Incoterms Definitions Part 2: CFR, CIF, CPT, CIP
What do these incoterms mean?
Today 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.
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.
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. 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. 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. CPT can be used for all modes of transportation, including container or roll-on roll-off traffic.
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.
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. CIP can be used for all modes of transport but is most common for intermodal (i.e. container) shipping.
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”.
Next week we will round out the Incoterms, explaining the last 3. We will also cover briefly which changes were made and why.