Cost Insurance Freight CIF Incoterm ® 2010 | Use Case Scenario


Risk, Responsibility and Rewards – How The CIF Incoterms ® rule delivers and what it covers in greater detail:

cif-incoterms

 

In order to better reflect modern commercial reality, the ICC created a new classification system for Incoterms and abolished the previous classification system which was based on the first letter of the Incoterm rule. Under Incoterms 2010, the ICC has divided the Incoterms in accordance with the means of transportation as follows:

Rules for any Mode or Modes of Transport: EXW, FCA, CPT, CIP, DAT, DAP, DDP

Rules for Sea and Inland Waterway Transport: FAS, FOB, CFR and CIF

 

CIF Incoterms ® (Cost Insurance Freight)

 

In our series on the importance of understanding and leveraging Incoterms® 2010, we take a deeper and more detailed look into the CIF Incoterm and the impacts negotiated, as well as often overlooked during the establishment of project viability or business case development for capital projects that are going to be requiring international sales contracts to fulfill their mandates.

First we review what CIF Incoterm is as defined by the International Chamber of Commerce (ICC): CIF is recommended for use with non-containerized sea freight.

CIF Definition: CIF, or “cost, insurance and freight”, is a term used in international contracts for the sale of goods being shipped by sea to a port of destination where the seller pays the cost of the insurance and transport of the goods to the destination, and provides the buyer with the documents necessary to obtain the goods from the carrier. Legal delivery occurs when the goods cross the ship’s rail in the port of shipment (where they are being shipped FROM).

 

Insurance Charges:

Under CIF, the seller is required to obtain insurance only for minimum coverage. If the buyer wants more comprehensive insurance, they must ensure that the seller is contractually obliged to do so within their contract.

Insurance coverage for goods during shipment:

Freight insurance can be purchased directly from a shipper or from a third-party insurer. also called cargo insurance.

 

Cargo insurance Types:

Insurers offer two basic types of ocean cargo insurance policies. A voyage policy is used when insuring a single voyage, sometimes referred to as a “stray risk” or “trip risk.” Voyage policies are used primarily to cover shipments made by infrequent shippers. The other basic type of policy is the open cargo policy.

 

Motor Truck Cargo insurance (Cargo) provides insurance on the freight or commodity hauled by a For-hire trucker. It covers your liability for cargo that is lost or damaged due to causes such as fire, collision, or striking of a load.

 

Marine insurance:

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination.

 

Cargo Management Charges:

 

Stevedoring charges:

Stevedoring is the process of loading and unloading ships. The main sectors of stevedoring are container terminal operations – the loading and discharge of container vessels at terminal ports, largely using advanced mechanical technology. Stevedoring charges are the charges incurred for unloading the goods from ship hold to wharf. These charges are treated as forming part of the freight and are to be added to the value for the purpose of charging duty on imported goods. This contingency arises only when the carrier does not include these charges in the Freight Bill.

 

Wharfage charges?:

A charge assessed by a shipping terminal or port when goods are moved through the location. Wharfage is one of the costs of transport goods within the distribution system used by a business to bring its goods to market.

 

Terminal Handling Charges:

Terminal handling charges or Container Service Charges (CSC or THC) are essentially charges on top of the sea freight, collected by shipping lines to recover from the shippers the cost of paying the container terminals or mid stream operators for the loading or unloading of the containers, and other related costs borne by the shipping lines at the port of shipment or destination terminal before being loaded onboard a vessel.

 

Container Freight Station (CFS) charges:

CFS is the term used at the loading port and means the location designated by carriers for the receiving of cargo to be loaded into containers by the carrier. At discharge or destination ports, the term CFS means the bonded location designated by carriers for devanning of containerized cargo.

 

Entry of Goods Valuation and Charges:

 

Entry costs and their determination are also a part of negotiating the international sales contract under CIF. You may wonder how Incoterms selection impact the landed entry costs, it is often overlooked that the Incoterms define where the responsibility for costs rests within the contract covering all of the aspects mentioned above and in certain circumstances there may also be packaging requirements for containers where inspection is required for example.

