Carriage and Insurance Paid to (CIP): Definition, Examples, and Key Obligations in International Trade

Definition and Scope of CIP

CIP (Carriage and Insurance Paid To) is an Incoterm that defines the seller’s obligations in terms of delivering goods to a buyer-appointed party at an agreed-upon location. Under CIP, the seller is responsible for arranging and paying for the freight costs to deliver the goods to this designated point. Additionally, the seller must secure all-risk insurance coverage for at least 110% of the contract value to protect against loss or damage during transit.

CIP can be used for any mode of transport, including road, rail, sea, air, and multimodal transport. This flexibility makes it a versatile option for businesses engaging in diverse types of shipments across different regions.

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Key Obligations of the Seller

When using CIP, the seller has several key responsibilities:

• Arranging and Paying for Transportation: The seller must arrange for the transportation of goods from their premises to the agreed-upon delivery point and cover all associated costs.

• Export Packaging and Marking: The seller is responsible for ensuring that goods are properly packaged and marked for export.

• Export Licenses and Customs Formalities: The seller must obtain any necessary export licenses and comply with customs formalities in their country.

• Loading Charges: The seller covers the costs associated with loading the goods onto the carrier.

• Securing Insurance Coverage: As mentioned earlier, the seller must secure all-risk insurance coverage for at least 110% of the contract value.

• Providing Proof of Delivery: The seller must provide proof that the goods have been delivered to the first carrier.

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  Pre-shipment Inspection Costs: If required by law or contract, the seller may also need to cover pre-shipment inspection costs.

Key Obligations of the Buyer

While the seller has significant responsibilities under CIP, there are also important obligations on the buyer’s side:

• Payment for Goods: The buyer must pay for the goods as specified in the sales contract.

• Import Formalities, Duties, and Customs Clearance: Once the goods reach their destination country, it is up to the buyer to handle import formalities, pay duties, and clear customs.

• Assuming Risk: Once delivered to the first carrier, all risks associated with loss or damage transfer from the seller to the buyer.

Point of Risk Transfer

A critical aspect of CIP is understanding when risk transfers from one party to another. Under this Incoterm, the risk of damage or loss transfers from the seller to the buyer once the goods are delivered to the first carrier. After this point, it is no longer the seller’s responsibility to ensure that goods arrive in good condition.

Insurance Coverage Under CIP

Insurance coverage is a pivotal component of CIP. Here are some key points:

• Minimum Insurance Coverage: The seller must secure all-risk insurance coverage for at least 110% of the contract value.

• Additional Insurance: Buyers can request additional insurance coverage but must arrange and pay for it themselves.

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  Incoterms 2020 Update: As per Incoterms 2020, standard insurance under CIP now includes Institute Cargo Clauses A, which provides extensive coverage.

Comparison with Other Incoterms

To better understand how CIP works, it’s helpful to compare it with other Incoterms:

• CPT (Carriage Paid To): Unlike CPT, where only carriage costs are covered by the seller without insurance obligations, CIP includes both carriage and insurance costs.

• CIF (Cost, Insurance, and Freight): CIF is limited to sea freight and has different risk transfer points compared to CIP. Under CIF, risk transfers when goods pass over ship’s rail at port of shipment.

• DAP (Delivered at Place): In contrast to DAP where risk transfers when goods are made available at buyer’s premises ready for unloading, under CIP risk transfers earlier when goods are delivered to first carrier.

Practical Examples and Scenarios

Let’s consider a real-world example: A South Korean electronics company ships smartphones to a U.S.-based retailer under CIP terms. Here’s how it works:

• The South Korean company arranges for freight from their warehouse in Seoul to Los Angeles.

• They secure all-risk insurance coverage for 110% of the contract value.

• Once delivered to the first carrier in Seoul (e.g., an airline or shipping line), all risks transfer to the U.S.-based retailer.

This scenario illustrates how CIP can be applied effectively in multimodal shipments involving different countries.

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