The CIP (Carriage and Insurance Paid To) delivery term is an Incoterms rule under which the seller undertakes to arrange carriage of the goods to the named destination and to take out insurance. The seller covers the transport and insurance costs. The risk, however, passes to the buyer the moment the goods are handed over to the first carrier. The seller manages the freight and insurance side, while the buyer assumes the risk of damage during carriage at an early stage. CIP can be used in road, air, sea, rail and multimodal transportation. It differs from CPT in that it carries a mandatory insurance obligation.
What Are the Usage Areas of the CIP Delivery Term?
The CIP delivery term has a flexible structure that works with different modes of transport. In export and import transactions it is frequently considered for shipments in which the goods travel on more than one means of transport. It can be used in road transport, air cargo, rail, container shipping and combined logistics operations. The seller taking on the transport and insurance organization makes operational tracking easier for the buyer. Nevertheless, it should not be forgotten that the risk passes to the buyer upon handover to the first carrier. The CIP rule can be preferred when the seller has a strong logistics network and the buyer wants insurance coverage during the carriage. For valuable, sensitive or long-distance goods, the insurance side becomes even more important.
How Does the CIP Delivery Term Work?
The CIP delivery process begins with the sales contract. The parties define the product price, destination, place of delivery, mode of transport, insurance coverage and document arrangements. The seller prepares and packages the goods, completes export customs clearance, contracts with the carrier and pays the carriage costs up to the named destination. The risk passes to the buyer when the goods are handed over to the first carrier. The seller nevertheless continues to cover the carriage costs and the insurance premium up to the destination. This is precisely the most commonly confused point of CIP: costs and risk do not change hands at the same point. The seller remains responsible on the cost side for longer, while the buyer assumes the transport risk at an early stage.
In this respect, CIP is like a mirror image of the FCA delivery term, where the risk also transfers upon handover to the first carrier but the transport organization lies with the buyer: under FCA the buyer manages the freight and the insurance decision, whereas under CIP this burden rests on the seller.
Responsibilities of the Parties Under CIP
Under the CIP rule, the seller's area of responsibility is broad; the seller sets up the transport and insurance organization. The buyer, aware of the early transfer of risk, manages shipment tracking and the import side. The obligations of both parties are covered separately below.
What Are the Seller's Responsibilities Under the CIP Delivery Term?
Under the CIP delivery term, the seller makes the goods ready for carriage and sets up the main logistics organization, including insurance. The seller's responsibilities are extensive, yet the transfer of risk takes place at the moment of handover to the first carrier.
- Prepares the product in accordance with the sales contract.
- Provides packaging suitable for carriage.
- Completes export customs formalities.
- Issues the necessary export documents.
- Concludes the carriage contract with the carrier.
- Pays the freight up to the named destination.
- Takes out cargo insurance for the benefit of the buyer.
- Provides the buyer with the insurance policy or certificate details.
- Hands the goods over to the first carrier on time.
- Shares the invoice, packing list and transport documents.
The most important issue for the seller is arranging the insurance coverage in line with the contract. Missing documents, an incorrect place of delivery or wrong carrier details can complicate the shipment process.
What Are the Buyer's Responsibilities Under the CIP Delivery Term?
Under CIP delivery, the buyer assumes the transport risk from the moment the goods pass to the first carrier. The seller takes out the insurance, but the buyer must carry out document checks carefully when tracking damage and loss.
- Pays the sales price in accordance with the contract.
- Is aware that the risk transfers at the first carrier point.
- Tracks the shipment information.
- Handles import customs formalities.
- Pays the taxes and duties in the destination country.
- Obtains the necessary import permits.
- Covers unloading costs in accordance with the contract.
- Checks the insurance documents in case of damage.
- Takes delivery of the goods on time at the delivery point.
- Manages the reporting process for missing or damaged deliveries.
The buyer should review the insurance coverage before the shipment begins. The policy being consistent with the product value, the transport route and the potential risks is important for a secure transaction.
