CIF or DAP? Why the Term in Your Gold Contract Matters More Than You Think

In Nairobi's gold market, everything is CIF.

Sellers describe their offering as CIF. Buyers ask for CIF terms. Brokers negotiate CIF deals. The word is everywhere in WhatsApp messages, email chains, and verbal discussions. It has become the shorthand for a specific kind of transaction: the buyer travels to Nairobi, inspects collateral held in a secure vault, the gold ships to the buyer's destination, and the collateral stays behind as assurance until delivery is confirmed.

That structure is real. It is how a significant portion of legitimate gold transactions in Kenya are conducted.

The problem is not the structure. The problem is what happens when that structure gets written into a legal document; a Sale and Purchase Agreement, the document that actually governs the transaction if anything goes wrong; and the seller writes CIF. Because CIF, in any legal or banking context, does not describe what just happened in that room.

What CIF actually means

CIF stands for Cost, Insurance, and Freight. It is one of eleven Incoterms published by the International Chamber of Commerce; standardised shipping terms that govern international trade globally. Under CIF, the seller pays for freight and insurance to the destination port.

Risk, however, transfers to the buyer at the point of loading at the origin port. ^[1]

Read that again: under CIF, the buyer carries the risk from the moment the goods are loaded onto the vessel in Nairobi; before the gold has arrived at the destination, before it has been independently assayed, before the buyer has confirmed they have received what they paid for.

That is not the deal anyone in a Nairobi gold transaction actually intends. The entire premise of the collateral structure is that the buyer's capital is protected until delivery is confirmed. CIF, written into an SPA, describes a deal where the buyer's protection ends at the origin port. The two things are directly contradictory.

What DAP actually means and why it fits

DAP stands for Delivered at Place. Under DAP, the seller is responsible for delivering goods to a named destination and bears all risk and cost until the goods arrive at that destination ready for unloading. The buyer's risk and responsibility begin at the point of delivery; not at the origin port. ^[1]

That is precisely what the collateral structure is designed to achieve. The seller commits to delivery. The buyer's capital is protected until delivery occurs. If the gold does not arrive, or does not assay to the agreed specification, the buyer has recourse; because under DAP, the risk has not yet transferred.

DAP is the Incoterm that correctly describes what a Nairobi gold collateral transaction actually is. It is the term that belongs in the SPA. It is also, for reasons worth understanding, almost never the term that appears there when a seller writes the first draft.

Why sellers write CIF when they mean DAP

There are three possible explanations, and distinguishing between them matters.

They do not know the difference

Many sellers, and many of the agents and brokers who draft correspondence on their behalf, are using CIF as market shorthand without understanding that it carries a specific legal meaning that contradicts the deal they are describing. They have heard it used by everyone in the market. They have copied it from previous documents. They are not being dishonest; they are being imprecise in a context where imprecision is expensive.

This is the most common explanation. It is also, from a buyer's perspective, not entirely reassuring. A seller who does not understand the legal implications of the terms in their own contract is a seller who may not understand other legal implications either.

They are following industry convention carelessly

In some contexts, CIF has become so embedded as market shorthand that sellers use it in documents out of habit, assuming that what everyone understands informally will also be understood formally. This is a reasonable assumption in a WhatsApp chain. It is not a reasonable assumption in a document that may be presented to a bank, a dispute resolution body, or a court.

They understand the difference and prefer the ambiguity

This is the explanation that should concern a buyer most. A seller who knows that CIF transfers risk at the origin port; and writes CIF into an SPA governing a transaction where the buyer believes risk transfers at the destination; has created a document that says something different from what the buyer thinks it says. Whether that ambiguity is ever exploited depends on how the transaction proceeds. But the ambiguity is there, and a sophisticated counterparty knows how to use it.

The competence signal

In practice, the CIF versus DAP question is one of the fastest ways to assess whether a seller and their legal representation understand what they are doing.

A seller who uses DAP in their SPA without being prompted has demonstrated something: they understand the transaction, they understand the legal terms that govern it, and they have written a document that accurately reflects the deal. That is a minimum standard of competence, not a guarantee of good faith; but it is a meaningful filter in a market where the baseline is low.

A seller who uses CIF, or who pushes back when a buyer requests the change to DAP, has told you something as well. Either they do not understand the distinction, or they understand it and have a reason to prefer the term that transfers risk to the buyer earlier. Neither option is reassuring.

Requesting the change from CIF to DAP is therefore not a technical nicety. It is a test. How a seller and their agent respond to that request is information about the transaction you are considering.

In the SPA	DAP; correct	CIF; what it signals
Legal meaning	Delivered at Place: seller bears risk and cost to buyer's named destination	Cost, Insurance, Freight: risk transfers at origin port; not what is actually happening in this deal
What it describes	The actual transaction: seller delivers, buyer pays on arrival and confirmation	A shipping term for generic commodity exports; not a collateral and custody structure
Risk transfer point	At named destination, after delivery confirmed	At origin port; before the buyer has verified anything
What a DAP seller signals	They understand what the transaction actually is and can document it correctly	Not applicable
What a CIF seller signals	Not applicable	They are using market shorthand in a legal document; either careless or a deliberate obscuration of where risk sits

What this means in practice

Before you sign anything, read the Incoterm in your SPA. If it says CIF, ask for it to be changed to DAP. Frame the request as a straightforward correction; because that is what it is; and observe the response.

If the seller or agent agrees without objection, the document is corrected and you have confirmed a baseline level of competence. If they resist, ask why. The answer will tell you whether you are dealing with someone who does not understand the distinction or someone who prefers you not to notice it.

If they cannot give you a coherent answer at all, that is also information.

The four transaction structures EasyGold offers are all built on the principle that the buyer's capital is protected until the gold is confirmed at destination. The SPA governing each of those transactions is written accordingly. If you are evaluating a deal outside EasyGold's structures and want a second opinion on what the contract in front of you actually says, the Contact page is the right place to start.

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References

[1] International Chamber of Commerce. Incoterms 2020: ICC Rules for the Use of Domestic and International Trade Terms. ICC Publication No. 723E, 2019. Available at: https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/

Note on terminology: CIF and DAP as used throughout this post refer to the Incoterms 2020 definitions published by the International Chamber of Commerce. In Nairobi's gold market, CIF is used colloquially to describe the on-the-ground collateral transaction structure; this usage does not align with the ICC definition and is the source of the contractual ambiguity this post addresses.