Do you need to specialize in Incoterms CIP? Incoterms is specifically for people who work in transportation or import/export. Often times, even in these areas, you are actually dealing with only a fraction of what is relevant to your day-to-day work, and most people in the supply chain simply don't have all of these terms memorized. It's more important to understand the concepts of Incoterms and be able to apply them to your business.

What is Incoterms CIP

CIP (Carriage and Insurance Paid To) is one of the Incoterms, which are international commercial terms published by the International Chamber of Commerce (ICC). Under CIP, the seller is responsible for delivering the goods to a carrier or another person nominated by the seller at an agreed place. The seller also pays for the carriage and insurance to the named destination. However, the risk transfers from the seller to the buyer once the goods are handed over to the carrier. This term requires the seller to obtain insurance for the goods in transit.

CIP Incoterm Example

In a CIP (Carriage and Insurance Paid to) transaction between a seller in China (Shanghai) and a buyer in the United States (Los Angeles), the seller is responsible for both the shipping and insurance costs to get the goods to Los Angeles. For example, the seller arranges and pays for shipping via a carrier, such as a shipping company, and also purchases insurance to cover potential risks like damage or loss during transit. If the goods are damaged during the journey, such as if a shipment is dropped during unloading at the port, the seller’s insurance would cover the cost of repair or replacement.

However, once the seller hands the goods over to the carrier, the risk of loss or damage shifts to the buyer. For example, if the goods are lost at sea after being handed over to the carrier, the buyer would bear the risk, even though the seller has arranged the insurance. The buyer could file a claim with the insurance company, but the responsibility for managing the claim falls on the buyer from that point onward.

When the goods arrive in Los Angeles, the buyer is responsible for customs clearance, paying duties and taxes, and arranging transportation from the port to their warehouse or retail store. If the buyer doesn’t handle customs clearance promptly and the goods are held at the port, they could incur additional storage fees. In another example, if the buyer decides to transport the goods from the port to the warehouse and the truck carrying the goods gets into an accident, the buyer would be responsible for the damage or loss, since the risk was transferred when the goods were handed to the carrier in China.

Even though the seller has paid for insurance, the buyer is responsible for these issues after the goods are in transit and once they arrive in the U.S.

※Here are some interesting and lesser-known facts about the CIP (Carriage and Insurance Paid to) Incoterm that might offer a deeper insight into its usage:

CIP vs. CFR and CIF: CIP can be used for all modes of transport, including multimodal transport, unlike CFR and CIF, which are typically used only for sea or inland waterway transport. This flexibility makes CIP more suitable for various transportation modes, whereas CFR and CIF are limited to maritime shipping.

Minimum Insurance Requirement: Under the CIP term, the seller must provide insurance coverage for the goods during transport, but the minimum level of insurance required is the “Institute Cargo Clauses A” (the most comprehensive level of insurance), which covers most risks such as loss, damage, and theft. However, the seller is not required to purchase the highest level of insurance, meaning that in some cases, the coverage may not include all potential risks.

CIP vs. DAP: Both CIP and DAP (Delivered at Place) involve the seller being responsible for transporting goods to a specified destination, but CIP also requires the seller to provide insurance for the goods. This is a key difference, as DAP does not have an insurance requirement for the seller.

“Insurance Coverage” Doesn’t Always Mean Full Protection: While CIP mandates the seller to provide insurance, it doesn’t necessarily mean all risks are covered. Some insurance policies might exclude certain risks, such as natural disasters or wars. Buyers should always check the insurance terms to ensure it meets their needs before accepting the goods.

CIP Doesn’t Mean “Free Shipping”: Even though CIP means the seller pays for transportation, it doesn’t imply that the seller will “ship for free.” In reality, the seller often includes the transportation and insurance costs in the total price of the goods, so the buyer effectively pays for these services.

Seller’s Responsibility After Delivery: Although the risk shifts to the buyer once the goods are handed over to the carrier, the seller still has the responsibility to ensure the goods are in good condition before they are delivered to the carrier. This means the seller must choose a reliable carrier and ensure the goods are properly packed to reduce the risk of damage during transit.

Global Applicability: CIP is used in international trade across the globe, whether in developed or developing countries. It is an effective and clear way to allocate transport and insurance responsibilities, especially in a world where multimodal transport is increasingly common.

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