The Incoterm CIP (Carriage and Insurance Paid To) specifies the responsibilities of sellers and buyers in international trade. It is one of the most commonly used Incoterms alongside FOB (Free On Board), FCA (Free Carrier), and EXW (Ex Works).
CIP stands for Carriage and Insurance Paid To. Under this term, the seller arranges and pays for transporting the goods to the named destination. The seller also must purchase insurance coverage for the goods until delivery occurs either to the buyer or a designated location.
This definition covers transport and insurance costs along with applicable taxes and duties. The seller handles export customs clearance, while the buyer manages import customs clearance.
CIP indicates that a seller pays freight and insurance to deliver goods to an appointed party at an agreed-upon location. Once the seller hands the goods over to the carrier, the buyer becomes responsible for any damage or loss during shipping.
CIP resembles the CIF (Cost, Insurance, and Freight) agreement but differs because CIF is specifically for maritime trade. Under CIP, the seller must insure products for 110% of the contract value, while the buyer should arrange supplementary insurance.
The International Chamber of Commerce (ICC) published CIP as one of its 11 Incoterms in 2020.
CIP frequently accompanies a specific destination. For example, CIP California means the seller is responsible for freight and insurance costs to California.
CIP applies to any accepted means of transport, including road, rail, sea, inland canal, air, and multimodal transport.
Example: If LG in South Korea sends a container of tablet computers to Best Buy in the United States, LG pays all shipping costs and a minimum insurance amount to deliver the tablets to the designated carrier or location set by Best Buy. Once LG hands the shipment to Best Buy’s chosen carrier, LG’s responsibilities end, and Best Buy fully assumes responsibility for the shipment.
Under CIP, the seller carries the risk of loss or damage to the goods until delivery occurs at the designated location. If damages occur during transit, the seller must cover the costs.
The buyer must accept the goods upon delivery and pay the agreed-upon price. If the buyer refuses acceptance or fails to pay, the seller may seek damages.
CIP often works well in international trade when buyers and sellers are in different countries. The goods may be transported by air, sea, or land. This term suits sellers by allowing them control over transportation and insurance while transferring risk to the buyer upon delivery.
Buyers benefit from the ability to negotiate delivery terms with the seller, giving them involvement in the transportation process.
When employing the CIP Incoterm, keep the following considerations in mind:
Since the seller only needs to buy minimal insurance to deliver the shipment to its final destination, the buyer should obtain additional insurance for comprehensive risk protection. If the shipment is damaged or lost in events not covered by the seller’s limited insurance, the buyer may face significant losses.
CIP is an Incoterm that governs the cost of transporting goods in commercial transactions. It requires the seller to cover freight and insurance costs when sending products to a buyer’s chosen destination. The risk of loss or damage transfers to the buyer as soon as the items are delivered.
The seller must insure goods for 110% of their contracted value. The buyer is responsible for arranging and paying for any additional desired insurance.
Any accepted mode of transport, including road, rail, sea, inland canal, air, and any combination of these, qualifies for CIP.
CIP applies when a seller pays freight and insurance to deliver goods to a designated party at a predetermined location. The buyer assumes the risk of loss or damage to the shipped goods as soon as the seller delivers them to the carrier or designated person.
As the seller is only required to obtain minimal insurance coverage to deliver products to their final destination, the buyer should consider purchasing enhanced coverage to protect the shipment against all hazards. If a shipment suffers damage or loss due to unforeseen events not covered by the seller’s basic insurance, the buyer may be liable for substantial damages. The buyer may also request additional insurance from the seller and negotiate for the seller to cover part or all of those costs.
Several alternatives to CIP exist that may meet the buyer and seller’s specific needs. Some possible alternatives include:
In summary, the Incoterm CIP is a well-recognized trading term in international commerce that defines seller and buyer responsibilities regarding goods transportation. The seller arranges and pays for the carriage of the goods to the designated destination and secures insurance until delivery occurs. The buyer accepts goods upon arrival and pays the agreed-upon price. CIP works effectively when buyers and sellers are in different countries, and goods are shipped by air, sea, or land. Both parties must understand their responsibilities and consider applicable taxes and duties when using CIP. Alternatives to CIP include FOB, FCA, and EXW.
For comprehensive shipping solutions, businesses can leverage the expertise of China Top Forwarder to enhance their logistics effectiveness. For tailored options regarding air freight and sea freight, visit China Top Forwarder Services for more information on available offerings.
