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What is CIP? Carriage and Insurance Paid To Incoterms 2020 explanation

What is CIP incoterms 2020

What is CIP? – CIP incoterms 2020 (Carriage and Insurance Paid To) is the latest version of CIP ICC’s Incoterms. Carriage and Insurance Paid To is belong to group C (Main Carriage Paid), the seller concludes a transport contract with the forwarder and takes the costs. In this case, the seller is responsible for conducting export clearance. The risk is transferred at the time of posting the goods to the buyer. All matters arising after loading costs related to transporting and other events are the buyer’s responsibility. Group C includes the following Incoterms rules: CFR, CIF, CPT, and CIP.

What is CIP – Carriage and Insurance Paid To?

Carriage and Insurance Paid To means that the seller delivers the goods – and transfers the risk – to the buyer:

  • By handing them over to the carrier;
  • Contracted by the seller;
  • Or by procuring the goods so delivered.
  • The seller may do so by giving the carrier physical possession of the goods in the manner and at the place appropriate to the means of transport used.

Once the goods have been delivered to the buyer in this way, the seller does not guarantee that the goods will reach the place of destination in sound condition, in the stated quantity or indeed at all. This is because risk transfers from seller to buyer when the goods are delivered to the buyer by handing them over to the carrier; the seller must nonetheless contract for the carriage of the goods from delivery to the agreed destination. Thus, for example, goods are handed over to a carrier in Las Vegas (which is not a port) for carriage to Southampton (a port) or to Winchester (which is not a port). In either case, delivery transferring risk to the buyer happens in Las Vegas, and the seller must make a contract of carriage to either Southampton or Winchester.

This rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport in employed.

In Incoterms 2020 CIP two locations are important: the place or point at which the goods are delivered (for the transfer of risk) and the place or point agreed as the destination of the goods (as the point to which the seller promises to contract for carriage).

The seller must also contract for insurance cover against the buyer’s risk of loss of or damage to the goods from the point of delivery to at least the point of destination. This may cause difficulty where the destination country requires insurance cover to be purchased locally: in this case the parties should consider selling and buying under CPT Incoterms 2020 rule the seller is required to obtain extensive insurance cover complying with Institute Cargo Clauses or similar clause, rather than with the more limited cover under Institute Cargo Clauses. It is, however, still open to the parties to agree on a lower level of cover.

The parties are well advised to identify both places, or indeed point within those places, as precisely as possible in the contract of sale. Identifying the place or point (if any) of delivery as precisely as possible is important to cater for the common situation where several carriers are engaged, each for different legs of the transit from delivery to destination. Where this happens and the parties do not agree on a specific place or point of delivery, the default position is that risk transfers when the goods have been delivered to the first carrier at a point entirely of the seller’s choosing and over which the buyer has no control. Should the parties wish the risk to transfer at a later stage (e.g. at a sea or river port or at an airport), or indeed an earlier one (e.g. an inland point some way away from a sea or river port), they need to specify this in their contract of sale and to carefully think through the consequences of so doing in case the goods are lost or damaged.

The parties are also well advised to identify as precisely as possible in the contract of sale the point within the agreed place of destination, as this is the point to which the seller must contract for carriage and insurance and this is the point to which the costs of carriage and insurance fall on the seller.

If the seller incurs costs under its contract of carriage related to unloading at the named place of destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed between the parties.

Incoterms 2020 CIP requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, or to pay any import duty or to carry out any import customs formalities.

CIP – Carriage and Insurance Paid To’s Cost and obligation

Blue: Cost/ Yellow: Risk/ Orange: Insurance

INCOTERMS 2020 CIP

Using CIP Incoterms the seller bears costs

  • Export and transit costs (outside the importing country): customs, taxes, export and transit permits, Export security clearance and the cost of obtaining all official permits;
  • The costs of control activities, such as quality control, measurement, weighing, counting, delivery of appropriately labeled packaging;
  • The costs related to the shipment and transport of goods until they are delivered to the buyer;
  • The costs of issuing and sending a commercial invoice;
  • The costs related to concluding the contract of carriage as well as packaging and labeling costs enabling the carriage of goods;
  • The costs of transport insurance and informing the buyer about the delivery and handing over of goods to the carrier;
  • Unloading costs at the destination, if stated in the contract of carriage.

The seller’s obligations

  • Seller has to carry out all the duties under the terms of delivery specified in the contract.
  • He hands over the goods to the carrier on the agreed date stated in the contract.
  • He contracts or organizes the carriage of the goods from the agreed point of delivery to the named place of destination.
  • Seller operates according to all transport-related security requirements for transport to the destination.
  • He packs and marks the goods.
  • He has to assist the buyer in obtaining any documents necessary for transit and import clearance formalities.

On the other hand, the buyer bears cost

  • The costs of import formalities: customs, taxes, import and transit permits, import security clearance and costs obtaining all official permits;
  • The costs obtaining any official authorizations;
  • The costs of obtaining documents or their equivalent electronic forms that the buyer needs when importing or transiting goods;
  • The costs related to the goods from the moment they are delivered on board the vessel;
  • Any additional costs if the buyer fails to notify the seller of the time of shipment or place of destination;
  • The costs of pre-shipment inspection of goods (expect when such inspections are required by the authorities of the exporting country);
  • The costs of unloading goods, unless the contract of carriage indicates otherwise.

Obligations of the buyers

  • Buyer takes delivery of the goods.
  • He has to carry out and pay for import clearance.
  • He obtains documents necessary for import and transit.
  • Buyer assists the seller, at his request, risk, and costs in obtaining any documents necessary for the export formalities.
  • He informs the seller about the place and date of delivery.

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