CIP Incoterm (Carriage and Insurance Paid To)

CIP Meaning - Carriage and Insurance Paid To

Trade Finance Global / Freight Forwarding / Incoterms / CIP Incoterm (Carriage and Insurance Paid To)

Carriage and Insurance Paid To – What is CIP?

CIP (or Carriage and Insurance Paid To) is an Incoterm where the seller is responsible for the delivery of goods to an agreed destination in the buyers country, and must pay for the cost of this carriage. The sellers risk however, ends once they have placed the goods on the ship, at the origin destination. The buyer can pay for additional insurance during carriage of the goods.

The risk is passed when the goods are received by the first carrier. Carriage and Insurance Paid to is eligible for any form of transportation.

Diagram: CIP – obligations from the seller and buyer, and where the transfer of risk lies when shipping goods from the seller’s factory to the destination place of the buyer. Source: InternationalIncoterms.Guru, J Montezuma, Creative Commons BY-SA CC 4.0
Responsibility of the Buyer (versus Seller)
Relative Price

Transport Modes:

Rail, Sea, Air, Road

How does CIP work?

Cost and Insurance Paid To requires the seller to pay for the cost of transporting the goods and also minimum insurance to transport them to the end destination.

With CIP, the seller pays for both the transportation and the insurance to the destination. The seller also needs to insure the goods during carriage, and it’s normally always at a minimum cover level as the liability lies with the buyer at this point. Minimum insurance might not be adequate for manufactured goods or high value / precious merchandise.

Given that the goods being shipped are at the buyer’s own risk, it’s advisable for the buyer to ensure adequate insurance protection is in place. The term ‘delivery’ means from the country of origin to the final destination. The seller also needs to arrange export clearance from the origin country of the goods, which can be for any mode of transport.

In the case of CIP, damaged goods can be claimed against the insurance company through the buyer. When the goods arrive in the port of destination, the buyer needs to ensure the goods clear through customs.

Diagram: CIP requires delivery of goods to the first carrier, to which point liability of goods passes from seller to buyer. Source: InternationalIncoterms.Guru, J Montezuma, Creative Commons BY-SA CC 4.0

Buyer and Seller Obligations of CIP

THE SELLER’S OBLIGATIONS THE BUYER’S OBLIGATIONS 
1. Complying with contracts – Goods Delivery

The seller must prove the goods have been delivered and provide an invoice or equivalent, as well as shipping / delivery proof

1. Payment of the price

The buyer must pay the price of goods as agreed in the contract of sale

2. Licences and other formalities

The seller must provide a sufficient export license for the goods, or government authorisation to allow the goods to leave the country

2. Licences and other formalities

The buyer must get any export license and import permit for the export of goods

3. Insurance

The seller should provide a Contract of insurance at their own expense. The seller must obtain at his own expense cargo insurance as agreed in the contract, such that the buyer, or any other person having an insurable interest in the goods, shall be entitled to claim directly from the insurer and provide the buyer with the insurance policy or other evidence of insurance cover.

3. Insurance

Contract of carriage: no obligation (although it’s advised that the buyer ensure the seller has sought suitable insurance)

Contract of insurance: no obligation (although it’s advised that the buyer ensure the seller has sought suitable insurance)

4. Delivery

The seller must deliver the goods to the first carrier as agreed at a named place and time

4. Taking delivery

Take delivery of the goods at the agreed place

5. Transfer of risks

The seller is responsible for any goods which are lost or damaged if this happens before the goods have been delivered

5. Transfer of risks

Assume all risk of loss and damage at the time the goods have been delivered to the first carrier

6. Division of costs

The seller pays all of the costs incurred until the goods have been delivered to the first carrier, including loading at the place of origin and unloading at the place of destination under the agreed contract

All export cost, duties and taxes should be covered until the agreed point of destination, as well as the cost of insurance

6 Division of costs

The buyer pays all of the costs until the goods have been delivered at point of destination, cost and charges while cargo is in transit not included in the contract of carriage, duties and taxes at destination as well as import clearance

7. Notice to the buyer

The seller must provide notice that the goods have been delivered

7. Notice to the seller

The buyer must provide sufficient notice for the goods to be delivered as per agreement

8. Proof of delivery, transport document or equivalent electronic message

The seller must provide the usual transport document or electronic message equivalent to show proof of delivery

8. Proof of delivery

Transport document or equivalent electronic message, accept the transport document as per contract

9. Checking

The seller must bear the cost of checking, quality control, measuring, weighing, counting, packing of goods and marking. If a special package is required, the buyer must inform the seller and agreed on any extra expenses

9. Inspection of goods

The buyer must bear the cost of pre-shipment and exports inspection except when is mandatory by the government

10. Other obligations

The seller must cooperate with all the documentation for export and insurance

10. Other obligations

Reimburse the seller for cost related to obtain documentation that buyer requires for customs clearance at destination.

Testimonials

In this scenario, telephones need to be transported by plane from Hong Kong to Sydney Airport. Once the seller has cleared these through customs and loaded onto a ship, the freight forwarder would transport the goods to Sydney Airport to go to the warehouse. Destination terminal handling charges and transfer fees at Sydney airport would be covered by the seller, as well as insurance, but they buyer would need to cover customs clearance and duties.

James V, Telephone Parts.

Case Study

Mobile Distributor

A structured trade finance facility helped us import goods from Taiwan and grow our Australian presence, but we needed to ensure our shipping documentation was correct to ensure we knew where our liability and risks were.

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Meet our writer

Johnatas Montezuma, Supply Chain Consultant

Operations Manager specialised in Supply Chain Management and Forwarding

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Written in partnership with our Shipping Expert, Johnatas Montezuma 


First Name*

Last Name*

Your Organisation*

How much trade finance are you seeking?*

Your Email*

Telephone Number*

Briefly, what type of stock or trade are you looking to finance?

(Marketing Terms can be found here)

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