What Is the Incoterm CIP (Carriage and Insurance Paid To)?

What Is CIP (Carriage and Insurance Paid To)?

CIP is an incoterm for international transport where the seller arranges and pays for the main carriage and covers insurance. Much like in CPT (Carriage Paid To), the seller is responsible for the goods until they reach the first carrier in the origin country.

This incoterm is one of the two that require the seller to insure the goods; the other being CIF (Cost, Insurance, and Freight). However, insurance coverage in CIP is required to be much more comprehensive than under CIF. In the latter, the seller is required to pay for the minimum coverage, while in CIP they must pay for all-risk insurance coverage until the goods reach the named destination.

Key Features of CIP

Here are the key aspects of the CIP incoterm:

Seller’s Obligations Under CIP

CIP requires the seller to prepare and mark the goods for export clearance. They must provide a commercial invoice and necessary documentation to the buyer. They are responsible for all pre-carriage costs and responsibilities. 

They must also arrange and pay for the main carriage and insurance coverage for all risks until the goods reach the agreed-upon destination. According to the International Chamber of Commerce (ICC), the insurance amount should be 110% of the invoice value, at minimum.

The seller has to handle export customs formalities, including duties, taxes, and obtaining an export license. They are also responsible for providing proof of delivery and paying the pre-shipment inspection costs for export clearance. They assume all liability until the goods reach the first carrier.

Buyer’s Responsibilities

As soon as the goods are handed to the first carrier, the buyer assumes all risk. However, their expenses begin when the goods arrive at the agreed-upon destination. They must cover all import formalities, including documentation, taxes, and duties from this stage of the journey.

CIP requires the buyer to cover the pre-shipment inspection costs for import clearance and pay for the goods as specified in the sales contract. If onward carriage is required to reach the final delivery point, that is also at the buyer’s expense and risk.  

Advantages of CIP

Sellers and buyers can benefit from CIP in the following ways:

For the Seller

• Streamlined logistics, with control over shipping and insurance arrangements until the designated point

• Simplified export procedures due to predefined responsibilities

• Competitive edge by providing comprehensive shipping solutions

• Minimal financial risk and potential for increased profit margins

• Control over documentation and logistics, minimizing non-payment risks

For the Buyer

• Guaranteed comprehensive insurance coverage for the shipment

• An all-encompassing shipping service requiring minimal logistics expertise

• Reduced risk associated with transportation and handling

• Minimal responsibility as the seller arranges for the majority of the transport

Disadvantages of CIP

CIP can complicate matters for sellers and buyers in the following ways:

Challenges for the Seller

• Bearing the burden of additional costs for insurance

• Complexity in arranging appropriate insurance coverage

• Paying higher insurance or freight costs if new to the market

• Making a majority of the transport arrangements, bearing more responsibility

• Handling all export formalities, including, documentation and taxes

Challenges for the Buyer

• Bearing all responsibility for additional costs and arrangements beyond the delivery point

• Complexities in claiming for loss or damage by going through the seller’s insurance company

• Handling all import formalities, including documentation and taxes

• No control over logistics and the quality of service from the chosen carrier

• Inability to negotiate the best prices, potentially paying higher costs

When to Use CIP

CIP is best suited for multimodal shipping arrangements for high-value manufactured goods. Since the seller is obligated to provide comprehensive transport and insurance coverage, CIP minimizes risk for both parties.  

Buyers prefer CIP when they want an all-encompassing shipping service with minimal responsibility. Sellers might choose CIP when they have a good logistics infrastructure and can secure favorable shipping rates.

FAQs

How does CIP differ from CPT and CIF?

Here are the primary differences between the three incoterms:

• CIP and CPT can both be used for any mode of transport while CIF is exclusive to inland waterway and sea freight.

• CIF and CIP both require the seller to pay for the main carriage and cover insurance. In CPT, the seller only pays for the main carriage.

• Insurance under CIP includes all-risk coverage, while in CIF, it includes minimal coverage.

What level of insurance is required under CIP?

CIP requires the seller to insure the goods during the main carriage for all risks until they reach the agreed-upon destination. The insurance should be 110% of the value of the goods.

In CIP, who selects the insurer and what are the implications?

Under CIP, the seller chooses the insurance company. Implications include the need for clear communication between the buyer and seller to ascertain that the insurer meets the buyer’s requirements.

How are disputes over insurance claims handled?

The buyer has to go through the seller’s insurance company to make an insurance claim. Disputes are typically resolved through negotiation. Clear documentation and communication are vital. Legal recourse can be pursued if a resolution cannot be reached amicably.

Is CIP suitable for all types of transportation, including multimodal?

Yes, CIP is suitable for land, air, sea, and inland waterway freight. It covers the main carriage by varying methods (trucking, shipping, railway, etc.) in multimodal transport until the goods arrive at the agreed-upon destination.