Incoterms: CIP – Carriage and Insurance Paid To

Education Incoterms 2000 30 comments

CIP – “ Carriage and Insurance Paid to “ is an incoterm that is commonly confused with CIF. Unlike it’s more common sibling CIF, I rarely see CIP used, with too many companies using CIF for air shipments and other modes of transport when what they really should be using is CIP. CIP, unlike CIF, can be used for any kind of shipment. CIP is very similar to CIF in that it includes insurance as well as cost and freight.
In CIP, the seller/exporter arranges for the goods to be delivered to the named port of destination. Similar to CPT, the seller’s risks do not end until the moment the goods have been delivered to the carrier, but typically do not end until the carrier reaches the agreed destination. Because this incoterm can be used for any mode of transport, a carrier in this case could be a steamship line, a trucker, a railroad, or a freight forwarder. The seller is responsible for all costs until the goods have been delivered to the named port of destination. In this case, the named port of destination is domestic to the buyer, meaning that the named port must be a port in the buyer’s country, however unlike other similar incoterms the named port of destination is not necessarily the final delivery point: it could be, but it could also be an agreed upon point at the port of destination. So if you were selling cherries to Thailand (ed. “ again with the cherries example?) you would use the term “CIP, Carriage and Insurance Paid to Laem Chabang Port, Thailand” however Laem Chabang might or might not be the final delivery point at the port of destination.

Under CIP terms, the seller’s risks end the moment the goods are delivered to the carrier, but typically do not end until the carrier reaches the agreed destination. The seller is responsible for all costs up to the named port of destination :

Seller’s Responsibilities:
1) Produces the goods and commercial documents as required by the sales contract.
2) Arranges for export clearance and all export formalities.
3) Arranges and pays for all costs for the transportation “ including insurance ” – of the goods up to the agreed point in the named port of destination.
4) Assumes all risk to the goods (loss or damage) only up to the point they have been handed over to the carrier, typically, but not always, ending when the carrier reaches the agreed destination.
5) Seller must advise the buyer that the goods have been delivered to the carrier.
6) Seller has to provide the buyer with transport documents that will allow the buyer to take possession of the goods at the agreed point in the named port of destination.

Buyer’s Responsibilities:
1) Buyer must pay for the goods as per the sales contract
2) Buyer must obtain all commercial documentation, licenses, and authorizations required for import and arrange for import clearance and formalities at own risk and cost.
3) Buyer takes delivery of the goods after they have been delivered by the seller to the agreed point in the named port of destination.
4) Buyer must assume all risks for the goods from the time the goods have been handed over to the carrier, typically, but not always, ending when the carrier reaches the agreed destination. SPECIAL NOTE: While the seller is obligated to insure the goods, the buyer may have a vested interest in the goods during the voyage. It may be a wise decision for the buyer to purchase additional insurance coverage in the case of a loss.
5) Buyer pays for all costs of transportation, import customs formalities and duty fees, and all other formalities and charges related to the transportation of the shipment from the time the goods have been delivered to the agreed point in the named port of destination.
6) Buyer would accept the seller’s transport documents provided they conform with the sales contract and will allow the buyer to take possession of the goods after delivery to agreed point in the named port of destination.

This interpretation is provided as a guide only.

Incoterms are published by the International Chamber of Commerce and are available on their website and official publication “Incoterms 2010″. For a complete and official overview please refer to the ICC’s publication.

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SwizStick

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  • Edwin Chow August 3, 2007, 2:15 am

    Dear SwizStick,

    Thanks for taking the trouble to share your knowledge.

    Two questions regarding CIP.

    In your explaination, you mentioned that CIP to the “Named PORT of Destination”. But, the reference book that I have showed it should be “Name PLACE of Destination”. What is the diffirence of the two.

    I often come accross shipper putting CIP MNL. In this case, does it mean MNL Airport? or an address in MNL?

    Under what condition the Consignee/Buyer would want to by extra insurance? Most of my customers are Consumer electronics, they will reject the cargo if it arrives at diestination damages, and we will have to sent in new shipments. Obviously, we file claim to our insurance company. So, in what type of commodity that the consignee will want to buy its own insurance?

