In brick-and-mortar retailing, a sale is a simple process. A seller owns an item wholly and completely until you walk in and give them cash for it. If it breaks before the sale, that’s the seller’s problem. If it gets lost or needs to be stored or repaired before the sale, that’s the seller’s problem—until you come in and buy it, and all those problems become yours.
If you’re running an online retailing business, it gets a little more complex. While the item is in transit, ownership and responsibility can be cloudy. If the UPS truck tips over, who pays? What about when it rains on your package or your neighbor nicks it off your porch?
International shipping is the far end of the spectrum, in terms of complexity. The stakes are incredibly high and there are lots of moving parts—insurance, shipping, storage, theft, etc.—for even the smallest transactions.
To make it easier for everyone, there are some standard ways to ship and divide responsibilities. If you’re new to the importing game or just looking to make your small business run better, it’s important to pick the right shipping method each and every time.
Today, we’ll look at cost, insurance, and freight (CIF), one of the more common systems. We’ll also check out some alternatives that might work better for you as your business grows.
What is cost, insurance, and freight (CIF)?
Cost, insurance, and freight (CIF) is a type of agreement for shipping, stating the seller will be responsible for the items until they arrive at port and are claimed by the buyer. The seller’s price includes the cost of the items, the cost of insurance for the items while they are in transit, and the cost of shipping the items to port—cost, insurance, and freight.
As a buyer, you’re paying the seller to manage the whole shipping process, from port to port. There are a number of alternative methods of shipping agreements that assign more of the responsibility (and the control) to the buyer, which we’ll discuss later.
Determining where these liabilities shift is a hugely important part of shipping and buying.
What are the benefits of CIF for buyers?
CIF is popular among smaller businesses and those new to the shipping game because it allows the buyer to manage a relatively small part of the process, leaving the bulk of the work to the seller.
Larger businesses usually skip CIF, opting for shipping methods that give them more control over costs. That’s the catch to CIF—someone else sets the fees. While you can haggle and negotiate, the seller ultimately has to cover its costs and will likely tack on some buffer to make up for the time spent lining things up.
The clear upside is the lack of work on the buyer’s part. All you have to do is show up and grab the goods. This can be the perfect solution for a business just getting into a new country or one that doesn’t have the time or resources to manage the whole shipping process.
Alternatives to CIF
Depending on your risk tolerance and logistics capabilities, there are other shipping arrangements that could save you money and make your shipping life easier. Here are a few of the major alternatives to CIF:
Free on board (FOB)
Free on board (FOB) is one of the more popular shipping options. It gives buyers a bit more control over the process, allowing them to use a freight forwarder or other transportation solution of their choice. FOB is a good choice for larger importers that may already have insurance and shipping connections in place.
By controlling more of the process, the buyer has the freedom to negotiate at every step, instead of having to effectively negotiate through the seller, as is the case with CIF.
Ex works (EXW)
For buyers in search of even more control, ex works (EXW) is about as basic as you can get. EXW basically says, “I’ll put the item in a box on the stoop. The rest is up to you.”
EXW is the sort of option a company might use if it has its own ground transportation in the country of origin or if it is collecting a series of shipments from a single region. In these cases, it might be less expensive for the buyer to collect items from a few factories at once using its own transport.
They could then combine those collections at the port and make a single shipment under a single insurance agreement. EXW is not for novices.
The list goes on
FOB and EXW represent the middle and minimal extreme of shipping, respectively. Along with these, there are a whole heap of other setups, covering just about any scenario you could desire.
Want things delivered to a ship but not put on the ship? Free alongside (FAS) is the choice for you. Need things handed off to some middleman just outside of town? Carriage paid to (CPT) can put your stuff in the hands of whomever you’d like.
Picking the right shipping option for your business
CIF is a solid option for businesses that haven’t had time to build a network of logistics providers and that are willing to pay for someone else’s expertise in the area.
If you’re learning the import-export business, cost, insurance, and freight lets you focus on buying and selling, without having to worry about finding new freight forwarders in foreign lands. Learn how to move the inventory you’re getting and what the market can bear for costs before you dive into the details of shipping and insuring.
Once you’ve figured things out, you can start working on more efficient shipping. That’s going to be gravy, if you’re already running a successful business on the back of CIF shipping.
For more tips on tech, trends, and industry analysis, check out the Capterra logistics blog. We’ll help you find ways to grow your business with less. If you’re thinking about dabbling in the word of importing, swing by our freight software directory for some tech support.
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