What are CIF Shipping Terms
CIF (Cost, Insurance and Freight) and CFR (Cost and Freight, sometimes called C&F or CNF) are widely used international shipping terms or Incoterms. They are identical apart from an additional marine insurance policy paid for by the seller. The terms allocate the division of responsibility between the Shipper (usually the supplier) and the Consignee (usually the buyer) in the process of shipping the goods from one to the other.
When using CIF or CFR shipping terms, the seller’s invoice includes the cost of the goods and the freight to send them to the agreed country. The seller pays for everything up to and including the freight to a named destination port, the first charge to the buyer is the terminal handling at the destination port. Both CIF and CFR terms are used successfully by many shipping companies, importers and exporters but they are not without their risks.
CIF Shipping Terms | The Pro's & Con's
Without extensive research CIF/CFR terms can be dangerous but there are of course advantages. If the buyer knows EXACTLY what costs they’ll have to pay on arrival then these terms offer a fairly hassle free way to get the goods to their door. Their supplier will arrange for the goods to be shipped to the buyer’s country without the buyer having to lift a finger. When the goods land, the supplier’s shipping agent (explained below!) will contact the buyer to arrange customs clearance and delivery.
In particular, CIF terms are used quite successfully to import full container load (FCL)shipments. This is because the shipping lines can act very uniformly which prevents fluctuations in agent’s handover fees or hidden charges.
CNF terms are also very goods if you’re exporting as they don’t carry the disadvantages that importing does. If you’re selling products and exporting them outside the EU then CFR terms are a great way of splitting responsibility between yourselves and the overseas buyer.
If you’re not prepared there can be a lot of panicking and calling around for help! (We get these calls every week)
- Costs are not being managed effectively from start to finish
- There can be hidden charges (Chinese Import Service Fees etc.)
- Costs of services you expect to pay for can be inflated
- There can be delays and extra costs when the goods land if you’re not fully prepared
A lot of people look to their supplier to organise their first shipment and deliver the goods to the UK. It’s not always just the cost that appeals to them, but also the simplicity of having the supplier deliver the goods to the UK port.
It’s easy to see why it’s such a frequent mistake to think that “all I have to do is arrange collection from the UK port”.
Unfortunately that’s not the case, as the buyer you are responsible for paying all the UK costs in addition to picking up a number of fees that most people have never heard of.
In order to stay in business, Chinese shipping agents need cargo to ship. Sometimes (not always), the easiest way to get it is not to charge the seller for their service. This means that before they have even started the process they are working at a loss. However, they do have the cargo.
Once the ship arrives at the port in the UK the Chinese Shipping agent’s counterpart will make their money back by billing the buyer China Import Service Fees and other ‘documentation’ costs that can be through the roof. The buyer also has the UK fees to pay which are often highly inflated above market rates.
Often you can get an inkling that things may not be as they seem when your supplier asks you which port you’d like the goods to arrive at. We’ve been told that Chinese suppliers have agreed to send their goods to small fishing ports that have never even seen a containership! The likelihood is that your goods will arrive at Felixstowe, Southampton or potentially London (regardless of what your supplier thinks).
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CIF Shipping Terms | My Responsibilities
Your responsibilities when importing goods on CIF/CFR terms begin as soon as the shipment arrives in the UK. Once the goods land you are responsible for all the arrangements and costs incurred in the UK.
These costs include:
- Import customs clearance
- Import duties & taxes
- Terminal handling at the port of discharge (POD)
- Onwards delivery from the POD to the final destination.
You will also be responsible for any other fees. Unfortunately these hidden costs are all too common when importing under CIF/CFR terms. Some of the fees we have seen include:
- Chinese Import Service Fee’s (CISF)
- Hand over charges
- Documents fees
- Agency fee’s
- Deferment costs
Don’t let this scare you too much, as you would be responsible for a lot of this on any other shipping terms (other than DDU or DDP). The only difference is that there are different people controlling the shipment throughout so you can’t really see who’s paying for what. Your supplier has to get the goods to the UK port but they won’t necessarily pay market rates to do so meaning that you could potentially take a hit. When using FOB or Ex worksterms the goods would be in control of the same agent from start to finish. This cuts out the risk of any hidden costs so that your costs are clear cut through out.
