CIP(Carriage and Insurance Paid To) is a common term in international trade that outlines what the seller is responsible for. Under CIP, the seller must deliver the goods to the agreed-upon carrier and pay for the freight costs to get them to the destination. The seller must also purchase insurance to protect the buyer while the goods are in transit.
One of the advantages of CIP is its flexibility—it allows for various transportation methods, making it a good fit for many different trade situations. However, it’s important to note that once the goods are handed over to the first carrier (usually the one who starts the shipping process), the risk of loss or damage shifts from the seller to the buyer.
Responsibilities of the Seller and Buyer Under CIP Terms
Seller Responsibilities:
- Delivery According to Contract: The seller must deliver the goods per the terms set out in the sales contract.
- Packaging and Marking: The seller is responsible for properly packaging the goods to meet transport requirements and applying appropriate markings.
- Export Licenses and Formalities: The seller must obtain all necessary export licenses and handle customs formalities required for export.
- Transportation Contract: The seller must arrange and pay for the transportation of the goods to the agreed destination.
- Insurance Contract: The seller must purchase transport insurance that complies with the contract. This usually means comprehensive coverage, such as Institute Cargo Clauses (A), with the insured amount at least 110% of the contract value. The seller must provide the buyer with the insurance policy or proof of coverage.
- Delivery to Carrier: The seller must deliver the goods to the carrier (typically the first carrier) at the agreed place and time, fulfilling the delivery obligation.
- Transfer of Risk: Risk transfers from the seller to the buyer once the goods are handed over to the carrier.
- Provision of Transport Documents: The seller must provide the buyer with the necessary transportation documents so the buyer can receive the goods at the destination.
- Notice to Buyer: The seller must promptly notify the buyer when the goods have been shipped.
- Loading Costs: The seller is typically responsible for loading the goods onto the means of transport.
Buyer Responsibilities:
Inspection Rights: The buyer can inspect the goods at the agreed time and place.
Payment: The buyer must pay the purchase price as agreed in the sales contract.
Receipt of Goods: The buyer must receive the goods upon arrival at the destination.
Assumption of Risk: Once the goods are handed over to the carrier, the buyer bears all risks of loss or damage.
Import Licenses and Formalities: The buyer is responsible for securing all necessary import permits and completing any required customs procedures. The buyer must also pay any applicable import duties and taxes.
Unloading Costs: Unless otherwise agreed, the buyer bears the cost of unloading the goods at the destination.
Additional Insurance: If the buyer wants insurance coverage beyond the seller’s, the buyer must cover the extra cost.
When to Use CIP
CIP (Carriage and Insurance Paid To) can be used with any type of transport, including road, rail, air, sea, or a combination of these (multimodal transport). This term is especially useful when the buyer wants the seller to arrange for the goods to be transported and to purchase insurance for the shipment, but is willing to take responsibility for any problems that might arise once the goods are handed over to the first carrier.
Differences Between CIP and CIF
CIP (Carriage and Insurance Paid To) and CIF (Cost, Insurance, and Freight) are Incoterms requiring the seller to pay for freight and insurance. However, they differ in several important ways:
1. Applicable Mode of Transport
- CIP: Can be used with any mode of transport, including multimodal (e.g., truck-to-ship-to-rail).
- CIF: Limited to sea and inland waterway transport only.
2. Transfer of Risk
- CIP: Risk transfers to the buyer when the seller hands the goods to the first carrier.
- CIF: Risk transfers to the buyer when the goods pass the ship’s rail at the port of shipment.
3. Insurance Coverage
- CIP: The seller must obtain comprehensive insurance coverage, typically under Institute Cargo Clauses (A) or equivalent, with a coverage amount of at least 110% of the contract value.
- CIF: The seller is only required to obtain minimal insurance, usually under Institute Cargo Clauses (C) or similar, unless a higher level is specifically agreed upon.
