What is CIP Incoterms 2020 and How is it Used?
CIP stands for Carriage and Insurance Paid to, and it’s one of the Incoterms as established by the International Chamber of Commerce in 2020. It spells out the obligations of a buyer and a seller in an international trade transaction. According to the CIP, it is the obligation of the seller to deliver the goods to a carrier or any other party nominated by the seller and also to pay for transportation to a nominated destination. Also, the seller is required to insure the goods against loss or damage in transit.
This term operates for the benefit of both parties entering into a transaction. The seller bears the risk of carriage of the goods and also obtaining insurance, while the buyer is secure in the knowledge that his goods are covered while in transit. Adding versatility to CIP is the choice of delivery by any mode of transport-air, sea, and land-in any shipping scenario. It has to be particularly defined in the contract by both buyer and seller so that there is no confusion as to the destination and the extent of insurance cover. Overall, CIP helps facilitate smoother international trade by delineating responsibility and risk management clearly during the transport of goods.
What does CIP mean in shipping?
The CIP shipment term have always been integral to international shipping. When dealing with Topshipping, CIP Incoterms would imply that we at Topshipping are responsible for the shipment process right from China to a destination provided by a buyer. We also pay for insurance to make sure the goods are covered while in transit.
In other words, when you purchase on CIP terms, we are responsible for shipping and insuring your cargo. Once the goods are delivered to the shipping carrier, however, responsibility passes to you. Though we pay for transportation and insurance, you bear the risk for any loss or damage beyond that point when shipment is delivered to the carrier.
What CIP means in shipping incoterms is a clear explanation that helps both parties understand the responsibilities that lie within their power during shipment.
Seller and Buyer Responsibilities in CIP
Incoterm CIP, in international trade, mainly prescribes a certain type of responsibility for both the seller and the buyer in order to have clarity and reduce potential disputes. These are important for successful transactions.
Seller Responsibilities:
- Delivery of Goods: The seller must deliver the goods to a carrier or another designated party at the agreed place. This covers that goods need to be packaged and ready for transport.
- Transportation Costs: The seller bears all the costs of transporting the goods to the named destination, freight charges, and any additional expenses incurred during transportation.
- Insurance Cover: It is also a substantial responsibility of the seller to take care of the insurance for the goods while in transit under CIP. The seller shall purchase proper insurance covering his goods on account of any risk of loss or damage or theft. Such insurance shall at least cover 110% of the value of goods to be sold so that the buyer is not without adequate protection.
- Clearing for Exportation: The seller clears the goods for export and makes any required export licenses and payments associated with export duties and taxes.
- Notice to Buyer: He must notify the buyer of the shipment, stating the transport method, estimated arrival time, and any other information related to it.
Buyer’s Responsibilities:
- Delivery: The buyer takes delivery of the goods once they have arrived at their destination. It entails taking delivery from the carrier and confirming the goods are as stated in the contract.
- Import Customs Clearance: Import customs clearance shall be on the account of the buyer. This covers any payment that has to be made towards import duties and taxes. This responsibility further extends to obtaining the necessary import licenses.
- Risk Management Post-Delivery: The risk in the goods passes on to the buyer upon delivery to the carrier. Hence, the buyer should be informed of his responsibility for the goods at this stage.
- Further Transportation: In case the goods have to be moved from the destination to some other place, further transportation is to be arranged and paid by the buyer.
By providing such clear demarcation of responsibilities, it indeed allows for smoother transactions and conveys the role of both parties in a shipping process, hence putting better international trade relationships in place.
Risk and Cost Transfer in CIP
The CIP Incoterm, an abbreviation for Carriage and Insurance Paid to, is very important because it identifies the point at which risk and cost will be transferred on the part of both the sellers and buyers in international trade. This section identifies the point at which the risk transfers from the seller to the buyer and how various costs are apportioned in the shipping process.
Risk Transfer
The risk, according to CIP, would fall unto the buyer at that critical point in the process of shipping goods. Point of Risk Transfer: The risk transfers from the seller to the buyer when the seller delivers the goods to the carrier or another party nominated by the seller at an agreed location. This therefore means that from the moment the goods are handed over to the carrier, the buyer would bear the risk of loss, damage, or theft.
