Incoterms Explained: Carriage and Insurance Paid (CIP)
When goods are bought or sold “Carriage and Insurance Paid” (CIP) it means that the Seller delivers the goods to a destination previously agreed to by the seller and the buyer. In that sense, it is similar to CPT. What is different with CIP is the fact that the buyer has paid an additional sum to have the goods insured during the carriage of the goods.
Risks and Costs for the Seller
The seller is responsible for arranging and paying for transportation to the buyer-contracted carrier and arranging for any export documentation that is needed. Once the goods arrive at the first carrier the risk transfers to the buyer. This can be the ocean freight or air freight carrier, but can also be a carrier using another mode of transport, like barge, train, or truck. The main difference with CPT is that the Seller needs to purchase insurance for the shipment and pay for it.
Risks and Costs for the Buyer
The buyer is responsible for unloading the shipment and loading it onto their (carrier’s) truck. The buyer is also responsible for arranging and paying for any import documents. The seller is obligated to hand over any documents or information needed to enable the successful import, at the cost of the buyer. Import duties and taxes also need to be paid by the buyer. Same as with CPT, the Buyer is responsible for the goods as soon as they are loaded on the first carrier. However, with CIP the goods are insured. The cost of this insurance is (most probably) included on the invoice from the seller.
Potential Issues for the Buyer
Because risk is transferred to the buyer once the shipment is handed over to the first carrier, the buyer is responsible for the loss of or damage to the shipment. This risk is mitigated by the insurance that has been arranged by the seller. And still, as with CPT, the seller arranges transportation and loading of the shipment at the port, they may inflate costs and charge them to the buyer.
Use of Carriage Paid To
CIP is applicable for multimodal shipments and works well for shipments supported by a letter of credit. please note that the responsibility for the shipment transfers to the buyer once the goods have been handed over to the first carrier. This makes this incoterm an unusual one, as the risk is being carried by the party that may not have chosen the carrier.
CIP Under Incoterms 2020
The new Incoterms 2020, which were just launched by the ICC go into effect on January first. The Incoterms 2010, which you can find in our earlier post here, will still be valid. As long as both parties agree to the terms, they are. There is a change to the CIP terms in 2020. The standard insurance under CIP will be Institute Cargo Clauses A, which has the most extensive coverage. Parties can agree to a lower and cheaper level of insurance. This is at the buyer’s own risk.
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