    Thanks,
    Edwin

  • 3plwire August 8, 2007, 10:16 am

    Very good questions. As CIP is not as commonly used as other incoterms my feeling is that it is also not as clearly understood. As I have seen it used only sometimes myself, I am certainly not an expert on CIP terms, the above is simply my interpretation and should be used as a guide only.

    That being said, I have seen CIP used in both ways: to the named PORT of destination and to a named PLACE of destination. If you do a quick check of various reference books you will see the same – some indicate CIP should be to a named PORT and some to a named PLACE. This is why I mentioned in my explanation above:

    “In this case, the named port of destination is domestic to the buyer, meaning that the named port must be a port in the buyer’s country, however unlike other similar incoterms the named port of destination is not necessarily the final delivery point: it could be, but it could also be an agreed upon point at the port of destination.”

    As I have always told my clients over the years: be specific. The clearer you are in your instructions and documentation, the easier everyone’s job will be and the less chance that something will go wrong. In your example – CIP MNL – the agreed upon destination could go either way. The importer (consignee) might take CIP MNL to mean delivery up to the Manila Airport only. Or they might be of the understanding that the goods will be delivered directly to their facility in the city of Manila. The shipper and consignee should make it clear to each other what the expected requirements of the shipper are and phrase the incoterm accordingly. For example, if the shipper has agreed only to deliver up to Manila Airport than they should indicate “CIP – Manila Airport”. If the shipper has agreed to deliver to a warehouse in Manila, then they should indicate “CIP – (name of warehouse), Manila”. That way everyone avoids confusion. But again, my interpretation – and the way I have seen it MOSTLY used – is to the named PORT of destination.

    As for your second question regarding insurance, CIP requires the shipper (exporter) to issue insurance coverage for the goods during transit to the named port (place) of destination. It’s up to the consignee whether they want to secure their own insurance. They may have an umbrella policy with their home insurance company that includes cargo coverage and wish to use it as a safeguard. Perhaps they don’t trust the shipper’s insurance company and are worried that in the event of a claim they will not receive a proper settlement. Perhaps the goods are retail and will be sold at a higher value upon reaching destination and they want to issue their own coverage for the higher value. There are many reasons. The buyer doesn’t necessarily have to get additional coverage – they need to evaluate their relationship with their seller and assess their needs and risk appropriately.

  • Omayra May 18, 2009, 5:45 pm

    This is great info! thanks. Im glad to know there is a site like this on shipping as i am just starting out in Procurement.

  • Chris June 3, 2009, 10:54 pm

    Dear SwizStick, many thanks for the information above.

    I was wondering whether you have come across a scenario in which the seller is happy to provide (and pay) for insurance but not carriage? There does not appear to be a term that addresses that scenario.

    In such instance, would the most appropriate course be to use FCA (given that multiple forms of transport may be used) plus a notation to confirm that insurance will be arranged/paid by the seller?

    Many thanks in advance for your comments.

    Regards
    Chris

  • SwizStick July 7, 2009, 4:22 pm

    Hi Chris,

    Sorry for the extremely late reply. That is indeed unusual, although not entirely unheard of. However, the insurance coverage offered by the seller may not be cargo related – be clear on exactly what kind of insurance the seller is talking about. I have seen companies get in trouble assuming the seller covered insurance for their shipment only to find out what the seller was talking about was product liability insurance or some other type of insurance not related to the actual shipment.

    Assuming that the seller is indeed offering to insure the actual shipment during transit, but not carriage, FCA is indeed a fairly flexible incoterm to use, with specifications that shipment insurance will be arranged/paid by the seller. EXW would be another option with the same caveat applying, but FCA makes more sense to me. Keep in mind we provide this info as a guide only, for best results consult a trade attorney.

  • Job July 31, 2009, 7:18 am

    Thanks Sir for your explanation!
    My question!
    I work in public institution. We have a problem of interpretation (performance) of an incorterms CIP. Both parts (parties) to the contract agreed that the delivery deadline and the incorterm CIP “magerwa” this is port of destination.
    During payment the buyer applied the penalties of delay to be counted when the goods arrived at the port of destination “magerwa “. The salesman refused these penalties by saying that having handed the goods to the first carrier released his responsibilities! My question is this one in that case the applied penalties of delay they are exact? In case the salesman would be release from his obligations having put handed the goods to the first carrier who would be responsible for a possible delay caused by this carrier and undergone by the buyer?

