs due to events happening after time of delivery are transferred to the buyer.
Posted @ Thursday, November 14, 2013 7:33 AM by Josue
opk good
Posted @ Saturday, November 23, 2013 2:22 AM by
Vinay, Amit, Josue please understand that your interpretation is wrong. The insurance endorsement is in the name of buyer as "loss payée" but this is different than what you're talking about. This case happens only when you're on a L/C (bank requirements), but if on a CAD Cash Against Document paying mode than in no case the seller will clause "loss payee" if has not been paid yet. Tks n brgds
Posted @ Tuesday, May 27, 2014 4:05 AM by Capt. Robert Glusic
il y a lieu de préciser clairement la différence entre CPT/CIP et CFR/CIF; MERCI
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