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What is Carriage Insurance Paid (CIP) in incoterms?
CIP incoterms are used when an exporter pays freight and insurance costs to deliver goods at the point of shipping. Learn more about their meaning and uses in this blog.
In the vast landscape of global trade, exporters and importers are required to navigate multiple sets of regulations and ensure compliance with several national and international laws. To simplify matters, the International Chamber of Commerce (ICC) developed a standardized set of 11 rules or terms known as incoterms. These guidelines clarify the responsibilities of buyers and sellers in international transactions, making the process smoother and more efficient for all parties involved.1 Among these, the CIP (carriage and insurance paid to) term specifies that the seller (exporter) must cover freight and insurance expenses to deliver goods to a designated carrier at an agreed-upon location.2 Learn more about the meaning and uses of CIP in this blog post.
What is Carriage and Insurance Paid (CIP)?
CIP is one of the 11 international commerce terms (incoterms) established by the International Chamber of Commerce (ICC).3 CIP signifies that the seller (exporter) accepts all risks until the goods are transferred to the first carrier at the point of shipping rather than at the point of delivery. The buyer (importer) assumes all risks after this step (goods delivered to the first carrier).4
How does a CIP incoterm work in export trade?
Under a CIP incoterm, the exporter is liable for freight and insurance coverage and costs to ship the goods from point A to point B, from where the first carrier takes over to load and ship the goods. This could be charged for any approved form of transportation, such as railway, road, inland waterways, sea, air, or multimodal transport that incorporates a combination of these.5
What does a carriage and insurance paid to (CIP) incoterm cover?
Under CIP, the exporter has to provide all-risk insurance coverage to goods during transit. If the importer desires additional insurance, they must arrange for it on their own.6
Additional coverage under carriage and insurance paid to (CIP) incoterm
Since the exporter is only required to obtain minimum insurance coverage to transfer goods to its initial destination, the importer can consider arranging for additional coverage that protects the consignment from all risks. The importer can also ask the exporter for extra insurance coverage and negotiate with the exporter to bear part or all of the costs associated with the additional insurance.7
Exporter’s obligations under a CIP incoterm
Below are some of the obligations for an exporter:
● Providing the goods, commercial invoice, and necessary documentation.
● Ensuring proper export packaging and marking.
● Obtaining export licenses and handling customs formalities.
● Arranging pre-carriage and delivery to the agreed-upon location.
● Covering loading charges and the cost of delivery at the named place of destination.
● Providing proof of delivery and covering the expenses of any required pre-shipment inspection.
● Securing all-risk insurance coverage for the goods during transit.8
● Providing the goods, commercial invoice, and necessary documentation.
● Ensuring proper export packaging and marking.
● Obtaining export licenses and handling customs formalities.
● Arranging pre-carriage and delivery to the agreed-upon location.
● Covering loading charges and the cost of delivery at the named place of destination.
● Providing proof of delivery and covering the expenses of any required pre-shipment inspection.
● Securing all-risk insurance coverage for the goods during transit.8
Importer’s obligations under a CIP incoterm
Below are some of the obligations for an importer:
● Adhering to payment terms as specified in the sales contract.
● Managing import formalities and paying any associated duties.
● Covering the cost of import clearance and any required pre-shipment inspection.9
It is important for exporters to understand and familiarize themselves with international trade rules like the CIP incoterm. This knowledge is even more crucial for e-commerce exporters, as they often deal with complex supply chains and varied shipping arrangements. By grasping incoterms, e-commerce exporters can navigate logistical challenges effectively and maintain competitive advantages in the global market. For additional support on key aspects of e-commerce exports, Indian exporters can leverage the tools and services offered by e-commerce export programs like Amazon Global Selling.
● Adhering to payment terms as specified in the sales contract.
● Managing import formalities and paying any associated duties.
● Covering the cost of import clearance and any required pre-shipment inspection.9
It is important for exporters to understand and familiarize themselves with international trade rules like the CIP incoterm. This knowledge is even more crucial for e-commerce exporters, as they often deal with complex supply chains and varied shipping arrangements. By grasping incoterms, e-commerce exporters can navigate logistical challenges effectively and maintain competitive advantages in the global market. For additional support on key aspects of e-commerce exports, Indian exporters can leverage the tools and services offered by e-commerce export programs like Amazon Global Selling.
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More blogs on incoterms
Frequently Asked Questions
What is the difference between CIP and CIF?
CIP is commonly used for all modes of transportation, whereas CIF is exclusively used for overseas or inland waterway transport. This also implies that responsibility for CIF transfers is at the origin port, whereas responsibility for CIP incoterms transfers is at any agreed-upon site in the origin nation.10
What kind of transport is eligible for CIP?
Any recognized mode of transportation, including rail, road, inland canal, sea, air, and any combination of these, is eligible.11
How much insurance does CIP require?
The exporter is required to provide all-risk insurance coverage for goods during transit. The amount of insurance must be at least 110% of the invoice value. If the importer wants extra insurance, they can arrange and pay for it.12
Published on November 29, 2022.
Sources:
1. https://www.trade.gov/know-your-incoterms
2. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp#
3. https://iccwbo.org/business-solutions/incoterms-rules/
4. https://www.aitworldwide.com/resources/incoterms/incoterms-cip-carriage-and-insurance-paid-to/
5. https://www.aitworldwide.com/resources/incoterms/incoterms-cip-carriage-and-insurance-paid-to/
6. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp#
7. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp#
8. https://www.aitworldwide.com/resources/incoterms/incoterms-cip-carriage-and-insurance-paid-to/
9. https://www.aitworldwide.com/resources/incoterms/incoterms-cip-carriage-and-insurance-paid-to/
10. https://www.icontainers.com/help/cif-vs-cip-explained/#
11. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp#
12. https://www.tradefinanceglobal.com/incoterms/cip-carriage-insurance-paid-to/
Sources:
1. https://www.trade.gov/know-your-incoterms
2. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp#
3. https://iccwbo.org/business-solutions/incoterms-rules/
4. https://www.aitworldwide.com/resources/incoterms/incoterms-cip-carriage-and-insurance-paid-to/
5. https://www.aitworldwide.com/resources/incoterms/incoterms-cip-carriage-and-insurance-paid-to/
6. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp#
7. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp#
8. https://www.aitworldwide.com/resources/incoterms/incoterms-cip-carriage-and-insurance-paid-to/
9. https://www.aitworldwide.com/resources/incoterms/incoterms-cip-carriage-and-insurance-paid-to/
10. https://www.icontainers.com/help/cif-vs-cip-explained/#
11. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp#
12. https://www.tradefinanceglobal.com/incoterms/cip-carriage-insurance-paid-to/
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