Prepared by the International Chamber of Commerce (ICC), the Incoterms® rules are an important set of trade terms that are frequently used in the business world and regulate various aspects of trade. While these rules help determine the major obligations between sellers and buyers such as the time of transfer of risk and who bears the costs, they are not a contract of sale in themselves but are designed to be incorporated into an existing contract of sale. Because these rules do not include issues such as the time, place or method of payment or the currency in which the payment is made, the characteristics of the goods sold and dispute resolution methods. In this article, the responsibilities of the parties in the Incoterms® 2020 version will be examined within the scope of the CIF (Cost, Insurance and Freight) delivery method, which is one of the terms specific to sea transport.
II. RESPONSIBILITIES OF THE PARTIES IN CIF SALES
The term CIF is a term consisting of the initials of the words "Cost" "Insurance" and "Freight" and reflects the characteristic features of the sales type, as in other Incoterms® abbreviations. CIF delivery method can only be used for sea or inland waterway transportation and is not suitable for use in cases where more than one transportation method is used.
In CIF delivery, the goods are deemed to have been delivered when they are loaded on the ship at the loading port or by the supply of the goods already delivered in this way, and the risk of damage or loss of the cargo passes from the seller to the buyer at this time. In the event that the transportation is carried out by more than one carrier, unless otherwise agreed by the parties, damage and loss passes from the seller to the buyer upon delivery of the goods to the first carrier. Therefore, the seller's obligation to deliver shall be deemed to have been fulfilled, regardless of whether the cargo has actually reached its destination in good condition, in the specified quantity or at all.
In the form of CIF delivery, the seller has certain responsibilities that some of which are mentioned in the name of the term, the insurance cost and the freight cost. The first one relates to the costs that the seller must bear. The seller is obliged to bear the costs incurred until the time of delivery determined under CIF delivery method of the sold goods and to carry out the export transactions of the goods. However, this obligation of the seller will end at the time of delivery of the goods sold, that is, the seller will not be responsible for customs clearance of the goods for transit import or transit from third countries, payment of import duties or fulfillment of customs procedures required for import.
The second characteristic element of the CIF delivery method is the seller's liability for insurance. The seller must make an insurance contract that will be valid from the port of loading to the port of destination the least, against the risk of damage and loss to the goods of the buyer within the scope of transportation, and must bear the costs of the insurance contract. It is not possible to make any form of this insurance policy. The insurance contract must be made with a reliable insurance company and allow the buyer or other persons with an insurable interest in the goods to apply directly to the insurer, must be within the scope stipulated in Cargo Clauses (C) of the Institute Cargo Clauses or similar clauses, and at least 10% more than the price specified in the sales contract must be covered.
Freight, which is the third element in the name of the CIF model, is one of the main obligations of the seller in this type of delivery. The seller must conclude a freight contract for the carriage of the cargo from the delivery point to the named port of destination or, if agreed, to any point of this port and bear all the costs of this contract. This contract of freight should be made under ordinary conditions and should provide for carriage on an ordinary route on a ship of the type usually used for the carriage of goods of the type sold. In addition, the seller is obliged to take all kinds of security measures related to transportation. Regarding the carriage contract to be made, the seller must provide the buyer, at his own expense, with the usual transport document for the agreed port of destination. This transport document should cover the goods that are the subject of the contract, be within the agreed period for the date shipment, and enable the buyer to claim the goods from the carrier at the port of destination.
In addition to these obligations, the seller is responsible for the checking of the goods before they are loaded on the ship and the costs associated with it, if the goods have to be packed, for the packaging and marking of the packages, and for notifying the buyer when the goods are delivered according to the CIF delivery method.
In turn, the buyer has certain responsibilities, some of which are receiving the goods, customs clearance at the destination port and most importantly, paying the price of the goods. In the CIF model, the buyer is primarily obliged to pay the price of the goods specified in the sales contract between the buyer and the seller. In this model, the buyer is obliged to receive the goods loaded by the seller at the time of delivery stipulated in the CIF model. In addition, the buyer is obliged to take delivery of the products that have arrived at the destination port.
