CIP Incoterms 2020: costs and insurance coverage
CIP (Carriage and Insurance Paid To) is one of the 11 terms created by the ICC to standardise and ease international trade. The CIP Incoterm from 2020 can be used for all modes of transport and multimodal operations. Read more about Carriage and Insurance Paid to Incoterm definition, seller’s and buyer’s responsibilities and learn how to use CIP trade terms when shipping freight.
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CIP Incoterm definition and use for land, air and sea cargo
When using CIP delivery terms for export or import, the seller must arrange and pay for transport and insurance to a designated location agreed upon between the seller and buyer. This address is usually a port, hub, warehouse or any other place in the destination country.
Under CIP shipping terms, the seller must pay for all domestic and international freight charges until the cargo reaches the previously designated location. However, when using CIP shipping terms, the risk for the goods transfers from seller to buyer once the first carrier takes hold of them at the place of shipment and not the place of the destination.
The 2020 CIP Incoterm can be used for all modes of transport and is specially indicated for container cargo.
Seller’s vs buyer’s obligations under the CIP Incoterm
Seller’s responsibilities under CIP shipping terms
Under CIP freight terms, the seller is responsible and pays for:
- Packing the goods and reading them for inspection
- Export clearance, duties, taxes, permits and documentation at the country of origin
- Loading and terminal handling charges
- Freight transport until the designated location
- All–risk insurance coverage for the goods
Buyer’s responsibilities when using CIP freight terms
- Import formalities and duties, taxes, documentation and costs, including VAT
- Transport of the goods and last-mile deliveries from the designated location to any other place
INSURANCE
CIP Incoterms 2020: insurance and coverage
One of the main points of Carriage and Insurance Paid To Incoterms is that the seller is obligated to purchase insurance for the cargo. Usually, the CIP insurance coverage is included in the final CIP invoice. Sellers are obligated to buy only basic insurance, which is usually 110% of the commercial value of the goods and should be included in the CIP price. Since the risk of the goods transfers from the seller to the buyer the moment the goods are loaded onto the first carrier, buyers are often advised to purchase additional insurance when using CIP freight terms. This is especially important for manufactured or high-value goods, such as electronics.
SHIPPING COSTS
CIP price: Who pays for CIP shipping?
Following the CIP Incoterm definition, it would be easy to assume CIP freight terms mean freight costs covered. However, using Carriage and Insurance Paid to Incoterms only implies that the CIP price already includes the freight charges to the designated location.
For example, an Irish company sells 100k units of merchandise to a US buyer using the 2020 CIP Incoterm. The US company names its warehouse at the port of New York as the designated location.
- The Irish company books transport of the goods from their premises in Dublin to the port of destination in the US. Following CIP terms, they also purchase the minimum amount of insurance for the goods.
- Then the Irish company packs the goods for export and loads them on the trucks of the first carrier. At this moment, the goods are considered delivered and the risk transfers from the seller to the buyer.
- The goods reach the Irish port and are handed over to a sea carrier, paid for by the seller.
- Once the goods reach the port of destination in the US, the buyer gets them cleared for import in the US.
- The seller pays to unload the goods at the seller’s warehouse in NY.
- The US company arranges and pays for any transportation cost from the warehouse in New York to any other location or address.
See other Incoterms for international transport
CIP CUSTOMS CLEARANCE
CIP customs in export and import
CIP customs regulations indicate that the seller must cover all CIP export costs at the country of origin. They have to prepare the goods for inspection and cover all export duties, taxes, permits and documentation for the cargo. They are also obligated to help the buyer with import formalities by providing all the information and documents they might need. When using CIP in export, sellers are also responsible for covering terminal handling charges at the port of origin.
Buyers importing with the 2020 CIP Incoterm have to cover all import charges, customs duties and taxes at the country of destination, including VAT. Under CIP import terms, the buyer is liable for the cargo when it is loaded on the first carrier’s vehicles.
More about freight customs
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Carriage and Insurance Paid To Incoterms 2020: FAQ
Can I use CIP shipping terms for sea cargo?
CIP freight terms can be used for all types of transport, as well as intermodal operations, so you can use CIP delivery terms when shipping sea cargo in a container or bulk.
Can I use CIP for container shipping?
Yes, traders are advised to use CIP for containers, especially when shipping bulk goods. When shipping goods just by sea or container, traders can use FCA or CIP shipping terms, as advised by the ICC. Many wholesalers with large shipping volumes may offer CIP shipping terms for containerised cargo. However, it is essential to factor in destination terminal costs when drafting a CIP invoice, for any costs generated after the goods have reached the designated location must be covered by the buyer. This way, if the buyer does not have access to the containers at the named location, they will have to pay any access or handling charges.
Is the CIP insurance coverage mandatory for the buyer?
No, under CIP shipping terms, only the seller must purchase insurance for the goods. However, this insurance can be insufficient for some kinds of goods, so even if using CIP freight terms does not obligate adding insurance, it is always a good idea. When drafting the trade contract, sellers and buyers can agree on the insurance terms.
Which Incoterm is better: CIP or CPT?
The main difference between CIP and CPT (Carriage Paid To) terms is that the first one includes all-risk insurance coverage until the goods are delivered to the place of destination. When shipping under the CPT Incoterm, the seller is not obligated to buy insurance: all risks are covered by the buyer.