What it means
A delivered price term answers two questions: which costs the seller has already paid, and at what point risk passes to the buyer. Under CAF, the seller covers the goods, the insurance cover and the freight to the agreed destination port, so the buyer's remaining costs are unloading, duty, local transport and clearance.
Risk, however, usually passes to the buyer once the goods are loaded at the origin port, which is why insurance is part of the package. The term matters for comparing supplier quotes properly.
A price quoted on a factory-gate basis and a price quoted CAF are not comparable until you add freight and insurance to the first one. Buyers who skip that step routinely choose the wrong supplier by a margin larger than the discount they thought they were getting.
CAF values also drive the tax bill on imports. Many customs authorities calculate duty and import tax on the CAF value of a consignment rather than the invoice value of the goods alone, so freight and insurance become part of the dutiable amount.
Understating either figure on the declaration is a compliance problem rather than a saving. In accounting terms, the freight and insurance built into a CAF price form part of the cost of inventory for the buyer, not a separate overhead.
That means they sit on the balance sheet until the goods are sold and then flow through cost of sales. Treating them as period expenses understates inventory and distorts gross margin.
One nuance is that CAF is simply the French rendering of CIF, and the two are used interchangeably in bilingual contracts. A separate and unrelated use of the same letters exists in French company accounts, where CAF labels a cash generation measure close to funds from operations, so always check which meaning a document intends.
In practice
Real-world examples.
Example
A building products importer receives two quotes for the same tiles: $180,000 on a factory-gate basis and $205,000 CAF. After adding $21,000 of freight and $2,000 of insurance to the first quote, its true landed figure is $203,000, so the cheaper-looking quote is actually $2,000 better.
Example
A food distributor declares a consignment with a goods value of $90,000 but omits $8,000 of freight from the customs entry. The authority recalculates duty on the full CAF value of $98,000, and the distributor pays the shortfall plus a penalty.
Example
A textiles buyer negotiates a CAF price so that the supplier organises shipping and cover. The buyer's own freight forwarder is no longer involved, which simplifies the process but also removes the buyer's visibility over whether the insurance limit is adequate.
Formula
Calculation
Formula: CAF value = cost of goods + insurance premium + freight charges. Worked example: a buyer purchases machinery parts with a goods cost of $240,000, marine insurance of $3,000 and ocean freight of $17,000. CAF value = 240,000 + 3,000 + 17,000 = $260,000. If the destination country charges import duty of 5% on the CAF value, the duty is 260,000 x 0.05 = $13,000. Had duty been calculated on the goods cost alone, it would have been 240,000 x 0.05 = $12,000, so the freight and insurance add $1,000 of duty.Case study
Seen in the real world.
The following is a fictional, illustrative case. Beauclair Imports, an invented homeware importer, bought from two French suppliers and recorded every CAF invoice as a single purchase of goods, posting nothing separately for freight or insurance.
At the year-end audit it emerged that roughly $140,000 of freight and insurance sitting inside CAF prices had been expensed when invoices were paid rather than held in inventory until the goods sold. Correcting the treatment increased closing inventory and raised reported gross margin by close to two percentage points.
The illustrative lesson is that a delivered price term bundles costs together, and bundled costs still have to be analysed correctly. Beauclair added a standing instruction to split each CAF invoice into its three components on receipt.
Watch out
Common mistakes.
- Comparing a CAF quote directly with a factory-gate quote without adding freight and insurance to the second one.
- Assuming risk stays with the seller all the way to the destination port, when under CAF it generally passes once the goods are loaded at origin.
- Expensing the freight and insurance inside a CAF price immediately instead of including them in the cost of inventory.
Questions
People also ask.
Is CAF the same as CIF?
Yes, CAF is the French-language equivalent of CIF, and the two terms describe the same delivered price basis.
Why do customs authorities use the CAF value?
Because duty is commonly charged on the full value of goods landed at the border, which includes freight and insurance rather than the goods alone.
Who chooses the insurance cover under CAF?
The seller arranges it, so a buyer who wants a higher cover limit or wider conditions needs to specify that in the contract.
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