Cost Insurance Freight (CIF): What Importers Need to Know
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Discover why shipping CIF could be sinking your business! Tyler Zaichkin will explain how purchasing your Marine Cargo Insurance on CIF Terms could be hurting your business and costing you more. Watch the Webinar: https://youtu.be/S6Tl5M-ogwY Read the Transcript: https://traderiskguaranty.com/trgpeak/webinar-cost-insurance-freight-cif/
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Cost Insurance Freight (CIF): What Importers Need to Know
- 2. Tyler Zaichkin National Sales & Marketing Manager Bozeman, Montana Trade Risk Guaranty Brokerage Services, LLC tzaichkin@traderiskguaranty.com 1st
- 3. • Located in Beautiful Bozeman Montana • Established in 1991 • Direct-to-Importer Business Model • Over 10,000 U.S. Customs Bond & Marine Cargo Insurance Clients TRADE RISK GUARANTY BROKERAGE SERVICES, LLC
- 4. ON FACEBOOK JOIN THE CONVERSATION
- 5. THIS WEBINAR WILL BE RECORDED
- 6. USE THE “CHAT” OPTION TO SUBMIT YOUR QUESTIONS
- 7. TODAY’S WEBINAR TOPICS Terms of Sale/Incoterms Cost, Insurance, Freight (CIF) Sellers & Buyers Responsibilities & Risks Common CIF Pitfalls Cargo Insurance Coverage Comparison Free on Board (FOB) Basics FOB vs. CIF Example
- 8. Agreed between a buyer and seller, the terms of sale define the responsible parties for payment, delivery, and obligations of transportation. This does not determine how a payment is made but instead how the sale will be processed.
- 9. INCOTERMS • Published by the International Chamber of Commerce (ICC) • 11 pre-defined terms of sale • Globally recognized • Clearly communicates tasks, costs, and risks • Establishes transition of ownership of goods
- 10. COST, INSURANCE, FREIGHT (CIF) • Price/unit includes the cost of the item, insurance, and ocean freight to the U.S. port • Transfer of risks from the seller to the buyer occurs when the goods have passed the ship’s rail at the origin port
- 11. CIF, SELLER’S RESPONSIBILITIES • Goods in conformity with contract • Packaging • Commercial invoice • Export clearance, duties, & taxes • Origin terminal charges • Loading charges • Transportation charges to named port • Minimum insurance coverage
- 12. CIF, BUYER’S RESPONSIBILITIES • Destination terminal charges • Assessed warehousing, examination, and/or other fees or penalties • Import duty and taxes • Transportation arrangement & charges from destination port to final destination
- 13. CIF RESPONSIBILITIES & RISK
- 14. COMMON CIF PITFALLS Inflated commercial invoice Unexpected charges Minimum cargo insurance coverage Lack of control and visibility
- 15. INFLATED COMMERCIAL INVOICE • Often CIF invoices do not break out the cost of ocean freight inflating the dutiable amount • If freight is broken out, CBP requires substantial proof via ocean bill of lading
- 16. UNEXPECTED CHARGES • Under a CIF contract, the buyer is responsible for destination terminal handling charges (THC) • THC covers the unloading and discharge of containers • Often missed by infrequent importers and inflated by CIF freight forwarders
- 17. LACK OF CONTROL AND VISIBILITY • Seller arranges freight, often choosing the cheapest option required by contract • May result in longer and/or riskier transits • Communication is often delayed resulting in difficult or impossible changes to contracted transportation
- 18. MINIMUM CARGO INSURANCE COVERAGE • Policy coverage at least 110% of invoice value • Must be purchased by seller from a reputable insurance company • Geographic scope from port of origin to port of destination
- 19. • Increased coverage and/or additional clauses may be added, only if cover cost will be paid by the buyer • Minimum cover of Marine Cargo Clauses (C) of the Institute Cargo Clauses or similar clauses MINIMUM CARGO INSURANCE COVERAGE
