GLOBAL SELLING BLOG

What is Carriage Insurance Paid (CIP) in incoterms?

CIP is when a seller (exporter) pays freight and insurance costs to deliver goods to the first carrier at the point of shipping. Learn more about its meaning and uses in this blog.

One of the key elements of an export logistics process is insurance and freight. When these two are handled and paid by the exporter till the goods are transferred to the first carrier – it is called Carriage and Insurance Paid (CIP). CIP is one of the 11 international commerce terms (incoterms), established by the International Chamber of Commerce (ICC) in 1936.

In simple words, CIP incoterms means 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).

What is Carriage and Insurance Paid (CIP)?

As mentioned earlier, Carriage and Insurance Paid (CIP) applies to any form of transportation, including ocean freight and air freight. A railway or even a truck can be considered in this case. The seller organizes transportation for the main carriage, which is usually through a carrier. This is where the exporter also needs to secure necessary export permissions and documentation. The risk transfers from the exporter to the importer as soon as the goods are loaded on the carrier contracted by the exporter. The exporter bears the risk throughout the major transit stage as it travels towards the agreed-upon destination.

The seller, on the other hand, is liable for the cost of carriage in addition to risk insurance coverage until the freight arrives at the specified location within the scheduled delivery time. The importer has the option of acquiring additional insurance for the goods while they are being transported. Any person or business that transports goods (airline, shipping line, railway, trucking service or freight forwarder) is considered a carrier¹.

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 like railway, road, inland waterways, sea, air or multimodal transport that incorporates a combination of these².

What does a Carriage and Insurance Paid (CIP) incoterm cover?

CIP usually covers the cost of shipping products in a commercial agreement. It requires the exporter to pay for both shipping and insurance charges when transporting goods to an importer buyer. The risk of damage or loss shifts to the importer once the goods are delivered to the designated point.

Additional coverage under CIP

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.

Exporter’s obligations under a CIP incoterm

Below are some of the obligations for an exporter³:
• Delivering goods securely on time and at the agreed-upon location, along with business invoices and delivery paperwork
• Packaging and labelling for export
• Export permits and customs procedures
• Pre-carriage and delivery charges
• Charges for loading
• Delivery charges at the specified location
• Pre-shipment inspection costs
• Insurance that covers all risks
• Notifying the importer that goods have been delivered

Importer’s obligations under a CIP incoterm

Below are some of the obligations for an importer:
• Import procedures and tariffs payment for goods as agreed in the contract
• Import clearance and pre-shipment inspection fees
• Goods transportation
• Taxes and tariffs must be paid
• Obtaining import and transit documentation
• Assisting the exporter in acquiring any documentation required for export formalities
• Notifying the exporter of the delivery location and date

Like incoterms, they are many compliance-related documents and licenses you will be required to understand and obtain to export from India. With e-commerce exports, this process has become easy.

Easy e-commerce exports with Amazon Global Selling

Amazon Global Selling, an e-commerce exports program, helps Indian exporters reach customers and expand their businesses by selling on 18+ international marketplaces across America, Europe, the Middle East and Asia-Pacific. From compliance and export documents to inventory management and shipping, Amazon supports you at every stage of your export journey.

More blogs on incoterms

1. What is Delivered at Terminal (DAT) incoterm?

2. What is a Cost and Freight (CFR) incoterm?

3. All you need to know about Free Alongside Ship (FAS) incoterm 2020

4. Guide to FCL shipping: Everything exporters need to know

5. What are incoterms in exports: Here’s everything you need to know

6. What is Freight on Board: How does it work in shipping?

7. What is a Container Freight Station (CFS) and its role in shipping?

8. What is Cost, Insurance and Freight (CIF) in shipping?

9. What is a Free Carrier (FCA) incoterm?

10. What is EX Works (EXW) incoterm in international trade?

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 marine freight. 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.

What kind of transport is eligible for CIP?

Any recognized mode of transportation including rail, road, inland canal, sea, air and any combination these are eligible.

How much insurance does CIP require?

The exporter is required to have insurance for 110% of the contract value. If the importer wants extra insurance, they can arrange and pay for it⁴.

Published on November 29, 2022.

Sources:
1. https://www.investopedia.com/terms/c/carriage-and-insurance-paid-cip.asp
2. https://www.aitworldwide.com/incoterms-cip
3. https://thebusinessprofessor.com/mgmt-operations/carriage-and-insurance-paid-shipping-defined
4. https://www.tradefinanceglobal.com/freight-forwarding/incoterms/cip-carriage-insurance-paid-to/
5. https://www.dripcapital.com/en-in/resources/blog/cip-incoterms-carriage-insurance-paid

What is an Importer of Record (IOR)?

What is customs value in exports?