Carriage and Insurance Paid To (CIP) Explained: What Does Carriage and Insurance Paid To (CIP) Incoterm Mean?

Carriage and insurance paid to (CIP) is when a seller pays for freight and insurance to deliver goods to a party chosen by the seller at a location agreed upon by both parties. It is similar to the cost, insurance, and freight (CIF) agreement but not the same.

What Are Incoterms?

Incoterms are a set of business terms used in international trade that tell buyers and sellers what their responsibilities are. They were made by the International Chamber of Commerce (ICC) in 1936, and they have been updated several times since then to keep up with changes in how business is done around the world.

Incoterms are a standard set of rules for how products should be delivered, how risk should be transferred, and how costs should be split between buyers and sellers.

They are meant to stop misunderstandings and disagreements that can happen in international trade by making clear what each party’s duties and responsibilities are.

What Is the Meaning of Carriage and Insurance Paid To (CIP)?

“Carriage and Insurance Paid To” (CIP) is a term used in international trade to describe what the buyer and seller are responsible for when it comes to the shipping and insurance of goods.

CIP says that the seller is responsible for both getting the items to the carrier or freight forwarder that the buyer chooses and getting insurance for the items while they are being shipped. Also, the seller is responsible for all shipping costs to get the goods to the location chosen by the buyer.

The buyer becomes the owner of the goods and is responsible for any extra shipping, handling, or storage costs that come up while the goods are in the care of the carrier or freight forwarder. Also, any tariffs, taxes, and other fees that may be charged after the products arrive at their destination are the buyer’s responsibility.

When CIP is used, it means that the seller is in charge of the shipping and insurance of the products up until the point at which they are turned over to the buyer’s selected carrier or freight forwarder. 

This can help protect both parties in case of loss, damage, or other problems that might happen during shipping. For example, the buyer can be sure that the items will be adequately insured while they are being shipped.

In the end, CIP is a term used in business to mean that the seller is responsible for shipping and insuring goods until they are handed over to the buyer’s carrier or freight forwarder. At that time, the buyer takes ownership of the items and is responsible for paying any further shipping, handling, and storage fees.

What Exactly Carriage and Insurance Paid To (CIP) Covers?

CIP covers the transportation and insurance of goods during transit from the seller’s premises to the destination specified by the buyer. This includes:

Transportation

The products must be shipped to the buyer’s chosen carrier or freight forwarder, and it is the seller’s job to set this up and pay for it. Every form of transportation, including land, air, sea, and rail, may be used for transportation.

Insurance

Up until the point where the items are turned over to the buyer’s carrier or freight forwarder, the seller is responsible for securing insurance coverage for the products during transportation. The insurance coverage should protect against loss or damage to the items during transit and must at least be equal to the value of the products.

Export clearance

The seller is in charge of getting any export licenses, permits, or other paperwork needed to send the goods out of his or her country.

Loading

The loading of the products into the carrier’s or freight forwarder’s carriage is the seller’s responsibility.

Incoterms and Carriage and Insurance Paid To (CIP)

Carriage and Insurance Paid To (CIP) and Free On Board (FOB)

CIP delivery terms can be used for shipping by land, air, or sea. But the ICC’s Incoterms 2020 rules say that FOB can only be used for shipping goods by sea or inland waterway. This is because FAS is one of the Marines’ restricted modes of transport.

Under the CIP terms of delivery, the seller is responsible for getting a minimum amount of insurance to cover the movement of the goods. Under the FOB terms of delivery, however, neither the seller nor the buyer is responsible for getting insurance. Aside from the rules of Incoterms 2020, insurance under FOB can be contracted separately.

Under “Free on Board (named place),” it is the seller’s job to get the goods onto the ship that the buyer chooses. Under CIP delivery rules, the seller pays for shipping to the named place and is no longer responsible for the goods after they have been loaded on the carrier.

Under CIP, the seller pays for the main shipment, but under FOB, the buyer is responsible for both the costs and risks of the main shipment.

Under CIP terms, the contract of carriage ends when the goods reach the named destination on the buyer’s side. Under FOB, the contract of carriage ends when the goods are loaded onto the ship (on board the vessel) in the seller’s country.

Under FOB rules, the buyer is responsible for the risks and costs of moving the goods once they are on the ship. In CIP terms, the seller is responsible for the risks of moving the goods after the cargo is loaded onto the carrier, but the buyer’s country is responsible for the costs of moving the goods to the named place.

Who Should Use Carriage and Insurance Paid To (CIP)?

Carriage and Insurance Paid To (CIP) is a trade term that specifies the seller’s responsibility for delivering goods to a carrier or freight forwarder designated by the buyer and for obtaining insurance coverage on the goods during transport.

Because CIP is often used in international business transactions, it is important for both the buyer and the seller to know what their responsibilities are under the rules.

CIP is typically used by sellers who are in charge of exporting goods to customers who are situated in other countries and who want to make sure that the goods are insured throughout shipment. Manufacturers, wholesalers, and other companies that conduct business worldwide may fall into this category. The seller will use CIP to state that they are in charge of getting the items insured, paying the associated freight costs, and transporting the products to a chosen carrier or freight forwarder.

When buying from a seller in another country, CIP can also be used to say that the buyer expects the seller to take care of shipping, insurance, and freight costs.

In conclusion, CIP is a tool that buyers and sellers use in international trade to figure out who is responsible for paying the freight costs and getting insurance coverage for goods while they are in transit.

Which Incoterm is Best For Your Business?

If you want to know what your responsibilities are and avoid taking unnecessary risks, you should know the most common Incoterms used in international shipping contracts. But you can always ask Forceget for help if you’re still not sure what you need to start doing business around the world.

Forceget tells exporters and importers that because they are experts in international shipping, they should choose the Incoterm that works best for them.