What are the risks involved in shipping CIF from China?

Full Question We are importing a shipment from Hong Kong -- the trading terms are CIF. We have been told that the risk passes to us when the container is in the ship's hold but we are being charged for insurance to delivery port Southampton. What risk passes to us and what risk stays with the seller? Do we need any extra insurance?

Answer Assuming that the Incoterm you are buying from your supplier is on CIF Southampton term, I can give you following advice:

CIF=Cost, Insurance and Freight, means that the seller delivers the goods on board the vessel. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to Southampton port. The seller also arranges for insurance cover against the buyer's risk of loss of or damage to the goods during the carriage (meaning the voyage from Hong Kong to Southampton). But he is not obliged to pay for the insurance, so that is why you are being charged for the insurance up to port Southampton. You should note that the seller is required to obtain insurance only on minimum cover. Should you wish to have more insurance protection, you will need either to agree to as much expressly with the seller or to make your own extra insurance arrangements. If you want to have the transportation of goods via truck covered from Southampton port to your warehouse inland, then you will need to obtain and pay the extra insurance yourself. The seller will not be willing to cover this risk, as it is within the destination country.

Credits:

Anne Kuschert, a supply chain executive with Fiducia Management Consultants, was instrumental in helping the author draft this response.