Incoterms: CIP – Carriage and Insurance Paid To
August 4, 2006 by SwizStick
Filed under Education, Incoterms 2000
CIP
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 2000″. For a complete and official overview please refer to the ICC’s publication.
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Edwin Chow on Fri, 3rd Aug 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 on Wed, 8th Aug 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 on Mon, 18th May 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 on Wed, 3rd Jun 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 on Tue, 7th Jul 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 on Fri, 31st Jul 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 on Thu, 14th Jan 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)