Cost Allocation
The apportionment of costs in CIP is as follows:
Seller’s Costs:
Transportation to Destination: The seller pays all transportation costs to take the goods to the named destination. That includes freight charges, loading fees, and any interim handling charges prior to the goods arriving at the carrier.
Insurance Premiums: Insurance of the goods in transit shall be obtained by the seller for at least 110% of the value of the goods. The cost of insurance remains borne by the seller.
Custom Clearance, Export: All costs of exporting the goods, including export duties and taxes and documentation, are borne by the seller.
Buyer’s Costs:
Import Customs Clearance: The buyer will have to pay all costs resulting from customs clearance in the country of destination upon arrival, including import duties, taxes, and other incidental charges.
Additional Transportation: If, after reaching the destination, there is a further need to transport the goods to another location, such costs shall be borne by the buyer.
Post-Delivery Risks: Once the goods have been delivered to the carrier, any risk of loss or damage thereafter shall fall to the buyer.
How Much Insurance Does CIP Incoterm Shipping Require?
CIP shipping under Incoterms requires the seller to insure goods in transit. This insurance is mostly a percentage of the value of shipped goods. Typically, coverage amount must be at least 110% of their value; that extra 10% serves to protect against unexpected risks and ensures that a buyer will receive more than the value of an item if it gets lost or damaged.
What this means in plain words is that if you’re shipping merchandise worth a thousand dollars, you should have the seller insure it for at least $1,100. This way, in case an accident in shipment takes place, like theft, breakage, or loss, the buyer can claim enough to replace the merchandise.
It is also to be noted that, while the seller will arrange and pay for this insurance, it is good business practice for a buyer to review the policy for sufficiency of his needs. This helps ensure that both parties are protected during the shipping process.
What Kind of Transport Is Eligible for CIP?
Under the CIP terms, the seller is responsible for arranging and paying the transportation of goods to the named CIP destination. CIP transport terms are flexible in regard to the various ways of shipment, taking into account what has been agreed upon by the buyer and seller.
The eligible modes of delivery under CIP include:
Multimodal Transport:
CIP transportation terms allow any multiple-mode transportation, such as truck, rail, sea, and/or air, or a combination of any of these. A seller is required to arrange the entire carriage from the point of origin right up to the final CIP destination with assurances for safe delivery of the goods.
Sea Transport:
Sea shipment is applicable for the CIP delivery. The seller delivers his goods to the port of loading, pays the sea freight charges, and secures insurance cover on behalf of the buyer during the sea journey till CIP destination.
Air Transport:
CIP delivery also applies to air shipments. The seller delivers the goods to the departure airport, pays for air freight, and ensures that insurance for this air transport leg is paid for in order to safely deliver it to the agreed-upon CIP destination.
Road Transport:
CIP transport terms include road shipments. The seller arranges delivery of goods to the agreed destination by road transport at his expense and insures them against loss or damage during such transit.
Rail Transport:
The delivery of CIP is flexible and extends to the rail deliveries. The seller delivers goods at the railway station or terminal, pays freight of rail, and secures insurance up to rail leg until such time as the arrival of goods to the destination of CIP.
CIP delivery has a definite structure for both parties, wherein the buyer will receive from the seller a transport and insurance for safe and secure shipment.
What is the difference between CIF and CIP?
CIF and CIP are both Incoterms used in international shipping, but they surely differ in responsibilities and coverage. Each one of them should be comprehended properly when comparing the difference between Incoterm CIP vs CIF.
CIF stands for “Cost, Insurance, and Freight.” Under CIF Incoterms , the seller is responsible for paying to deliver the merchandise to the destination port: freight and insurance costs; however, once the items are aboard the vessel, it remains the buyers’ risk. This term applies solely to sea and inland waterway transport.
The Incoterm CIP can also be applied to any mode of transport-air, land, or sea-in which, quite clearly, the seller is required to make transport arrangements to a particular destination and pay for insurance en route. The risk of loss or damage after the handing over of goods to the carrier will be assumed by the buyer.
In plain words, the meaning of CIP vs CIF Incoterms comes to explaining that while CIF is for marine shipment and takes up the cost to the loaded stage, CIP is wider, with more transport mode coverage and responsibility up to a particular location. Incoterm CIP CIF Explanations give an idea about which term to use in which case, depending on the nature of transportation and trade.
