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Cost Insurance and Freight (CIF) is a kind of an arrangement that implies that the seller of the goods brings them in as soon as the goods pass the ports in the shipment process. CIF contract, therefore, means a cost, insurance and freight contract (Fazio 6).
As compared to free on board (FOB) which is another method of contracting, CIF is regarded as the more convenient as it relies on constant communication between the buyer and the seller. CIF contract is still considered as the most widely used because its price already includes the price tag of the goods, the cost of insuring the goods from the loading point to the destined point and the value of freight for the goods.
The CIF contract is, thus, considered to be the contract that enables the sale of the products through the release of relevant certificates such as the invoice, the bill of lading and also the insurance policy that enables a viable sale of the good (Fazio 6).
Rights and liabilities of the buyer
The right and liability to accept conforming certificates and make relevant payments: When all the relevant documents have been produced, and they are all well organized, the buyer must accept the certificates and pay the seller in an appropriate manner (Fazio 16). The buyer, thus, is expected to remit payments on cash about the available documents as soon as the goods arrive at the port.
The payment should be within 20 days as soon as the bill of lading is received. When the bill of lading arrives at a later than expected date, the buyer can decide to reject the payment of the goods. Also, if the certificates are not in order, the buyer can choose to pay a lesser amount or decline to pay.
Right and liability to take responsibility for cargo delivery: As long as the goods are in line with the requirements stated in the sales contract, the buyer must receive the delivery of goods. In contrast, if the goods do not conform to the requirements stipulated in the sales contract, the buyer the can decide to either decline the goods or get back the money that had been paid for the goods (Fazio 16).
The sales contract can entitle the buyer to take care of the extra costs incurred after the goods have been shipped in. Also, the buyer can be entitled to take care of any increases or discrepancies in freight costs. The buyer is entitled to bear all the extra costs and risks that accrue to the goods immediately they leave the shipping the rt. The buyer is also expected to pay for any documents and custom dues that are needed for the delivery process of the goods.
Moreover, the buyer is required to pay for the procurement and license costs when necessary (Fazio 16). Right and liability for recommending a replacement vessel: When the shipping vessel that is transporting the good does not conform to the requirements that are stipulated in the sales contract, the buyer has the right to recommend a substitute vessel that conforms to the requirements of the sales contract (Fazio 17).
When the vessel carrying the goods is not the one that is expected, the buyer has the right to demand a refund of a certain percentage of the total amount he had paid to the seller or as well nominate a replacement vessel to carry the goods.
Right and liability to recommend the moment for shipment: The contract needs the buyer of the good to provide at least three working days as a notice when he decides to recommend a shipment vessel for the goods (Fazio 17). Also, the buyer should also specify the port at which the loading should take place. When the notice is not given by the buyer, the seller can reject the nomination of the shipment vessel.
Right and liability for loading of the cargo: In line with the ‘Free in and out’ clause that is stipulated in the CIF contract, the buyer must load the cargo rather than the shipowner. This is because the buyer is considered as the carrier of the goods. Thus, he should take responsibility for the costs incurred in the process of loading or stowing the cargo (Fazio 17).
The provision that the liability for loading should be incurred by the buyer is stipulated clearly in the bill of lading. Thus, when the loaded goods are damaged during transportation, the shipowner will not bear responsibility for the damage. Instead, the carrier (buyer) will bear the burden.
Rights and liabilities of the seller
Shipment of the goods about the terms of the contract: It is mandatory for the seller to respect the terms of the sales contract while delivering the goods to the buyer (Fazio 22). Also, the seller should also procure goods which conform with the terms of the sales contract. Any action contrary to the terms of the sales contract will not be welcome by the buyer of the goods.
Thus, the seller has a strong reason to adhere to the terms of the sales contract. The buyer can decide to reject the goods if at all they are not in line with the sales contract. Meeting the cost of freight: The seller should pay for the freight costs that are incurred in the shipping process.
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In addition to these payments, the seller should also pay for the commission charges, insurance premium or any additional costs to the owner of the ship upon delivery of the cargo to the required destination (Fazio 23). The bill of lading stipulates that the seller has the obligation of paying for the shipment cost and further ensuring that the cargo reaches the required destination successfully.
Obligation to issue conforming certificates to the buyer: The seller should issue the buyer with relevant documents that are in line with the stipulated requirement of the sales contract (Fazio 25). The documents should be issued to the buyer at his place of work or wherever he resides.
The seller should ensure that the documents or certificates reach the buyer on time and further ensure that the goods are paid for as soon as the buyer acknowledges them. The documents or certificates that the seller sends to the buyer include the bill of lading, delivery note, the invoice and the certificate of insurance (Fazio 25). It is required that the documents and certificates reach the buyer before the goods.
In a case whereby the goods reach the buyer without the papers, the buyer can decide to reject them. Responsibility to warn on stealing of goods to the contract: in any case appropriation of goods occurs during the shipment process; the seller has the duty of alerting the relevant players. It is considered to be a breach of contract if the seller is aware of the appropriation of goods but fail to notify.
The buyer is bound to reject the goods in any case the goods are damaged, substandard or if the value of the goods has seriously fallen (Fazio 25). Insurance of the cargo: The seller must ensure the cargo during the shipment process (Fazio 27).
Insurance is the process of guarding against risks and uncertainties that could arise in the course of the shipment of the cargo. When the seller pays the insurance premium, he can be compensated in an agreed manner whenever there occurs any loss or damage to the cargo (Fazio 27). Insurance, thus, plays a major part in redeeming anything lost in the shipping process.
Cost, insurance, and freight (CIF) is still the most commonly used contract. The price of the contract includes the price of the goods, the cost of insurance for the products and the cost of freight of the goods. Under the CIF contract, both the buyer and the sellers have rights and liabilities that need to be met.
The rights and obligations of the buyer include acceptance of conforming documents and making relevant payments; taking responsibility for cargo delivery; recommending a replacement vessel; recommending the moment for shipment, and loading the cargo.
On the other hand, the rights and liabilities of the seller include delivery of the goods; meeting the freight costs; issuing conforming documents to the buyer; giving warnings on stealing of goods; and ensuring the cargo.
Fazio, Silvia. The Harmonization of International Commercial Law. London: Kluwer Law International. 2007.