The CIP incoterm stands for ‘Carriage and Insurance Paid to’, wherein the seller is responsible for goods only till the first port, which is the exporter's country's port and not the terminal. It is one the 11 incoterms published by the International Chamber of Commerce, with a scrutinized edition released in January 2020. The term receives universal acceptance in international trade with consent from governments and authorities all over the world.
The rule is somewhat similar to CPT with only one difference in particular -- that the seller is accountable for carriage and insurance coverage till the named port. CIP can be used for multi-modal shipments, or for more than one mode of transit. In CIP, the title transfers when the goods are received by the buyer on the first port.
CIP Shipping terms
- The seller is responsible for the goods till the designated port (in this case the second port, or the importing country’s port).
- Insurance is the responsibility of the seller; the buyer may pay for additional insurance incurred for carriage of goods from the port till his place.
- The risk of goods is transferred at the designated port.
- The target port is something that the two parties have to discuss and finalise.
The seller is responsible for arranging and paying for transporting cargo to the designated port that is mutually agreed between the two parties.
The seller has to deliver the goods to the carrier at the place of delivery within the agreed period. If the destination has not been named in the agreement, then the seller can choose a place that suits this purpose.
Loading and Unloading
In CIP Incoterms, the seller is responsible for loading the goods onto the truck that will transport it to the seller’s port and then loading the goods onto the carrier. The seller covers the charges for loading.
The seller has to send the buyer with the following documents.
- Bill of Lading
- Commercial Invoice
- Insurance Certificate
- Packing List
- Export License
Costs Borne by Seller
The seller has responsibilities till the named place of destination, and will bear costs such as:
- Charges for maintaining goods in the warehouse
- Inland transit of goods -- from the warehouse to the first port
- Pay for depot charges
- Freight forwarder’s charges
- Air freight charges -- if the goods are to be transported by air
- Marine insurance charges -- for moving goods through sea/ocean
- Ocean freight charges and overall insurance coverage charges
As we considered our CIP place of destination to be the second port in the example above, the seller has his share of responsibilities till the target port which are to be completed within an agreed time and period.
He will have tasks such as:
- Inland transit (from rail/road) - from warehouse to the first port
- Carriage from the first port to the second port
CIP does include customs clearance, where the seller is liable for export customs and involved duty charges. He’ll be paying for settlement charges and look after freight forwarding proceedings. He has to prepare all the mandatory documents required for customs clearance and file them as required.
In a CIP transaction, the seller pays for insurance of goods. The seller, at his own cost, has to carry out the shipping terms and bear all the charges for licensing and security permits. He has to take coverage of goods as the liability of goods stays with him till the nominated port. The seller is not responsible for insuring goods after the goods have reached the nominated port. He can seize his duty and hand over all the necessary documents so that the buyer can comply with the importing formalities.
Transfer of Risk
The risk is transferred from the seller to the buyer when the goods are received by the first carrier or appointed person. Since the seller is responsible for procuring minimum insurance till the designated port, they have to send the insurance details to the buyer as the risk is passed to the buyer when goods are loaded on the carrier.
The buyer is responsible for arranging the transportation of goods from the agreed upon destination to the buyer’s warehouse.
If the place of destination or delivery is the first port i.e. the exporter’s port, then the buyer has to bear the cost of carriage to their port and transport to their warehouse after the seller hands over the goods at the first port.
If the place of destination is named as the second port i.e. importer’s port, the seller delivers the goods to the buyer at the second port and buyer is responsible for transport till their warehouse.
Loading and Unloading
Depending on the named place of destination, the loading and unloading of cargo is decided by the buyer and seller. The buyer typically covers the charges for unloading cargo at the destination port.
The buyer needs the Bill of Lading, Commercial Invoice, Packing List and other shipping documents from the seller. They also need the import license, GATT/DGFT declaration, and other documents to clear import customs procedures.
Costs Borne by the Buyer
In CIP trade terms, the buyer’s responsibilities are limited to the charges and conditions mentioned in the terms of contract. As the place of delivery plays a major role in a CIP transaction, the buyer will be entitled to carry out proceedings right after the port of delivery. It can be the first port -- where the charges are incurred right from the carriage for shipping to the importer country’s port -- or the second port -- where he will incur charges related to import proceedings and inland transit.
When the agreed place of delivery is the second port, the buyer has to take care of unloading of goods on the designated port and take care of freight for inland transit of goods from the port to his warehouse. If the nominated place is the first port, the freight duty for bringing the goods to the importer country’s port lies with the buyer.
Under CIP incoterm, the buyer has to ensure that he receives all the necessary documents from the seller required for import proceedings. As the buyer takes over authority right after the destination port, he’ll be the one paying for charges such as import taxes and duties.
The buyer has no obligation in CIP with respect to insurance (referring to risk and damage of goods). The insurance coverage charges are to be borne by the seller. But as discussed earlier, the buyer could pay for additional coverage borne by the seller, i.e., insurance from the named port till the buyer’s warehouse, as per the agreed terms between both the parties.
Transfer of Risk
The risk transfers from the seller to the buyer when goods are handed over to the first carrier in both cases of CIP destination being the first port or the second port. The buyer becomes responsible for any loss or damage to the shipment during transit. This risk is covered by the insurance arranged by the seller.
When to Use CIP Incoterms?
Similar to CPT Incoterms, CIP Incoterms also work well when a buyer is trading with a foreign country and wants to save themselves from the hassle of arranging transport in a country that they are not familiar with. A seller can choose CIP Incoterms when they have to send a shipment across multiple countries.
Examples of CIP Incoterms
Company X in Seoul has to ship vehicle accessories to Company Y in New York. Under CIP New York, Company X is responsible for bearing all freight costs and minimum insurance coverage to deliver the vehicle accessories to New York. Once the shipment is delivered to the carrier or the appointed person of Company Y, the risk and responsibility is transferred to Company Y. Company Y has to pay for import customs clearance and arrange for transporting the shipment of vehicle accessories to their warehouse.
Difference Between CIP, CIF, CFR, FOB
FAQs on CIP Incoterms
What is the process in CIP?
A CIP process starts with the seller -- responsible for the the freight, shipping and insurance till the destination port after which the risk is transferred to the buyer who is liable for transit and costs incurred thereafter.
What does CIP price mean?
The CIP price is the price or cost which is chargeable or quoted to the buyer by the seller during the trade process. Under CIP the seller has to pay for freight, carriage and all other charges till the destination port out of his own pocket and cannot recover it as shipping cost from the buyer, however he may consider these costs and accordingly arrive at the price which he wants to quote to the buyer.
Does CIP include customs clearance?
Under CIP terms, both parties have an equal contribution. where the exporter settles for export proceedings and arranges all essential documents, the buyer gives his consent for all the evidence provided by the seller and looks after the import customs.
What is the difference between CIP and CIF?
In CIP, the risk of goods passes from the seller to the buyer at the destination port, whereas in CIF the risk is transferred to the buyer -- once the goods are loaded by the seller on the vessel port.