Difference Between CIP and Similar Terms: CIF and CPT
Knowing the differences that exist among these tools when trying to navigate international shipping-such as CIP, which means Carriage and Insurance Paid to; CIF, which means Cost, Insurance, and Freight; and CPT, which means Carriage Paid to-is of the essence. Each term specifies something different about where the risk transfer happens, how cost is allocated, and over what insurance is carried, and thus helps the parties know how to handle their shipping needs accordingly.
Key Differences
Risk Transfer
CIP (Carriage and Insurance Paid to): Under CIP, the risk in the goods shall pass from the seller to the buyer from the time the merchandise is delivered to the carrier at the agreed place. While in transportation, the seller is supposed to be responsible for the goods and cover them with insurance against loss or damage that may arise.
CIF (Cost, Insurance, and Freight) The situation is much the same under CIF as it is under CIP, in that the seller is responsible for the merchandise up to the time of loading onto vessel(s). However, the risk of loss or damage passes to the buyer once the goods are on board the vessel. That means that the buyer assumes risk of loss or damage upon loading, even though the seller pays freight and insurance cost to destination port.
CPT – Carriage Paid to: Under CPT, the seller pays for the movement of the goods to a particular destination; however, the risk of loss or damage passes to the buyer when the goods are ‘delivered’ to the carrier. There is no compulsion to take insurance under CPT unlike CIP, and insurance, if desired, is the buyer’s responsibility.
Insurance Cover
CIP: The seller must procure insurance for the goods in transit, being responsible for at least 110% of the value of the goods. That would be a way for the buyer to be covered in case there is any eventual loss while the goods are in transportation.
CIF: The seller must provide insurance for the goods, but in general, the minimum insurance required is only as per requirement of the shipping line. If more protection is desired, the buyer will be well advised to make extra coverage.
CPT: Under CPT terms, the seller is not obliged to provide insurance. This therefore implies that it is left to the buyer to decide on the purchase of insurance to guard against risks that might arise during transit.
Application and Use Cases
CIP: It finds applications in various modes of transport: air, sea, and land. It is flexible and one of the most opted for insurance coverage by the buyer during shipment.
CIF: Although it was originally used mainly for sea freight, the closest usage it gets applied to is on sea transport. CIF works when the buyer is comfortable assuming risk from the moment the goods are loaded in the vessel. It is generally favored in bulk shipments.
CPT: This term applies to all modes of transportation but finds common usage when the buyer prefers lower shipping costs without adding value in the form of insurance cover.
Key Tips for Using CIP in International Shipping
Practically, both the seller and buyer can manage their costs and mitigate risks effectively when the CIP is used for international shipping with some strategies in this regard.
- Clearly Define Terms: It is important that the delivery point and responsibilities are clearly mentioned in the shipping contract. Make it amply clear where the destination is, as it has a bearing on the transportation costs and risk transfer.
Engage Reputed Carriers: The buyer should hire the services of reputed carriers that can safely deliver the goods. Scrutinize their performance record as well in order to reduce the chances of loss or damage in transit.
- Negotiate Insurance Cover: Even though CIP demands the seller insure it, negotiate the terms in such a way that there is adequate coverage beyond mere minimum requirements that could protect the buyer from potential losses.
Costs monitoring: The sellers should be blind toward the transportation and insurance costs. Long-term contracts with carriers and shipping bulk may be considered to get better rates.
- Positive Communication: There needs to be openness in communication between parties. Shipping updates will help resolve any issue on time.
- Follow Customs Regulations: The shipper needs to be informed about import/export laws and regulations to avoid delays and extra charges.
This would help the sellers and buyers in improving their experience in using CIP since there will be smoother transaction and effective risk management when it comes to international shipping.
The Bottom Line
CIP, in simple words, means that in international trade, the seller has to bear the cost of freight and insurance to bring the goods to the destination agreed between two parties. Under CIP, the minimum the seller must do is insure the goods for at least 110% of the contract value, which would comprehensively protect against loss or damage in transit. Being one of the Incoterms set by the International Chamber of Commerce, CIP shipping terms have globally come to be recognized and accepted for clarity and consistency in trade transactions worldwide.
For smooth handling of your shipments, make use of experienced Freight Forwarders or some of the Biggest Shipping Companies In The World . This would ensure that your goods are well taken care of and secured throughout their shipping.
