news

Case Explanation of CIF

The sales contract specifies CIF New York, meaning:

Seller (Company A) is responsible for:
- Cost of goods, freight to the port of destination (New York Port), and marine insurance;
- Export customs clearance, delivering goods to the port of shipment (Yantian Port) and loading them onto the vessel.
Buyer (Company B) is responsible for:
- Import customs clearance, paying import duties, VAT, etc.;
- Assuming all risks after the goods pass the ship’s rail at the port of shipment.

(1) Goods Preparation & Export Clearance

Produces and inspects 1,000 smartphones, packages them in shock-resistant cartons, and marks shipping marks;
Declares exports to Chinese customs, pays export duties (if any), and obtains export licenses and customs declarations.

(2) Chartering Space & Paying Freight

Hires a freight forwarder to book a container, delivers goods to Yantian Port, and loads them onto the vessel (loading date: May 1, 2025);
Pays ocean freight (USD 10,000) and obtains a shipped-on-board bill of lading (B/L).

(3) Purchasing Marine Insurance

Buys minimum coverage (e.g., Free of Particular Average, FPA) as per the contract or Incoterms® 2020 default, with insured value at 110% of the goods’ value (USD 550,000), covering the transit from Yantian Port to New York Port;
Names the buyer (Company B) as the beneficiary of the insurance policy for claims at the destination.

(4) Notifying the Buyer & Document Delivery

Immediately notifies the buyer of shipment upon loading, providing documents like B/L, insurance policy, and commercial invoice;
Submits documents via bank or releases the B/L electronically for the buyer to claim goods at the destination.

(1) Import Clearance & Goods Pickup

Upon arrival at New York Port (June 15, 2025), exchanges the B/L for a delivery order;
Declares imports to U.S. customs, pays duties (5% tariff: USD 25,000) and VAT (10%: USD 52,500), and picks up goods after clearance.

(2) Receiving Goods & Paying for Goods

Inspects quantity and quality (if consistent with the contract), and pays the seller USD 500,000;
If goods are damaged during transit (e.g., water immersion due to a storm), files a claim with the insurer using the insurance policy (the buyer, as beneficiary, applies directly).

Risk Transfer Point: Risks transfer from seller to buyer when goods pass the ship’s rail at the port of shipment (Yantian Port).
- Example: If goods are damaged in the port warehouse before loading (due to fire), the seller bears the loss; if robbed by pirates on the high seas after loading, the buyer claims through insurance.
Cost Allocation:
- Seller: Production costs, export fees, ocean freight, insurance (USD 500,000 + 10,000 + 1,000 = USD 511,000);
- Buyer: Import duties, VAT, destination port fees (e.g., storage, delivery order fees).

“Cost + Freight + Insurance”: Must pay for freight to the destination port and minimum-coverage insurance (FPA);
Only for Sea/Inland Waterway Transport: Use CIP instead for air or land transport;
No Import Costs: Seller does not handle destination customs clearance, duties, or other import-related fees.

Assumes Transit Risks: Although the seller buys insurance, the buyer must claim from the insurer for post-shipment risks (after risk transfer);
Manages Import Clearance: Needs to handle customs independently—advise early communication with local customs or agents to avoid delays.

Insured Value: At least 110% of the goods’ value (including expected profit);
Coverage: Defaults to FPA; for broader coverage (e.g., All Risks), specify in the contract and have the seller pay extra premiums.

If goods are damaged due to poor packaging during transit, the buyer may claim compensation (even after risk transfer, the seller must ensure goods meet contract quality);
Must ensure the insurance policy benefits the buyer to avoid claim denials due to document discrepancies.

Delayed import clearance may lead to port storage fees;
Market price fluctuations could cause dual losses (damage + price drop) as the buyer assumes transit risks.