  • Ray January 14, 2010, 2:16 am

    Hello, I would like to clarify the responsiblility of the destination charges (maybe the arrival charges)? if the incoterm used is CIP named seaport. I know the carrier will have some arrival charges need to pay before releasing the cargo to the buyer (consignee)

  • James McCabe March 15, 2010, 10:22 pm

    question

    With CIP terms being used at what point does the buyer take ownership of goods, it is my understanding that even if the seller is paying for the freight and insurance that the buyer takes ownership at point of freight being loading on the truck from seller site. Or is this a moot point and it is the wording of the contract that overrides CIP term, my concern is revenue recognition

  • Vince April 4, 2010, 9:38 pm

    “With CIP terms being used at what point does the buyer take ownership of goods”

    As discussed, to the named place or port. Both parties need to discuss where this “place” or “point” is. Having said, that’s also where the seller’s responsibility ends.

  • vincent November 3, 2010, 3:26 am

    Hello,

    in the term CIP, who pays the destination charges (charged by the shipping line) at the POD

    Vincent

  • Margarita March 13, 2011, 9:23 pm

    Favor explicar un poco más el término CIP, cuando habla de transporte, lugar de entrega y seguro: El vendedor paga el transporte interno hasta el lugar convenido pero en otros documentos habla que incluye el transporte hasta el destino. También indica que el seguro se pago hasta el destino??, no debería ser hasta el momento en que se entrega la mercancía al transportador… Y por último algunos artículos sobre este tema confunden, algunos indican que contrata y paga el transporte principal. Favor aclara bien. El transporte hasta dónde y quién lo paga, lo mismo que el seguro para este caso del término CIP. Gracias

  • Ogwang May 11, 2011, 3:33 am

    hay great info u provide. i do hv a qtn, in cases of Cip incoterms, who is supposed to pay a freight company that does some additional transportation of goods to the place of destination ? is it the buyer or the supplier ?

  • Clara June 6, 2011, 5:10 am

    Hello! Thank you of for the answers. I have a question regarding CIP incoterm.I have the following situation:
    – The seller brings goods from some place in Russia to Port x in Ukraina by train than the goods will be loaded and sent to the port of destination Y port in Albania. The existing incoterm in the Letter of Credit was FOB Port X, Ukraina but now the seller has required to change it at replace it with CIP Port X, Ukraine which I refused as it does not asure us that the goods enter at some point in Albania.Could you please suggest which is the best incoterm to use in this situation?

  • wihib September 16, 2011, 4:01 am

    Dear sir
    I often get confused when we use the term CIP for grain procurements. we useully use it for deliveries where the point of discharge is domestic. But the cargo has to pass through sea ports. If the buyer is responsible for the import customs duty and taxes then who is responsible for the charges to be paid to the clearing and forwading companies?

  • Bhavin September 17, 2011, 5:15 am

    When the ship’s rail serves no practical purposes such as in the case of roll-on/ roll-off or container traffic, the CIP term is more appropriate to use.

    Why not CIF ??

  • Syed Sarwar Hussain September 22, 2011, 8:35 am

    According to World Bank Standard Bidding Document , there are three different types of Price schedule. prospective bidders are required to fill in any one of these three as appropriate. At the time of financial evaluation custom duties are deducted from the total EXW price for goods which have already been imported. on the other hand in the case of Goods manufactured outside the Purchaser’s Country, already imported or to be imported, the Purchaser’s evaluation of a bid will exclude and not take into account customs duties and other import taxes levied on the imported Good, sales and other similar taxes, which will be payable on the Goods if the contract is awarded to the Bidder. If the purchaser is an UN agency, it will not required to pay custom duties and some other taxes.

    In this case , do you think this sort of comparison justified?

  • Chaitu June 13, 2012, 5:39 am

    Please help me in understanding CIF ICD? Both intercoms are used together in Contract agreed by both parties.

