Definition and Overview
Carriage and Insurance Paid to (CIP) is an International Commercial Term (Incoterm) used in international trade. Under CIP, the seller is responsible for arranging and paying for the transport of goods to the agreed-upon destination, as well as obtaining and paying for insurance coverage against the buyer’s risk of loss or damage during transit. The term highlights that the seller’s obligations include both freight costs and insurance premiums until the goods are delivered to a carrier or another nominated person at the destination.
Key Responsibilities
Seller’s Obligations
- Transport and Freight Costs: The seller must arrange and pay for transportation to deliver the goods to the agreed destination.
- Insurance Coverage: The seller must obtain insurance for the goods during the transit to cover the buyer’s risk of loss or damage.
- Export Customs Clearance: The seller handles all export customs formalities.
Buyer’s Obligations
- Import Customs Clearance: The buyer is responsible for import customs and duties upon the goods’ arrival.
- Risk Transfer: The risk of loss or damage transfers from the seller to the buyer once the seller hands over the goods to the first carrier.
Example of CIP in Practice
Imagine an electronics manufacturer in Germany selling products to a retailer in Japan under a CIP contract. The German seller would:
- Secure transportation for the goods from Germany to Japan.
- Pay the freight costs to ship the goods.
- Obtain insurance to cover any risks during the shipment.
- Deliver the goods to the carrier.
However, once the products are handed to the carrier, the risk transfers to the buyer in Japan, who would then handle customs clearance and pay any import duties required at the destination port in Japan.
Historical Context
The concept of Incoterms, including CIP, was first introduced by the International Chamber of Commerce (ICC) in 1936 to standardize international trade terms and reduce misunderstandings in cross-border transactions. The rules have been updated periodically, most recently in 2020, to reflect changes in global trade practices.
Applicability in International Trade
The CIP term is particularly useful for transactions involving air or sea freight where the seller has the means to cover insurance but the exact risks during transit are better managed by the seller up to a certain destination point. This provides clarity and security for both parties involved.
Comparison with Related Terms
- CIF (Cost, Insurance, and Freight): Similar to CIP, but used primarily for sea and inland waterway transport. The seller’s responsibility ends when the goods pass the ship’s rail.
- DAP (Delivered at Place): The seller delivers when the goods are placed at the disposal of the buyer at the named destination but does not cover insurance.
FAQs
Q: Does CIP cover insurance up to the buyer’s warehouse? A: No, CIP covers insurance only up to the agreed destination, not the final warehouse unless explicitly stated in the contract.
Q: Who is responsible for export documentation in CIP? A: The seller is responsible for all export documentation and customs clearance.
Q: Can CIP be used for any mode of transport? A: Yes, CIP can be used for any mode of transport including multimodal transport.
Summary
Carriage and Insurance Paid to (CIP) is a versatile Incoterm facilitating international trade by clarifying the seller and buyer’s logistics and insurance obligations. Its clear definition of responsibilities helps mitigate risk and ensures smooth transactions across borders. Understanding CIP and its practical applications can greatly enhance a business’s ability to navigate the complexities of global commerce.
References
- International Chamber of Commerce (ICC)
- Incoterms® 2020 by International Chamber of Commerce
