Shipping terms are of paramount significance whenever international business transactions are in consideration. Among the aforementioned terms, there is one term that is widely used in international markets, for instance CIP – Carriage and Insurance Paid to. The Incoterm refers to the incurred obligations and incurred risks between the buyer and the seller during the transportation process. In this blog post we will try to explain what CIP actually means, how it works, to which extent can it be beneficial and not, and how does it compare to other shipping terms.
What is CIP?

Offering a place, CIP – Carriage and Insurance Paid to is one of the eleven Incoterms that the ICC uses in international business. It means that the seller has to pay the transportation cost for the goods to a particular place and the cost of insurance. The CIP as a shipping term has the cost of freight and insurance borne by the seller up to the point where delivery reaches the named place of sale or destination at which point the risk is shifted to the buyer.
Key Responsibilities Under CIP
When utilizing the CIP Incoterm, it’s essential to understand the roles and responsibilities of both the contract seller and the contract buyer:
- Seller’s Responsibilities:
- Transporting Goods: The buyer is required to meet the cost of transportation of the goods to the named destination arranged by the seller.
- Insurance Coverage: The seller is newly required to procure insurance of the goods throughout the transportation. This means that even the insurance aspect must guarantee that it has taken a coverage of 110% which is the bare minimum requirement.
- Customs Clearance: If required, the seller must take all the responsibility of duties, taxes and every other form of documentation on import.
- Buyer’s Responsibilities:
- Risk Transfer: The risk for the goods shifts to him, the buyer, once the goods are delivered to the carrier. Thus, the buyer bears any risk and loss as from the time of delivery of the product.
- Import Duties and Taxes: Import charges and taxes are the buyer’s responsibility when the product is delivered at the location of destination.
- Final Delivery: The risk and cost and title for goods in transit from the named place to the final purchaser is as follows Buyer’s risks, costs, and title The buyer has to arrange the final transportation of goods from the named place to the final destination.
How CIP Works in Practice
In order to explain step-by-step how CIP functions in its actual working, let us take an example. For instance, a producer selling a machine tool to a business in Germany but is based in China. According to the CIP terms:
- The Chinese manufacturer has to ensure that the machinery gets delivered to a particular port in Germany and also provide insurance for the transit.
- When the machinery is surrendered to the shipping company, then the risk is shifted to the German buyer though the seller incurs the cost of transport and insurance up to the agreed destination.
Benefits of Using CIP
Using CIP in international trade can offer several advantages for both sellers and buyers:
- Risk Mitigation: The legal responsibility of the seller extends to the rozsah that they have to arrange for the insurance of the item in transit so that the buyer will be shielded from possible loses.
- Simplified Logistics: Due to the fact that the seller pays for the freight and insurance costs, buyers can enjoy the easier control of the delivery processes.
- Control Over Transportation: The seller may select some capable carriers and insurance companies and therefore he or she may be offered better services and there are lesser risks.
Drawbacks of CIP
Despite its benefits, there are also some drawbacks to consider when using CIP:
- Higher Costs for Buyers: Purchasing might also prove to be expensive as most of the sellers include the insurance and freight charges to their product price.
- Limited Buyer Control: Purchasers bear very little influence in decisions regarding the shipping of products and insurance offered by the seller.
- Complexity in Claims: In case of damage or loss, the buyer will experience difficulties while addressing the seller’s preferred insurance company.
Comparing CIP with Other Shipping Terms
As such, it will be enlightening for those involved in international trade to