It is often overlooked that inspection for customs or quality control / delivery inspections incur a cost of service that needs to be considered in the overall costing process.

 

What is included in CIF value?

For the purpose of customs valuation, the CIF value is the price paid for the goods plus the cost of transportation, loading, unloading, handling, insurance, and associated costs incidental to delivery of the goods from the port or place of export in the country of export to the port or place of import in the country.

Assessable value:

Assessable value is a very broad term and complicated, it means the total end assessed value upon which various duties and taxes are levied . The Assessable value is calculated based on various factors/valuation rules mentioned in the Excise Act/Rules as per the Import or Export country.

 

Use Case Scenario:

 

For our case study purpose, below is an example of an international sales contract announced by Northern Minerals Ltd. where CIF was selected from the 2010 Incoterms to guide the pricing, risk and responsibility for this agreement where they are leveraging CIF to determine clarity on costs for their sales agreement:

Northern Minerals Ltd. (ASX:NTU) announced that it has entered into a sales agreement with Lianyugang Zeyu New Materials Sales Co. Ltd. (JFMAG). The agreement covers all planned production from the company’s Browns Range pilot plant.

JFMAG is a subsidiary of Guangdong Rare Earths Group, and Guangdong Rare Earths Group is a subsidiary of Guangdong Raising Asset Management. Guangdong Rare Earths Group is one of China’s five major vertically integrated heavy rare earths companies.

The Sales Agreement terms are based off CIF Incoterms 2010 with pricing referenced from a 2-month average of quoted prices on Asian Metals and Beijing Ruidow Information Technology.

Under the Sales Agreement, prior to the first shipment of rare earth carbonates, JFMAG will make a pre-payment to Northern Minerals of A$10 million. The prepayment covers approximately 15% of the expected value of production during the Pilot Plant phase, with the remaining 85% to be paid to Northern Minerals over the course of the agreement based on volumes delivered. JFMAG or its nominated beneficiary will be issued 40 million unlisted options at $0.25 exercise price which can be converted to ordinary shares to offset the pre-payment of A$10 million.

Northern Minerals Enters Sales Agreement for Browns Range Pilot Plant Output

 

 

 
 

CBSA will use a new cargo inspection system to pre-screen northbound US cargo.


Cargo Inspection System - Pacific Crossing 2017

CBSA will open the first land border

Gamma Ray Vehicle and Cargo Inspection System to improve processing of US Cargo

at Pacific Highway sometime in the summer of 2017.

Contributed by Jan Brock,

Senior Trade Advisor
Former Chief of Commercial Operations Pacific Highway crossing

Canada Border Services Agency (CBSA) announced in its Report on Plans and Priorities that it intended to invest in detection tools to assist the Border Services Officers with detecting high risk cargo.

Examinations may be performed with the use of specialized tools e.g. gamma ray imaging vehicle and cargo inspection system, ion scanners and detection dogs and may include a full or a partial offload of the goods to detect the presence of prohibited or restricted goods.” CBSA

 

Gamma ray imaging is a non-intrusive tool that cargo inspection services can use quickly and effectively to verify the presence of legitimate goods and to investigate suspicious and unknown materials. This technology assists with reducing border wait times and costs associated with cargo inspections.  

The Gamma Ray Imaging Vehicle and Cargo Inspection System being built at Pacific Highway is a stationary fixed location system contained within a building.

This technology performs the best for  detecting the presence of high density items  such as  steel or low density like narcotics.  It is capable of scanning an entire  semi truck and trailer ,intermodal shipping containers and automobiles for contraband.

This Cargo Inspection system  is a fast screening tool that will aid in facilitation of  cargo inspection at land borders. Large sized targets can be examined without unnecessarily opening or disturbing the contents of the load or incurring the cost of unloading or de stuffing the container.  

An offload will incur a cost to the importer, carrier and to CBSA cargo inspection services as it is very labour intensive.

