For a new importer, Incoterm CIP is enticing because the seller makes most of the arrangements and covers the cost of carriage insurance in the price of the goods. But it’s important buyers do their homework. They must understand the logistics of CIP including adequate insurance and understand where in the journey the risk transfers.
What Is CIP in Import?
CIP stands for Carriage and Insurance Paid To (the destination). The name of the destination appears after CIP so there is no confusion about where the CIP obligations end.
Who is Responsible for Costs & Risk With CIP?
For the importer, CIP may seem to be one of the best shipping solutions available because it requires the seller to do most of the organising and pay for most of the costs associated with moving and insuring goods. The buyer only pays import duties and for the cost of unloading the goods at their location.
Sellers’ Obligations with CIP
Under CIP the seller has the most obligations including:
- Supply of the goods, invoice and documentation
- Correct packaging of goods
- Arranging the export licence and customs
- Organising pre-carriage and delivery at the named place of destination
- Costs to load goods for pre-carriage
- Supply proof of delivery to buyer
- Organising and paying for insuring the goods
The risk transfers to the buyer as soon as the goods are delivered to the carrier or appointed person (not the place of destination).
Buyers’ Obligations with CIP
Under CIP, the buyer isn’t obliged to arrange or pay as much as the seller but their risk begins as soon as the goods arrive at the first port. The buyers’ obligations include:
- Cost of any pre-shipment inspections
- Import formalities, customs and duties
What Does the CIP Incoterm® Mean?
CIP belongs in Group One of Incoterms that apply to any mode of transport. Group Two Incoterms relate to sea and inland waterway transport only.
CIP was introduced in 2010. Prior to this CIF was in place and remains today. CIF Incoterm stands for Cost, Insurance and Freight. It requires the seller to deliver the goods on board the vessel to consider them delivered. CIF is suitable for port to port sea deliveries and can’t include land transport.
CIP is for multiple modes of transport such as road, rail, sea, and air. Under CIP the exporter delivers the goods to the carrier, or an agreed person or place. The place might not be the final destination if the seller has negotiated to deliver to an interim destination. It’s the seller’s responsibility for the cost of carriage to deliver the goods to the destination stated on the contract. Once the shipment is delivered to the carrier, agreed person or place the seller's obligation is complete. The buyer now takes on full risk and responsibility for the shipment.
Incoterms Similar to CIP
CIF (Cost Insurance Freight) requires the seller to cover the costs, insurance and freight of goods while in transit. Once the freight is loaded, the buyer is responsible for all other costs. Both CIF and CIP require the seller provide insurance coverage for the goods.
CPT (Carriage Paid To) is like CIP in that the seller pays the cost of carriage however insurance is the responsibility of the buyer.
DAP (Delivered at Place) is suitable for any mode of transport including multiple modes. The seller is also responsible for arranging carriage for delivery of the goods however risk doesn’t transfer until the goods are ready for unloading.
FCA (Free Carrier) is suitable for any mode of transport including multiple modes. The seller arranges pre-carriage and is responsible for loading the goods on to the truck. Their responsibility ends when the goods arrive at the port ready for unloading. The carrier must unload the goods.
FAQs for Incoterm CIP
Is the Insurance Adequate?
The seller organises and pays for insurance but only at a minimum level of cover. Goods are shipped at the buyer’s risk so buyers should check they’re satisfied with the insurance cover.
This level of cover may be unrealistic if the goods are manufactured or of a high value. A buyer should enquire with the seller about the level of cover and if they want more insurance protection, either negotiate it with the seller or make their own additional insurance arrangements.
How Does the Buyer Know What the Insurance Will Be?
The contract should include details of the insurance before the sale proceeds. Also, a copy of the insurance policy should be given to the buyer and provision made that the buyer can make a claim direct from the insurer without going through the seller. If the goods are under finance, the insurer should also be able to make a claim.
What are Incoterms®?
Incoterms® are the standard trade definitions used by shippers worldwide. The three-letter abbreviations make it easy for all parties involved in a transaction to know who is responsible for organising and paying for shipping, insurance and any tariffs on imported and domestic goods. Incoterms reduce the number of disputes caused by the complex nature of transactions and communication breakdowns. The introduction of Incoterms® in 2000 by the International Chamber of Commerce (ICC). The Incoterms® were last revised in 2010 with the next edition due in 2020.
Stay Tuned for Incoterms® 2020
The ICC publishes the full Incoterms® 2020 rules, a pocket guide, training and events if you import and export goods and want to know how the 2020 changes will impact you.
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