Incoterms are a globally recognized set of rules published by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in international trade. Carriage and Insurance Paid To (CIP) is one of the eleven terms within the Incoterms 2020 framework. CIP is designed for transactions involving multiple modes of transport, clearly dictating the division of responsibilities, costs, and risk transfer points between the parties involved.
Defining Carriage and Insurance Paid To (CIP)
The term Carriage and Insurance Paid To (CIP) outlines a transaction where the seller arranges and pays for the freight and insurance necessary to bring the goods to a specified destination. CIP is a multimodal rule, meaning it can be used regardless of the transport mode, such as air freight, rail, road, or sea. The seller’s obligation to deliver the goods is fulfilled when they are handed over to the first carrier contracted by the seller. This handover to the initial transporter is the moment of delivery under CIP rules.
Allocating Costs Between Buyer and Seller
Under CIP, the seller bears a significant portion of the financial burden associated with moving the goods internationally. The seller is responsible for preparing the goods for export, including packaging and marking. Financial obligations also cover pre-carriage within the origin country, export customs clearance, and all freight charges for the main carriage to the named destination. The seller must also pay for the mandatory insurance coverage that protects the goods during their transit.
The buyer’s financial obligations begin once the goods arrive at the destination country. The buyer is responsible for all costs that arise after the goods are made available at the named place. These expenses include unloading at the destination terminal, subsequent onward carriage to the buyer’s facility, and all import formalities. The buyer must pay for all import duties, taxes, and fees associated with the import customs clearance process.
Understanding the Point of Risk Transfer
The mechanism for transferring risk under CIP is distinct from the allocation of costs, creating a separation between financial liability and physical risk. The seller pays for the carriage to the named destination, but the buyer assumes all risk of loss or damage to the goods at a much earlier point. Risk transfers from the seller to the buyer the moment the goods are delivered to the first carrier engaged by the seller at the origin location. This means the buyer bears the risk for the duration of the international journey, even though the seller is paying the freight bill.
This early transfer of risk is a defining characteristic of CIP. If the cargo is damaged or lost during the main transport phase, the buyer has incurred the loss. Consequently, the buyer must pursue the claim against the contracted insurance policy that the seller was required to procure. The seller completes their delivery obligation once the goods are in the care of the initial carrier, regardless of subsequent events.
A practical example illustrates this separation: if a container is dropped at a transit port halfway through its journey, the buyer is responsible for the damage. The buyer must engage with the insurance provider to seek compensation for the loss, even though the seller contracted and paid for the entire freight service to the destination.
Mandatory Insurance Requirements Under CIP
A defining feature of CIP is the mandatory requirement for the seller to obtain a high level of cargo insurance for the benefit of the buyer. The Incoterms 2020 rules specify that the seller must procure coverage compliant with Institute Cargo Clauses (A), or an equivalent set of clauses. This is the highest level of coverage available, often referred to as “all risks” insurance, subject only to specified exclusions such as war, strikes, riots, or inherent vice of the goods. This comprehensive coverage ensures the buyer is protected against most common risks once the risk has transferred.
The insurance policy must allow the buyer, or any other party with an insurable interest, to make a direct claim against the insurer. Coverage must extend to at least 110% of the contract value of the goods, accounting for the cost of the goods plus a reasonable profit margin or other expenses.
Seller and Buyer Obligations
CIP imposes administrative and documentation duties on both the seller and the buyer. The seller is responsible for obtaining, at their own risk and expense, any export license or official authorization required for the lawful export of the goods. The seller must provide the buyer with the commercial invoice and any other documentation stipulated in the sales contract, such as a packing list or certificate of origin. Providing the transport document, like a Bill of Lading or an Air Waybill, that proves delivery to the carrier is also the seller’s duty.
Seller’s Responsibilities
The seller must ensure that the goods are properly checked, counted, and packaged for the anticipated transport to the named destination. The seller must arrange for and pay the costs of any necessary pre-shipment inspection mandated by the exporting country. The seller is also obligated to comply with any security-related requirements for transport up to the named destination.
Buyer’s Responsibilities
The buyer’s primary obligations revolve around the entry of the goods into the destination country. This includes obtaining, at their own risk and expense, any import license or official authorization required for importation. The buyer is responsible for completing all customs formalities necessary for transit and import into the final destination. The buyer must also provide the seller with all necessary information relating to security requirements for the transport of the goods.
CIP Compared to Other Common Incoterms
Comparing CIP to other common Incoterms helps clarify its specific utility in international trade. The term Carriage Paid To (CPT) is very similar to CIP, as the seller in CPT also pays for the carriage to the named destination and the risk transfers at the first carrier. The only substantive difference is that CIP explicitly mandates the seller to provide the high level of Institute Cargo Clauses (A) insurance coverage for the buyer’s benefit, whereas CPT does not require the seller to procure insurance at all.
CIP is often confused with Cost, Insurance, and Freight (CIF), but two significant differences exist. CIF is strictly limited to sea and inland waterway transport, while CIP is applicable to any mode of transport, making it far more flexible for modern multimodal logistics chains. Additionally, CIF only requires the seller to obtain the minimum level of insurance coverage, Institute Cargo Clauses (C), which covers only limited risks.
Comparing CIP with Delivered at Place (DAP) highlights the fundamental difference in risk transfer philosophy. Under DAP, both the cost and the risk transfer from the seller to the buyer at the same moment: when the goods are placed at the buyer’s disposal at the named destination. In contrast, CIP separates these two events, with the seller paying the cost to the destination while the risk transfers much earlier at the initial point of delivery to the carrier.