The gamma ray image this system presents to the Border Services Officer (BSO) after the scan of the cargo and/or vehicle has been completed will assist in the officer’s decision on whether a more intrusive examination is warranted and the load may be redirected back to the warehouse for offload or destuffing by CBSA or the CBSA Contracted Cargo Inspection Service.

The efficiency, reduction in cargo inspection services and avoidance of costs associated with such action will make this new Cargo Inspection System a welcome addition to the Pacific Highway Port of Entry  and to Canadian Freight!

Have more questions on cargo inspection systems or cargo inspections services? Contact us and we are happy to assist.

For more detail please refer to the linked resource below :

Link: CBSA Report on Plans and Priorities

Want to learn more about the fundamentals of cross-border shipping? Attend a Customs Compliance Seminar hosted by Pacific Customs Brokers and learn from the experts.

Have questions or comments regarding importing to Canada? Leave them in our comments section below or email Ask Your Broker.

 
 

International Flower Delivery | What Happens When a Taiwanese Orchid Decides to Travel Internationally?


International Flower Delivery – from Taiwan with love, international delivery florists!

International Flower Delivery

 

This is a light hearted, quick story about international flower delivery. It represents a very real question that we were asked here at Pacific Customs Brokers; the answer to which is a gem if you are planning an international flower delivery or you are importing plants or cut flowers into either the U.S. or Canada.

Being recognized as experts in the field of import requirements and international delivery for plants and cut flowers across North America is something we are proud of. As a result of this reputation, we process a significant amount of cut flowers and plants imported into Canada and U.S., including a recent request to help mitigate a delay during the import of Taiwanese Orchids.

The need came as a request from a VIP guest of an international hotel. A grand gesture from the hotel was to seek the import of these glorious plants to satisfy their dignified guest. During the import process the flowers were delayed at the border. The client asked for our assistance in meeting their import needs in order to meet their esteemed guest’s request.

This desire and its requirements raised an interesting point to us. How many of our readers might face the same situation with Valentine’s Day, Mother’s Day, Father’s Day and all the amazing holidays we celebrate with the gifting of plants and flowers? How many might run into the same type of delay if they do not reach out to us prior to importation? How many could avoid this delay?

Our friends and families span the globe more than ever before. Be it plants or international flower delivery we are sending more and more unique items across more international borders than ever. What are the customs requirements across global borders to make these deliveries happen?

 

If you are a grower, producer or shipper of flowers, international delivery of any kind requires customs clearance and we can certainly assist you with your cross-border shipping needs.

Your Broker Knows ~ and you can as well.

If you are a business that imports or exports products, join us on LinkedIn

Or you can follow us on Facebook or Twitter 

 
 

What is Freight Insurance and What Do your Freight Insurance Rates Cover?


Your freight insurance rates protect you as an importer against potential losses to the shipment during transit and carriers for potential loss of a customer.

Freight broker insurance

There are many different types including shipping insurance, freight insurance, cargo insurance, moving insurance, transit insurance, and transport insurance. All of these terms are names for insurance that covers goods or merchandise against damage or loss while in transit from one location or another.

There are 2 types of cargo insurance, contingent cargo, and primary cargo insurance.

Contingent cargo freight insurance is a requirement of all freight forwarders and has a legal minimum requirement. Cargo weight is the basis for coverage; for example, $0.60 per pound.

Primary cargo insurance insures goods for their full actual value, and this can be issued per shipment or via an annual policy to cover many shipments per year. For example, if the value of the shipment is $500,000, the primary cargo insurance policy will cover $500,000.

Most carriers have freight insurance, but as an importer, you should look into separate cargo insurance such as marine freight insurance as carrier liability is often limited to $0.50 per pound rather than on the actual value of your goods. For example, if your cargo is worth $100,000 and weighs 10,000 lbs, your carrier’s liability insurance would only cover $5,000 in cargo loss. If you require full value coverage, you should look into replacement value cargo insurance. Carriers should always know the value of the goods they are transporting. If the value of goods is not covered by the carrier’s liability coverage, they should notify the client and determine if additional insurance coverage should be purchased.