FOB Shipping Terms | Supplier's Responsibilities
When buying goods on CIF/CFR shipping terms, your supplier’s responsibilities are very clear. They will manage the shipment until the goods reach the destination port. This includes the local transport, export customs clearance, loading of the goods and the freight to the port of destination. If the terms are CIF (Cost, Insurance & Freight) then they will also arrange the insurance.
The arrangement of all of the above does not mean that they cover the cost to do this. The cost will be billed to the buyer in the end somehow, but unfortunately you will not know quite how much this will be until the goods arrive.
CIF/CFR VS FOB Shipping Terms
A common dilemma when importing cargo via sea freight into the UK is the question of which shipping term to use. CIF/CFR and FOB are common shipping terms that your suppliers may offer.
If you’re a first time importer and these are your two options we’d recommend using FOB terms.
CIF and CFR terms are used successfully by many importers and exporters but they are not without their risks. When importing products from the Far East, most choose to go with the FOB option as it’s easier to keep shipping costs under control.
CIF/CFR terms can look appealing as your supplier may say that they can get your cargo to the UK port for less than to the Chinese port! Unfortunately, there’s no such thing as a free lunch and you are likely to be hit with large hidden costs when the goods land in the UK. Below are the advantages and disadvantages of both methods.
- Cheaper shipping costs (until the goods land in the UK)
- Can work well for full container loads
- Safe if you have had previous success on CIF terms with this supplier
- Excellent for Exporting
- You can control your costs from the factory to your door.
- No hidden charges.
- Your supplier should know the export documents they need for their products.
- Most sellers regularly work to FOB shipping terms
- There can be hidden charges (handover charges etc.)
- You may be hit with Chinese import service fees. (CISF)
- There can be problems at customs due to lack of the correct clearing requirements.
- Costs are not being managed effectively from start to finish.
- Seemingly increases the cost of goods.
- Looks more expensive shipping than CIF/CFR
As with most shipping terms there are advantages and disadvantages, however some terms are better suited for different shipment types. For first time importers, it is important that your costs are managed and outlined from the get go. For this reason, FOB terms will almost certainly be the best option over CIF or CFR. For seasoned importers, CIF/CFR can work as we’ve mentioned, but they are still not without risk.
We are happy to discuss this further if you need more advice. Our contact details are at the bottom of the page.
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CIF / CFR Vs Ex Works Shipping Terms
If you’re a first time importer and these are your two options we’d recommend using Ex Work’s terms.
CIF shipping terms can be a good way to import goods but you have to know EXACTLY what costs you’ll pay when the ship lands in the UK. If there is transparency all the way throughout the process and it is clear who the goods need to be released to on arrival to the UK (your clearance agent) then CIF shipping terms can used successfully.
For full container loads CIF terms can work really well but when importing LCL shipments there’s a significant risk. Costs can spiral out of control.
Your supplier may offer you an extremely cheap price to get the goods to a UK port, but the chances of that being the final cost you will pay are very low. If your supplier offers you CIF terms on your first shipment, don’t bite their hand off thinking it’s really cheap!
Often when suppliers can’t offer FOB terms, the next option is an Ex Works shipment. On Ex Works terms, you are responsible for all costs from your suppliers door, to your door in the UK. This is the next best way to totally control your costs as you can outline your costs from the start. You may also get a better deal on the goods in the first place.
There is, as with anything, a negative aspect of importing goods on Ex works shipping terms. You can be responsible for any cost that arise from errors in your supplier’s documentation. The process can also be slightly prolonged due to your agent needing to establish the overseas costs.
On top of this, your costs aren’t always set in stone. The reason for this is that you are liable for any costs incurred at any point on the journey. For example, if the goods are pulled by customs at the outbound port for inspection (randomly or otherwise), you will have to pay for this. This can be really frustrating as you have no control over the export declaration, yet could find yourself being punished for a mistake made by your supplier.