  • 3plwire June 25, 2012, 10:00 am

    hi Chaitu

    ICD is not an incoterm. ICD is an acronym usually used for “Inland Container Depot”, it is especially common in India. For example, “Jaipur ICD” means an inland container depot in Jaipur, where the container will be picked up or dropped off (or both) at the ocean carrier’s container depot in Jaipur. My guess is that your party, when they say “CIF ICD”, mean the closest inland container depot to their location. You should communicate with them to specific the ICD name they want to do business from. Especially in India it can make a big difference in terms of export tax benefits for the exporter and also can make a big difference in freight cost depending on the ocean carrier. There is a lot of difference in ICD freight costs depending on which one you use.

    Again, this is just a guess but I believe the most likely explanation for “ICD”.

  • Junaidi August 3, 2012, 9:09 pm

    hello sir…im student from polytechnic seberang perai in penang..i didnt understnd what is CIP…can u explain in a simple way? thnks

  • chum August 11, 2012, 11:26 pm

    All,
    It’s clear explaination about CIP.

    Base on explaination I think CIP is likely the same as DDP (Delivery Duty Paid).
    Any comment on this?

  • chum August 11, 2012, 11:31 pm

    Hi 3plwire,

    Your comment, please.

    Many Thanks.

  • Kelvin August 13, 2012, 12:48 am

    As stated from above comment,CIP is rarely used in international business as most of the people assume CIP is the same as CIF. Technically, CIP is the same with CIF. The only difference is CIP can be use for all mode of transport but CIF is only confined to sea freight mode only.

    From what I understand, CIP named place or port are very important. Most of the people will use port as the named place. We take an example of CIP Muscat Airport. This means seller only responsible for the goods till the goods arrived Muscat Airport. The unloading of goods are the responsiblity of the buyer. In a simple term, seller only pay or responsible till the plane touchdown at Muscat Airport.

    In the event of seller sell at CIP Manila (the place out of port area), it is very important to state which party to pay for the port destination charges (unloading charges,warehouse charges,etc) in order to avoid dispute. From my experience, it is best to use DAP Manila term.

  • patience October 14, 2012, 9:47 am

    When using CIP up to named place within the buyer’s country probably site where goods are required (not Port), Who should pay for the freight company/clearing agent (after the buyer has issued all tax clearance/duty free certificates to the seller )that does the clearance formalities. Is it the buyer or the supplier ?

  • Vincent January 17, 2013, 12:50 am

    Dear Sir,

    I would like to know for CIP term, base on the term explanation, it has indicate that upon the first carrier pick up the goods, the risks shall pass to the buyer. Thus my question will be, before it reach the buyer port, who is the ownership of the goods? Is it the seller or the buyer?

  • Alok January 28, 2013, 6:11 am

    Dear SwizStick
    We are facing some dispute regarding liability of payment of Port Congestion Surcharge levied by shipping lines at destination in case of CIF or CIP deliveries. Shipping lines are fixed by seller and we as a buyer are forced to pay these charges at the time of taking delivery order. INCOTERM is silent on the issue.

    Thanks

  • Hacer una Pagina February 21, 2013, 11:20 am

    Amazing issues here. I am very happy to see your post.
    Thank you a lot and I am taking a look forward to touch you.
    Will you kindly drop me a mail?

  • PMS April 16, 2013, 3:43 am

    Dear all,

    Incoterms do not deal with transfer of ownership of the goods but ti rule duties and rights of the parties regarding transports, risks and insurance matters. That issue is to be checked in accordance with the legislation applicable in the relevant country. e.g. in accordance with Spanish law ownership of the goods shall pass upon putting the goods at the disposal of the buyer (“delivery”).

    great posts.
    Thanks you all
    P.

  • 3plwire April 16, 2013, 10:55 pm

    PMS…great point. It essential to remember that Incoterms do not deal with the transfer of ownership of the goods, or the consequences of breach of contract. Local laws do definitely come into play as well as the terms of the contract between the two parties.

  • Preet November 7, 2013, 11:32 pm

    HI
    thanks to confirm if CIP is the Air shipmant equivalent of CIF i.e it covers Cost ,Insurance and freight

    rgds

  • Catherine Goh May 28, 2014, 1:49 am

    CIP is it use on Airfreight or Seafreight.

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