Carriage and Insurance Paid to (CIP) – Incoterms 2020 in detail

Carriage and Insurance Paid to (CIP) is an Incoterm where the seller covers the cost of transportation and insurance to a buyer’s destination and the buyer assumes the risk from the point of delivery to a first carrier. It can be used for any mode of transportation and is often used for multimodal transportation methods, including road, rail, air or sea.

Group C: Main Carriage Paid – Carriage and Insurance Paid to (CIP)

Carriage and Insurance Paid to (CIP) is one of the 11 International Commercial Trade Terms (Incoterms) of which the newest version was published in 2020 by the International Chamber of Commerce (ICC).

CIP states that when goods are handed over to the first carrier of the shipment, the risk switches from the seller to the buyer. Hence, the seller is obligated to provide an insurance for the goods in transit. A CIP term includes the payment due to seller, the time and place of delivery to the first carrier, namely any buyer-contracted vessel for the main delivery, and what insurance is obtained.

Example of Carriage and Insurance Paid to (CIP) in action

Imagine that a Company in India wants to ship a container of laptops to a company in Canada. Under CIP, the Indian company is responsible for all freight costs and minimum insurance coverage to deliver the laptops to the carrier or appointed person for the Canadian company at an agreed-upon destination. Once the shipment is delivered to the carrier or appointed person for the Canadian company, the obligation of the Indian company is complete, and the Canadian company assumes full risk and responsibility for the shipment.

Who has which obligations when using CIP?

When using CIP, both the seller and the buyer have different obligations they need to follow.

Seller’s Obligations

Goods, commercial invoice and documentation
Export packaging and marking
Export licenses and customs formalities
Pre-carriage and delivery
Loading charges
Cost of delivery at named place of destination
Proof of delivery
Cost of pre-shipment inspection
All-risk insurance coverage

Buyer’s Obligations

Payment for goods as specified in the sales contract
Import formalities and duties
Cost of import clearance pre-shipment inspection
Payment of duties and taxes

Example of Carriage and Insurance Paid to (CIP) in action

Imagine that a Company in India wants to ship a container of laptops to a company in Canada. Under CIP, the Indian company is responsible for all freight costs and minimum insurance coverage to deliver the laptops to the carrier or appointed person for the Canadian company at an agreed-upon destination. Once the shipment is delivered to the carrier or appointed person for the Canadian company, the obligation of the Indian company is complete, and the Canadian company assumes full risk and responsibility for the shipment.

Why use CIP?

The buyer must only handle unloading and handling import clearance when the goods arrive, as the seller is responsible for obtaining insurance and delivering the goods. The transfer of risk occurring when the goods have been loaded on the first carrier at the place of origin is an advantage for the seller.

Under CIP terms, risk transfers to the buyer once the shipment is loaded on the first carrier. The buyer is responsible for any issues during transit and must claim through the seller provided insurance. CIP may lead to higher costs for the buyer since the seller includes freight, insurance, and additional fees in the invoice, increasing the overall price.

How ALS can support you with the complexity of international commerce

ALS is an innovative, neutral, and globally active customs broker. We operate as a unified entity, where every member of our team, from your dedicated contacts to our board of directors, is committed to meeting your specified needs.

We are here to guide you through the process of international trade. Whether it’s speaking to one of our sales team, or requiring further guidance with our consultants, we offer everything to help facilitate your complete end-to-end customs solution. By law, we are not able to provide you with advice on which Incoterm you should use. However, we can provide you with information which you can use to make your decision.

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Sources

Incoterms® 2020 (europa.eu)

Herre, J., & Tilberg, O. (2022). ICC Guide to Incoterms ® 2020. ICC.

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