Inland cargo insurance is another type of insurance. It covers domestic shipments via land (truck and rail) and air. Ocean cargo insurance provides coverage for shipments traveling via ocean whether on boat or containership alike.

Coverage for cargo insurance is often referred to as ‘warehouse to warehouse.’ This coverage begins when transit begins and terminates when the cargo is delivered to the final destination.

The responsibility for organizing insurance can be shared between the importer or buyer and exporter or seller or can be undertaken by just one of them. Make sure that the contract confirms the party responsible for the insurance policy. A clear way to do so is to use an internationally recognized term of sale, also known as Incoterms®.

Incoterms® clarify to what extent a party must take responsibility for particular risks during transportation. They define the responsibilities of the buyer and the seller and are recognized as the international standard by customs authorities and courts in all the main trading nations. Incoterms® reduce the risk of misunderstandings and legal disputes and also specify the loading and unloading responsibilities of the buyer and seller.

Freight Insurance Rates

Points you should consider when looking at insurance:

  • Know the costs and inclusions if you are responsible for arranging insurance.
  • Know the details of the insurance coverage if your supplier arranges insurance.
  • Check with your business insurance provider to understand what coverage is already available to you.
  • Make sure you inspect the goods upon receipt so you can remedy any problems promptly. If you discover damage or loss to your shipment follow the instructions outlined in your insurance policy or certificate to submit a claim.
  • Know that carriers, freight forwarders, and third-party service providers will only arrange insurance if so instructed in writing. They do not do so automatically.

In keeping with the Customs moto of ‘Know before you go’, ‘Know before you ship’ as it relates to insurance coverage for the goods shipped is also imperative. Do not count on your freight broker’s insurance policies to cover your shipment.

marine freight insurance

Have more questions on freight coverage? We would be happy to help. Please leave your comments and questions below.

 
 

Canadians Seeking American Business Solutions | Sign-up for DBUSA


Doing Business in the USA Seminar

Understand Your American Business Solutions, Immigration Options, Tax Structure, and Cross-border Opportunities

DBUSA Seminar - American Business Solutions for Canadian Businesses

The Doing Business in the USA (DBUSA) seminar provides valuable information to entrepreneurs in their pursuit of American Business Solutions in the following areas:

Determine:

  • Optimal structure for U.S. presence
  • Cost-effective distribution channels
  • Responsibility for federal and state tax
  • What is considered “working” in the U.S.
Understand:

  • U.S. consumer purchasing behavior
  • Canadian export requirements
  • U.S. import compliance
  • Available resources


Although most Canadian business owners inherently recognize the USA market offers some of the greatest economic opportunities in the world, they also know the prospect of doing business across the line can be a complex undertaking. That is why this seminar on how to conduct business in the USA will be an invaluable step for Canadian businesses looking to access American business solutions in the massive USA market.

 

This fast-paced seminar is geared towards those who have questions ranging from how does one plan for opening a store front with a USA address as well as partnering with a distribution centre on e-commerce activity. It also covers the question of how might the current and proposed changes in international trade and immigration with the USA impact Canadian sellers. Our seasoned cross-border lawyers, accountants, customs brokers and logistics professionals will present options that will help you determine your export strategy and understand your responsibilities with government agencies such as U.S. Customs and Border Protection, Secretary of State and U.S. Citizenship and Immigration Services.

EVENT SUBJECTS INCLUDE:

 

HOW TO WORK IN THE U.S.: SOLVING THE IMMIGRATION PUZZLE
Presented by: Cascadia Cross-Border Law

Topics Covered:
Visitor for business overview: B-1 definition and permissible activities
Beyond the scope of the B-1: U.S. activities requiring formal work authorization
Pitfalls to avoid

HOW TO MANAGE U.S. TAX EXPOSURE
Presented by: Moss Adams LLP

Topics Covered:
U.S. income taxation of Canadian-based business arrangements
Structuring a cross-border business for tax efficiency
Planning for other U.S. taxes: state, sales, estate, etc.