know how CIP as an Incoterm works to enable them make appropriate decisions. Here’s a brief comparison with some related terms:
CIP vs. CIF (Cost, Insurance, and Freight)
While both the insurance paid to CIP and CIF involve additional insurance and freight costs, they differ primarily in their scope:
- CIP: Applicable to all forms of transport including aviation and road.
- CIF: Used specifically for sea borne transportation services.
In both of them, the seller of buyer’s premises and factory is liable for insurance and freight; nevertheless, the CIF term does not cover insurance based on the modes of transport other than marine.
CIP vs. DAP (Delivered at Place)
- CIP: In this method the seller’s risk is limited to delivering the goods to the carrier or at the named place.
- DAP: The seller bears all risks and expenses starting from transport of the goods up to the point the buyer has designated.
CIP vs. EXW (Ex Works)
- CIP: The role of the risk of transferring along the transportation and insurance is on the side of the seller.
- EXW: The buyer takes all the risks from the seller’s place; it is the least risk for the seller.
Insurance Paid Under CIP
Currently, one of the defining attributes of CIP is the insurance obligation. According to CIP, the seller has to obtain cargo insurance to cover all risk insurance coverage for the transportation of the goods of first carrier. The insurance that must be paid to cip cannot be less than 110% of the goods’ value. This is important when it comes to giving the buyer a guarantee to insure goods against possible loss that may happen on transit.
Understanding Insurance Costs
The cost of insurance can vary significantly based on factors and additional insurance, such as:
- Type of Goods: It expands that delicate or expensive goods normally cost more for insurance.
- Mode of Transport: Shipping and cargo insurance costs dissimilar to airport move costs since they depend on the risks involved in air transportation, maritime or land transportation.
- Destination Risk: The coverage also depends on the shipping route and the country to which the cargo is shipped as some routes have high incidence of theft and /or damage.
Freight and Insurance Costs
When evaluating the total cost of transportation under CIP, one has to make consideration about both the actual transportation cost and insurance costs. Transportation expenses encompass the cost that the buyer’s risk is willing to spend in acquiring the good from the seller’s country to the buyer’s country. Compliance costs, on the other hand, are determined using the cost value of the goods and the various risk management factor that goes with the shipping process. Total Costs summing up all the costs incurred include Freight Costs, Insurance Cost and Duties and Taxes.\text{Total Costs} = \text{The Accumulated Costs of freight, insurance cost and duties and taxes}Total Costs = Costs of freight, insurance costs and duties and taxeshe buyer’s country. On the other hand, insurance costs are calculated based on the value of the goods and the risk assessment associated with the shipping process.

How to Estimate Total Costs
To estimate total shipping costs under CIP, you can use the following formula:
Total Costs=Freight Costs+Insurance Costs+Duties and Taxes\text{Total Costs} = \text{Freight Costs} + \text{Insurance Costs} + \text{Duties and Taxes}Total Costs=Freight Costs+Insurance Costs+Duties and Taxes
- Freight Costs: Via the weight, volume, as well as the shipping route, get the shipping carriers’ quotations.
- Insurance Costs: Estimate insurance costs with regard to the value of the goods and the tariffs defined by the insurer.
- Duties and Taxes: Make a search of the import duties and taxes that applies to the destination country.
Cargo Insurance in International Trade
They are common tools when shipping goods internationally and cargo insurance is no exception to the buyer appointed party. In CIP, the seller is both responsible and obliged to obtain sufficient cargo insurance in respect of the shipment of goods in transit Inland waterway transport. This insurance covers likely risks of loss or damage that might happen during transportation.
Types of Cargo Insurance
- All-Risk Insurance: Offers coverage against all risks likely to happen to an organization and property, with some exceptions.
- Named Perils Insurance: Includes only certain risks that have been named in the policy document.
- General Average Insurance: Prevents loss that might be occasioned by jettisoning of cargo in an emergency with an aim of saving the ship.
Factors Influencing Cargo Insurance
When choosing cargo insurance, consider the following factors:
- Value of Goods: The coverage is tend to more extensive when it come to the products that are at a higher value.
- Shipping Conditions: Reduced safety means that where a route poses a higher risk, for example through piracy or political turmoil, then the insurance cover may have to be more broad based.
- Coverage Needs: Look at whether requires all-risk or named perils insurance depending on one’s risk appetite.
Conclusion
It is thus important for businesses involved in the international business to learn about the shipping term CIP. CIP also designates responsibility and the risk transfers between sellers and buyers in that it covers agreement on carriage and insurance paid for shipment to a specified destination. Through establishing clear-cut responsibilities of the two participants and establishing what each of them expects out of the other, CIP assists in improving efficiencies of delivery around the globe.
Nonetheless, it is also importance to consider the drawbacks of using CIP Despite the fact that the advantages of using CIP in international chamber is enormous, there are some drawbacks that may be attached to parties involved with the use of the method. If businesses are to navigate the potential pitfalls of international trade, gaining knowledge of insurance costs, freight costs, and the rules and regulations concerning cargo insurance can go a long way to doing so.