Why is marine insurance important

CIF

short for Cost, Insurance and Freight ... Named Port of Destination;Cost, insurance, freight ... named port of destination; Contract formula of the Incoterms developed by the ICC for foreign trade transactions.

CIF is a classic ocean freight clause. CIF extends the seller's CFR obligations. A comparison of delivery offers on a CIF or CIP basis is often the most transparent for the buyer, because it includes all transport-related ancillary costs up to the destination in the importing country. The exporter must pack the goods appropriately for transport in accordance with the purchase contract and deliver them to the ship on time and notify the buyer of the loading immediately. The seller bears all risks for the goods until they are delivered on board the ship in the port of loading. The place of delivery and transfer of risk is therefore on the ship. In addition to the sea freight contract to the port of destination, the seller must take out transport insurance (possibly transferable) under certain minimum conditions at his own expense, but in favor of the buyer - i.e. in his name - which authorizes the buyer to raise claims (the risk remains with the buyer) . CIF is roughly equivalent to FOB plus regular freight plus insurance costs to the destination.

Practical tip one: As with CFR, the seller bears the unloading costs if they are part of the ship's freight, i.e. if there is a sea freight contract with so-called liner terms that includes loading, stowage and unloading costs. In the case of an FIO agreement ("free in and out“) The recipient would have to bear the unloading costs. If necessary, it would then be "CIF landed"To be agreed if the buyer is not supposed to bear the unloading costs.

Since different insurance conditions can apply, CIF - in the absence of other agreements in the sales contract - obliges the seller to take out a transferable marine insurance policy with minimum coverage (the so-called Clause C of the cargo clauses of the International Underwriting Association of London [formerly London Institute of Underwriters] ). The goods are insured to 110 percent (purchase price plus 10 percent for imaginary profit, in the currency of the purchase contract), including against fire or explosion, ship sinking, running aground, capsizing or collision of the ship, throwing overboard, major accidents, overturning or derailing with other means of transport.

This minimum coverage is not a suitable insurance for goods that are susceptible to damage (moisture, breakage, bending) or goods at risk of theft. The buyer might have to take out additional insurance at his own expense, for example a clause A ("All risks“). „All risks“Sounds good and reassuring, but Clause A only covers the risks that are insured - including not war, strike or riot, and in the case of piracy - if at all - only direct damage, no loss of default. In this case, the importer should, either directly or indirectly via the exporter, arrange for appropriate additional insurance, i.e. speak to the insurer and the exporter early on (!). A similar rule applies to CIP with regard to minimum insurance. Basically, the seller at CIF has the transport disposition, i.e. he can choose a shipping company that suits him. He is also free to choose marine insurance as long as it provides the minimum coverage mentioned. In many cases, however, the importer prescribes a shipping company and / or insurance - partly due to legal regulations in his country. One then speaks of "fake CIF".

Practical tip two: The (German) importer should insist under a CIF loading that the insurance document bears the note “Premium paid” and “Damage payable in Germany” (this also applies to CIP, see there).

The seller must provide the buyer with a complete set of pure, negotiable order bills of lading with the note "shipped on board" and "freight prepaid“Procure. In addition, he must provide the importer with a certificate of origin and, if necessary, a consular invoice at the importer's request, at the expense and risk, as well as assisting with the procurement of all documents required for import in the country of destination.

The buyer must record the properly provided documents and pay the agreed purchase price, which in addition to transport and insurance costs incurred, also for the procurement of certificates of origin or consulate invoices, and pay the customs duties and other import duties in the importing country.

Practical tip three: Regardless of the actually agreed delivery clauses, all exports are fictitiously reported with FOB values ​​and all imports with CIF values ​​in balance of payments statistics in order to record the value of the goods "at their own external border".

Most important obligations of the parties with regard to delivery, transfer of risk and cost sharing in accordance with Incoterms 2010:
(1) Seller's obligations: (a) Delivery: The seller delivers when the goods have been delivered on board the ship in the named port of shipment.

(b) The seller must bear the costs and freight required to transport the goods to the named port of destination.

(c) The seller must take out maritime transport insurance against the risk of loss or damage to the goods borne by the buyer during transport and pay the insurance premium. However, the seller is only obliged to take out insurance with minimum coverage.

(d) The CIF contractual clause obliges the seller to clear the goods for export.
(2) Obligations of the buyer: The risk of loss or damage to the goods as well as additional costs that can be attributed to events after the delivery of the goods in accordance with point 1 (a) are transferred from the seller to the buyer and are fundamentally borne by the buyer from this point in time.
(3) Application: This contract formula can only be used for sea and inland waterway transport. If the parties do not intend not to deliver the goods on board a ship, the CIP clause (CIP), which applies to all modes of transport, should be used.

See also Incoterms, EXW, FCA, FAS, FOB, CFR, CPT, CIP, DAT, DAP, DDU.