HOW TO STRUCTURE YOUR BUSINESS PRESENCE
Presented by: Law Offices of Gene Moses P.S.

Topics Covered:
Selecting your professional team of experts
Legal entity structures available to Canadians
Selecting your state of incorporation

HOW TO IMPORT YOUR GOODS INTO THE U.S.
Presented by: Pacific Customs Brokers Inc.

Topics Covered:
Responsibilities of the non-resident importer (NRI)
Required documentation
Packaging and marking considerations

HOW TO DISTRIBUTE YOUR GOODS IN THE U.S.
Presented by: UCanTrade

Topics Covered:
Warehousing, storage and distribution
Transportations shipping
Order processing fulfillment

FAST FACTS

400,000 people cross the Canada-U.S. border daily.
Nearly 9 million USA jobs depend on trade and investment with Canada.
Canada is the top export destination for 35 states.
Canada is the number one supplier of crude oil, refined petroleum products, natural gas and electricity to the U.S. as well as a leading supplier of uranium.
Canada is the State of Georgia’s number one customer.
Statistics are from November 2016


This one-day event is being held in Vancouver, BC.

Please join our group of experts as they teach new exporters from all industry sectors the best practices of Doing Business in the USA. The estimated audience size of 50 will be comprised of small and medium sized businesses.

Register now to ensure your seat:

Leave your information below to be advised of early registration for our next event:

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The Doing Business in the USA seminar group consists of experts who have assisted international-owned companies successfully navigate the U.S. market. The group services all industry sectors.

CASCADIA CROSS-BORDER LAW

Cascadia Cross-Border Law provides results-oriented representation in U.S. immigration matters to clients worldwide. Based in Bellingham, Washington, the firm has associated offices in Anchorage, Alaska and Vancouver, British Columbia. Its attorneys possess extensive experience in all aspects of United States immigration, including: non-immigrant visas and work authorizations, employment-based immigrant visas, family-based immigrant visas, visa processing in the U.S. and consulates abroad, waivers, naturalization and acquisition of U.S. citizenship, and loss of U.S. citizenship.
cascadia.com | 360-671-5945 | [email protected]

MOSS ADAMS LLP
Moss Adams LLP has been serving international clients for over 70 years and now works with more than 1,300 international businesses across many industries. We can help you make the most of your U.S. opportunities. Our experienced team of professionals will work with you to evaluate cross-border business structures, plan for multi-state activities, understand the complex U.S. tax and accounting rules, and develop business strategies for operating in the U.S.
mossadams.com | 360-676-1920 | [email protected]

LAW OFFICES OF GENE MOSES P.S.
The Law Office of Gene R. Moses P.S. is a Bellingham, Washington cross-border law firm, licensed by the Washington State Bar Association and the Law Society of British Columbia as a Foreign Legal Consultant; which, for forty years has specialized in the structuring, formation and registration of U.S. legal entities. The law firm serves as legal counsel to 450+ cross-border corporations doing business in the U.S.
genemoses.net | 360-676-7428 | [email protected]

UCANTRADE, INC.
UCanTrade, Inc. helps Canadian companies market and distribute profitably in the USA by providing a low-cost, fully equipped, fully staffed extension of your Canadian office in the nearby U.S. From our 20,000 sq. ft. facility in Ferndale, Washington, UCanTrade provides Canadian importers and exporters with USA Marketing Support Services; including USA business identity, warehousing, distribution, order processing, fulfillment, tradeshow support, and return/repair services.
ucantrade.com | 360-380-6900 | [email protected]

PACIFIC CUSTOMS BROKERS INC.
For over 60 years Pacific Customs Brokers has offered U.S. and Canadian customs brokerage, trade compliance consulting, international freight forwarding, trade compliance seminars and webinars, warehousing and distribution services to importers and exporters. Pacific Customs Brokers is always open with a 24/7 on-site reception team which has been trained to properly assess and redirect your calls appropriately for immediate action.
pcbusa.com | 360-332-8534 | [email protected]