Advantages and Disadvantages of the CIP Delivery Term
Advantages of the CIP Delivery Term
The most important advantage of the CIP delivery term is that the transport and insurance arrangements are set up by the seller. The buyer does not have to conclude a separate freight agreement for the goods to be carried to the named destination. The seller chooses the carrier, organizes the transport plan and initiates the insurance process. Since CIP can be used comfortably in multimodal transport, it adapts to different logistics operations. It can also be considered for processes requiring fast delivery, such as road and air transport. For the buyer, having insurance coverage included in the contract creates significant peace of mind. For the seller, it provides the ability to control the transport plan. With a clear destination and an orderly document flow, the foreign trade process becomes more predictable.
Disadvantages of the CIP Delivery Term
The aspect of the CIP delivery term that requires the most attention is the early transfer of risk. The buyer assumes the transport risk the moment the goods are handed over to the first carrier. The seller continues to pay the carriage and insurance costs, but if the goods are damaged en route, the risk is assessed on the buyer's side. Another disadvantage is the possibility that the insurance coverage may not fully meet expectations. Even if the policy taken out by the seller is comprehensive, the parties may have wanted a different level of insurance. If the product is sensitive, high-value or requires special handling, the buyer may request additional coverage. Disputes can arise when the place of delivery, the destination, unloading costs and the insurance limit are not written clearly in the contract.
CIP Costs and Price Calculation
How Are Costs Calculated Under the CIP Delivery Term?
When calculating CIP costs, pre-carriage expenses, export formalities, freight and the insurance premium are added to the ex-works price of the product. The general structure can be thought of as follows:
CIP Cost = Product Price + Packaging Costs + Inland Transport + Export Customs Clearance + Main Freight + Insurance Premium + Document and Handling Costs
As an example, suppose the product price is 10,000 dollars. If packaging and inland transport cost 400 dollars, export formalities 250 dollars, main freight 1,100 dollars and the insurance premium 150 dollars, the total cost approaches 11,900 dollars. The figures vary depending on the type of product, the transport route, the distance, the insurance coverage and the carrier's charges. When making the calculation, it must be clearly stated which costs will be covered by the seller up to the destination.
How Is the CIP Price Calculated?
In CIP price calculation, the price of the goods alone is not sufficient. The seller also includes in the price the cost of preparing the product and having it carried to the named destination. The insurance premium is also an important part of the price. When preparing the price, the weight and volume of the product, the type of packaging, the mode of transport, the route, the delivery time and the insured value are taken into account. The exporting business should itemize its cost components separately. The production or purchase cost of the product, packaging, warehouse dispatch, inland transport, customs clearance, freight, insurance and document costs are added to the total price. The buyer, in turn, should plan separately for import customs, taxes in the destination country and unloading costs. A sound price calculation reduces the likelihood of the parties facing surprise costs.
Insurance Under the CIP Delivery Term
Who Takes Out the Insurance Under the CIP Delivery Term?
Under CIP, the insurance is taken out by the seller. The seller arranges cargo insurance for the benefit of the buyer and shares the policy details together with the shipping documents. Since the risk passes to the buyer upon handover to the first carrier, the insurance serves as security for the buyer. The scope of the policy, the product value, the route and the mode of transport must be clarified in the contract. If the buyer wants broader coverage, this should be stated at the sales stage. On this point CIP also differs from the sea-specific CIF delivery term: with Incoterms 2020, CIP requires comprehensive coverage (at ICC A level), whereas minimum coverage (ICC C) is considered sufficient under CIF.
How Is the Insurance Limit Determined Under CIP Delivery?
Under CIP delivery, the insurance limit is generally set above the contract value. In practice, issuing the policy at 110 percent of the value of the goods is a commonly used approach. The currency of the coverage should be consistent with the sales contract. If the product is high-value, fragile or requires special handling, additional coverage may be requested. When the insurance limit is clarified in writing between the parties, the claims process is managed more smoothly.