- 21. MARINE CARGO CLAUSES (C) Risks Covered • Fire or explosion • Stranded, grounded, sunk, or capsized vessel • Collision or contact of vessel with external object • Discharge at post of distress • General average • Jettison Excluded Risks • War, strikes, terrorism, nuclear incident • Vessel unseaworthiness • Willful misconduct • Ordinary loss, wear, or leakage • Insufficient packaging • Inherent vice • Delay • Insolvency of vessel operators • Deliberate damage or destruction of goods
- 22. MARINE CARGO CLAUSES (A) Risks Covered • All risks of loss or damage • General average Excluded Risks • War, strikes, terrorism, nuclear incident • Vessel unseaworthiness • Willful misconduct • Ordinary loss, wear, or leakage • Insufficient packaging • Inherent vice • Delay • Insolvency of vessel operators TRG Enhancements • Accumulation • Debris removal • Shortage from containers • Concealed damage • Control of damaged goods • Labels/brands • Consolidation/deconsolidation/repacking
- 23. FOB VS. CIF EXAMPLE
- 24. WHAT IS FOB? • Price of goods includes delivery on board vessel nominated by buyer at named port of shipment • Transfer of risks from the seller to the buyer occurs when the goods have passed the ship’s rail at the origin port • Buyer is responsible for freight and insurance from origin port onward
- 25. FOB VS. CIF EXAMPLE Commodity: LED Flashlights HTS Code: 8513.10.2000 Duty Rate: 12.5% # of Flashlights per FCL: 432,000 Origin Port: Ningbo, China Destination: Seattle, USA
- 26. FOB VS. CIF EXAMPLE Importer A (FOB) • Free On Board (FOB) • $1.12/flashlight (-0.88%) • 3 FCL shipments per year • Shipment by shipment insurance, clauses (A) • Contracts own freight Importer B (CIF) • Cost Insurance Freight (CIF) • $1.13/flashlight (+0.88%) • 3 FCL shipments per year • Insurance contracted by shipper, clauses (C) • Shipper contacts freight
- 27. IMPORTER A (FOB) COSTS/SHIPMENT Flashlights: $483,840.00 Duty: $60,480.00 Freight: $2296.75 Insurance*: $1458.41 Total Cost/Shipment: $548,075.16 *Per shipment insurance at 0.30/100
- 28. IMPORTER B (CIF) COSTS/SHIPMENT Flashlights: $488,160.00 Duty: $61,020.00 Freight: No additional charge Insurance: No additional charge Total Cost/Shipment: $549,180.00
- 29. FOB VS. CIF EXAMPLE Importer A (FOB) • $548,075.16/shipment • $1,644,225.48/year Importer B (CIF) • $549,180.00/shipment • $1,647,540.00/year Difference of $3,314.52 per Year!
- 30. Importer A (FOB) • Free On Board (FOB) • $1.12/flashlight (-0.88%) • 3 FCL shipments per year • Annual insurance policy, clauses (A), $1200/year • Contracts own freight Importer B (CIF) • Cost Insurance Freight (CIF) • $1.13/flashlight (+0.88%) • 3 FCL shipments per year • Insurance contracted by shipper, clauses (C) • Shipper contacts freight FOB VS. CIF EXAMPLE
- 31. Flashlights: $483,840.00 Duty: $60,480.00 Freight: $2296.75 Insurance: $400 ($1200/3) Total Cost/Shipment: $547,016.75 IMPORTER A (FOB) COSTS/SHIPMENT
- 32. Flashlights: $488,160.00 Duty: $61,020.00 Freight: No additional charge Insurance: No additional charge Total Cost/Shipment: $549,180.00 IMPORTER B (CIF) COSTS/SHIPMENT
- 33. Importer A (FOB) • $547,016.75/shipment • $1,641,050.25/year Importer B (CIF) • $549,180.00/shipment • $1,647,540.00/year Difference of $6,489.75 per Year! FOB VS. CIF EXAMPLE
- 34. COVERED IN TODAY’S WEBINAR Terms of Sale/Incoterms Cost, Insurance, Freight (CIF) Sellers & Buyers Responsibilities & Risks Common CIF Pitfalls Cargo Insurance Coverage Comparison Free on Board (FOB) Basics FOB vs. CIF Example
- 35. USE THE “CHAT” OPTION TO SUBMIT YOUR QUESTIONS
- 36. • Unique Direct-to-Importer Business Model • Save Time & Money • Multi-Year Billing Cycles (5-Year Term for $225 per Year) • Work with any broker or forwarder • In-house Claims Assistance from Licensed Customs Brokers TRADE RISK GUARANTY BROKERAGE SERVICES, LLC