The above should have given you a good idea of the pros and cons of each shipping term, but if not here’s our summary:
Ex works terms can be really simple, and you shouldn’t be put off by the ‘extra transport costs’ as you probably would have saved money on the goods by working to these terms. All we would advise is that you get in contact with your shipping company a week or so in advance to ensure that all costs are outlined and in place for the moment the goods are ready to go. Ensure that the margin is great enough to take the (very small) risk of a customs inspection and you are good to go.
As for CIF shipping terms, they can work well, especially for full container load shipments. However, you should always clarify with your supplier exactly what you’ll have to pay when your goods land in the UK. If in doubt, ask to speak with the agent in the UK who will be clearing the goods and get the costs in writing from them.
'Help, I used CIF terms and have a huge bill'
Unfortunately, because it looks so cheap to ship on CIF terms we get calls most weeks from worried importers. They’ve often received an invoice that has been double the value of their shipment, after going ahead on a CIF basis.
It’s really important that you know exactly what costs you will pay if importing via CIF/CFR terms, or things can get very ugly and out of hand quite quickly. However, we understand that sometimes it’s too late and you’re stuck with a situation that’s out of your hands. If you’ve received a large invoice from a UK company here are a couple of things you can do:
- Firstly, you won’t be able to get rid of these costs but you can try to manage them
- Some of the companies will be good UK businesses charging honest market rates
- If the rates are too high, negotiation is an option.
- There are some costs that will have come from the Chinese agent that you can do nothing about. However, some overinflated UK costs could be targeted for negotiation.
- If the costs are much higher than market rates you could save yourself a lot of money.
- The other option, if there is no movement in the rate, is to look at what it would cost to clear and deliver the goods through a different agent. The first agent will likely charge a handover fee to pass on a lot of the charges but you may save a bit of money.
Many first time importers just aren’t aware of these ‘hidden costs’. As the old saying goes, if it looks too good to be true… it probably is.
If you’re in this situation we really hope that you can get your goods without too much hassle. You can always call us if you’d like to talk it through if you feel the need. If not, we wish you all the best for this and your future shipments.
For more information about CIF or CFR shipping call us now on 0203 384 0498 or use the chat facility above for a detailed explanation and advice on your shipping options.
When importing cargo to the UK from overseas via sea freight, a shipping term commonly offered by suppliers is CIF Felixstowe. This means that the goods will be shipped on a CIF term from the country of origin to the port of Felixstowe, UK. This term is not always as simple as it seems, you can often be left with some pretty large hidden costs once the goods land in the UK.
CIF (Cost, Insurance and Freight) shipping terms mean that the seller invoices the buyer for the cost of the goods, the insurance and the cost to get them to the UK port. The seller gets the goods to the destination port (in this case CIF Felixstowe) and then everything after that is your responsibility.
As the supplier seemingly handles everything from their premises to get your goods to the port of Felixstowe, CIF Felixstowe shipping terms can seem very handy. However, there can be some large hidden costs waiting around the corner. Once the goods arrive in the UK the Chinese shipping agents counterpart may be waiting with some inflated fees, as they know they have you over a barrel because you need your cargo. These hidden fees can include a CISF, huge port handling rates, documents fees, customs charges and storage costs. While this term is favoured by many suppliers because they can save a large amount of money (see why here!) it is very difficult for the buyer to control their costs when using it.
FOB shipping terms – The easiest way to control your costs throughout the shipping process is by using FOB shipping terms. These terms aren’t massively dissimilar to CIF/CFR terms, with both terms splitting the costs between the buyer and the seller. However, when working to FOB shipping terms all costs are clear from the outset. Shippo can offer a simple all inclusive FOB price which includes everything you need all the way to your door.
Exworks shipping terms – You could also use Ex Works terms. While these terms do not split the transportation costs at all, they allow you to manage your costs effectively. When importing cargo on Ex Works terms, you are responsible for all costs and risk from the sellers premises to your premises. This may seem expensive but if your supplier is selling you the goods on Ex Works terms, the goods are likely to be cheaper and you shouldn’t be stung with any hidden costs.
If you are trying to control your budget and don’t wish to be hit with large hidden costs, we would suggest asking your supplier to sell the goods to you on FOB shipping terms.