If you have ever shipped internationally, you’ve likely encountered the term “CIP Incoterms”. It is one of 11 standardized trade rules published by the International Chamber of Commerce (ICC), and carries a specific set of obligations that can outline how and when risk and cost are transferred between a buyer and a seller.
This guide breaks down everything you need to know about CIP Incoterms, what they mean, how they compare to other Incoterms, and what both buyers and sellers are responsible for under 2020 rules.
Understanding CIP Incoterms
CIP stands for Carriage and Insurance Paid To. This means the seller agrees to deliver the goods to a named place of destination and is responsible for both the cost of carriage and insurance coverage during its main leg of transportation. Both the seller and the buyer must agree to the destination location upfront and it should be clearly stated in the contract.
CIP Incoterms apply to all modes of transportation including: air freight, ocean freight, domestic road transport, and rail freight. In multimodal shipments (shipments that use multiple transport methods), delivery occurs when the seller hands the goods over to the first carrier. At this point, the risk transfers from the seller to the buyer.
Key Differences Between: CIP vs CPT and CIP vs CIF
When comparing different Incoterms options, CIP is often compared with two other Incoterms: CPT and CIF. Understanding how they differ is important when choosing the right risk trade off for your shipment.
CIP Incoterms vs CPT Incoterms
CPT stands for Carriage Paid To. The two rules are nearly identical, with one difference, the seller has no obligation to arrange insurance. The buyer has to arrange their own insurance if they want it. When using CIP, the seller has to arrange the insurance policy of the shipment.
CIP Incoterms vs CIF Incoterms
CIF stands for Cost, Insurance, and Freight. A similarity with CIP is it requires the seller to arrange insurance. The key differences between CIP and CIF are:
- Mode of transportation: CIF is for sea transport only and not designed for containerized freight, while CIP is for all transport modes
- Insurance: Under the 2020 rules, CIP requires insurance that complies with Institute Cargo Clauses (A), a higher standard than CIF, which retained a lower minimum threshold from previous rules
Where Does the Responsibility Shift Under CIP Incoterms?
CIP Incoterms can be a bit more complex than other Incoterms because risk and cost from seller to buyer transfer at different points.
- Risk: Transfers from the seller to buyer as soon as the goods are handed to the first carrier at the place of shipment
- Cost (carriage and insurance): Remains with the seller until the goods reach the named place of destination
This means if the goods are damaged or lost during the main leg of the journey, such as a sea crossing between two countries, the buyer technically bears the risk, but because the seller arranged insurance, the buyer can still recover losses through the policy. Unlike other Incoterms, this split of responsibility can be confusing, which is why having a contract in place with precise language outlining the risks is important.
What Are The Seller’s Obligations Under CIP Incoterms?
Under CIP Incoterms, the seller carries most of the risk. A seller’s obligations include:
- Preparing the goods, commercial invoice, and providing all documentation
- Completing customs formalities and licensing
- Pre-carriage and delivery to the first carrier
- Paying the loading charges
- Covering the full cost of delivery to the named place of destination
- Arranging and paying for all-risk insurance coverage
Insurance requirements are a key aspect of CIP, the seller has to get coverage that meets the standard set by the Institute Cargo Clauses (A) under the 2020 rules.
What Are The Buyer’s Obligations Under CIP Incoterms?
Under CIP Incoterms, once the goods arrive at the destination, the risk is now with the buyer. A buyer’s obligations include:
- Paying for goods as outlined in the contract
- Paying import duties and customs clearance costs
- Paying for any required pre-shipment inspection at the destination
The buyer’s obligations are on the lighter side compared to the seller.
Institute Cargo Clauses (A) for CIP Incoterms
Under the updated 2020 Incoterms rules, there was an insurance clause change to CIP. The minimum insurance standard was upgraded from Institute Cargo Clauses (C) to Institute Cargo Clauses (A). Clauses (C) only cover a limited range of risks such as events like fire, vessel sinking, or collision, while Clauses (A) provide an “all-risk” coverage, which protects against losses including breakage and theft.
This insurance change only applied to CIP. CIF’s insurance requirements were not changed in the 2020 update.
The CIP rule specifies minimum insurance requirements, but additional coverage may be needed depending on the type of goods or any part of the transportation of the journey not covered by the main policy. Any extra insurance arrangement must be stated in the contract.
Terminal Handling Charges and Multimodal Logistics Complexities
When dealing with terminal handling charges and multimodal logistics, the operational part can be confusing. Terminal handling charges (THCs) are fees that terminal operators may charge carriers for handling goods at a port or facility. These costs fall into a gray area under CIP, it is not always clear if it is covered in the freight price. It is important to discuss THCs and put in the contract who is responsible.
Multimodal shipments are when goods travel via multiple carriers. The point at which risk transfers from seller to buyer is when the first carrier hands off. To ensure that insurance coverage is continuous, the handoff between carriers should be documented in the contract. For complex multimodal routes, working with an experienced freight forwarder can help ensure that documentation, insurance, and the handoffs are all properly managed.
CIP Incoterms Quick Summary
- Incoterm: CIP – Carriage and Insurance Paid To
- Risk Transfer: When goods are handed to the first carrier
- Transport Modes: All modes (air, sea, road, rail)
- Insurance: Seller must provide coverage under Institute Cargo Clauses (A)
Expert Guidance on Incoterms
When selecting the right Incoterm, it depends on several factors such as the commodity, your relationship with the buyer or seller, and the logistics of your shipment process. CIP is a great option for sellers as it provides a clear scope of responsibility and the ability to control insurance. For buyers, receiving the goods with all-risk insurance provides a layer of protection without having to arrange it themselves.
From an operational standpoint, CIP works well for businesses using multimodal transportation or shipping containerized freight internationally. CIP isn’t the right choice for every shipment. If you are looking to ship via sea freight only, CIF may be a better option. Or if insurance isn’t a priority, then CPT may be worth considering.
The key is to evaluate each shipment on its own terms and to ensure that it is all laid out in a contract.
Are you ready to send your next shipment as the buyer or seller? Contact us today at LogiWorld for your next shipping quote.