Although the buyer is not obliged to insure the goods subject to sale in the form of CIF delivery, nevertheless has certain obligations regarding insurance. The buyer is obliged, at the seller's request, to provide the seller with the information necessary for the seller to obtain any additional insurance. If requested by the seller, the buyer is obliged to assist the seller in obtaining all kinds of documents and/or information regarding all export customs clearance formalities, including the security requirements required by the export country and pre-shipment inspection. However, in this case, the risks and costs arising from this will belong to the seller.
The time of delivery of the goods sold is also of great importance for the buyer. Because, from the moment of delivery of the goods, all risk of loss and damage to the is undertaken by the buyer. In cases where the buyer has the right to determine the shipping time of the goods and/or the point where the goods will be received at the specified port of destination the buyer must notify the seller sufficiently.
In addition, the buyer must pay all costs associated with the goods from the time the goods are delivered, except those payable by the seller. However, the buyer is obliged to bear the duties, taxes and other costs related to the transit of the goods from the countries of transport, import and customs procedures. The buyer is also obliged to pay any additional costs incurred in the event that he does not notify the seller, where he has the right to determine the shipping time of the goods and/or the point of receipt of the goods at the specified port of destination.
Since it is one of the most widely used delivery methods, disputes regarding the CIF delivery have also been the subject of Supreme Court decisions. In the decisions of the Supreme Court, it is observed that the disputes arising from the CIF delivery method are mostly the transfer of damage and loss, disputes arising from insurance contracts and problems arising from the absence of a written sales contract between the parties. It is observed that, especially in the absence of a written contract between the parties, the Supreme Court decided that the existence of a CIF delivery contract should be determined based on the facts of the event and a decision should be made by determining whether the conditions of CIF delivery have been met in the event. In a dispute before the 11th Civil Chamber of the Supreme Court of Appeals stated that in cases where there is no sales contract between the buyer and the seller, other documents should be examined to determine the nature of the sale and ruled that it should be investigated whether the CIF sale has been realized in all its conditions. Regarding the issue of the insurance policy, which is one of the responsibilities of the seller in the CIF delivery form, the Supreme Court has ruled that in disputes regarding who will be the beneficiary of the insurance contract to be made by the seller and to whom the insurance compensation will be paid, there is a distinction in terms of whether the price of the goods sold has been paid or not. The 11th Civil Chamber of the Supreme Court of Appeals, in its decision dated 21.01.2016 and numbered 2015/1671 E., 2016/652 K., stated that in the form of CIF delivery, after the seller insures the goods on behalf of the buyer for damages that may occur in transportation and pays the fee, the seller no longer has an interest in the goods subject to sale. It is stated that it is not valid for these goods to be insured in favor of the seller and for the insurer to make payments to the seller due to damages that may occur in transportation, and therefore the insurer's right of subrogation will not be accepted. In the same decision, the 11th Civil Chamber of the Supreme Court of Appeals stated that if the seller has not received the price for the goods, they will receive the insurance compensation due to his continuing interest in the goods, and the insurance company will have the right to claim and sue based on succession.
Incoterms® rules are a set of rules that complement the contracts between the parties, helping to determine the responsibilities between sellers and buyers, the time of loss and who will bear the costs. Under the CIF delivery method which is applicapble to sea transport, the seller's responsibilities are related to costs, insurance and freight whereas the buyer's responsibilities are related to the payment of the price of the goods and the undertaking of the costs incurred after the delivery of the goods. Within the scope of CIF mode of transportation, the risk and costs of the goods belong to the seller in the process until the delivery of the goods. The seller must ensure that the goods are properly insured, bear the freight costs, hand over the shipping documents to the buyer, and ensure that the goods are packed. After the delivery of the cargo, the risk arising from the damage and loss of the goods and the expenses related to the cargo will pass to the buyer.
The preparation of contracts for ship chartering and sales (MOA and other related documents) to the clients within the scope of maritime trade...
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.