YOUR LEADING INTERNATIONAL FREIGHT FORWARDER

CIF Shipping: the Good and the Bad

We have recently wrapped up several assignments with some very iconic Australian companies. We analyzed copious amounts of data and at the end of the day, find it utterly astounding how much a lack of control still exists on some of these supply chains.

This can be in the form of CIF shipping or even when a third party in another country has control over purchasing or order and shipping direction.

What is CIF Shipping?

CIF stands for cost, insurance and freight. As a term of a sales contract, the seller pays the costs of insurance & freight until the cargo is loaded onto a transport ship. The seller retains responsibility for the goods until the goods are loaded onto the ship.

Once the cargo is loaded on the ship, the risk transfers from the seller to the buyer and responsibility for costs is transferred to the buyer. 

CIF as a shipping term

Back in the day, CIF was a common shipping term. It was easy. Sea freight insurance was included, paperwork was done, cargo turned up when it was supposed to and no one was really paying too much attention to costs on the Australian side.

Freight charges were relatively high, the market for CIF and LCL shipping was at an all-time high and it was cost-effective. A combination of the introduction of the World Wide Web, quicker access to information, higher local costs in China and the much lower freight rates meant the entire landscape of CIF shipments changed.

Free freight was being offered as an incentive to LCL and CIF shipping but customers were being abused with high port of destination charges so the shippers could make money with additional fees somewhere along the supply chain.

CIF works splendidly with specific supply chains on certain trade lanes, but not ALL. Sometimes your supplier dictates CIF incoterms, which can be due to poor vendor management. Sometimes it’s a company’s international head office dictating direct shipments CIF and sometimes it’s just because staff know no other way.

From the data we have just spent over 6 months analyzing, every one of the examples mentioned above is costing Australian supply chains. Somewhere along that supply chain there is a disconnect between the supply chain managers, vendors and purchasing. All of which should be reviewed.

Reducing freight costs

It would be prudent to any supply chain incorporating either CIF freight or who are dictated terms by another party to look at their costs and better ways to ship. A head office may want to control your freight, but do they understand the costs on the Australian port?

The data revealed that one company had so many orders happening both FCL and LCL (under all different shipping terms), the CIF LCL was missed and so was the opportunity to consolidate.

48 LCL shipments that year were sent; however if shipped with the other FCL moving FOB (free on board), they could have saved AUD76,000. This was all because the shipper was sending large LCL shipments whenever they wanted to and not waiting for other orders to consolidate or just sending goods as LCL and not FCL.

For more information on supply chain consulting or the cost of transporting goods, please contact [email protected].

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