CIP Incoterms: Meaning, responsibilities and advantages

As one of the 11 Incoterms defined by the International Chamber of Commerce (ICC), CIP Incoterms rule places the supplier at the forefront of the logistics process – the supplier (exporter) must deliver goods to the agreed destination within the buyer's (importer) country.

CIP Incoterms agreement may seem similar to CPT (Carriage Paid To) as both require the supplier to cover key transportation costs. However, CIP has an additional requirement: the exporter must obtain insurance, adding an extra layer of protection for the importer against potential losses during transit.

In this guide, you’ll learn:

• Meaning of CIP Incoterms
• Buyer’s and supplier’s responsibilities
• An example of CIP Incoterms
• Advantages and disadvantages
• Frequently asked questions about CIP

What are CIP Incoterms?

CIP Incoterms (Carriage and Insurance Paid To) rule is one of the 11 Incoterms defined by the International Chamber of Commerce (ICC). Under CIP, the supplier's obligation is fulfilled by delivering the goods to the carrier, paying for transportation to the named place of destination, and providing insurance coverage during transit.

Once the supplier delivers the items to the primary transport, any potential risk shifts to the buyer. From that point on, the buyer handles any additional expenses for the rest of the journey to the final destination.

Key features of CIP Incoterms explained:

• Named place: The delivery destination under CPT can be any agreed-upon location, such as a specific address, port, terminal, or another designated place within the buyer's country.
• Modes of transport: Carriage and Insurance Paid To Incoterms rule can be applied to all modes of transport (sea, air, rail, or road), including multimodal.
• Insurance coverage: Required. Incoterms 2020 increased the insurance requirement for CIP. The supplier must provide protection that complies with the ICC’s Institute Cargo Clauses (A), covering more potential risks, such as breakage and theft. 

💡 The International Chamber of Commerce revises the Incoterms rules every ten years. The most recent editions are Incoterms 2010 and Incoterms 2020. When you employ CIP or any other Incoterm in a contract, specify which version you're referencing to prevent confusion or misinterpretation.

Read more: What are the types and rules of Incoterms?

Supplier’s and buyer’s responsibilities under CIP Incoterms

In international trade, defining responsibilities between the supplier and buyer is crucial. The CIP Incoterms rule helps achieve this by outlining each party's obligations for carriage, risk, and costs.

Supplier’s responsibilities

• Export packaging: Ensuring proper packaging for international shipment of goods.
• Loading charges: Covering expenses for loading products onto the initial carrier at the pickup location.
• Delivery to port/place: Transporting the products to the designated carrier or party at the specified port or location per the contract.
• Export formalities: Fulfilling export duties, taxes, and customs clearance procedures.
• Origin terminal charges: Settling costs at the origin terminal, including handling charges.
• Loading onto carriage: Overseeing the loading of cargo onto the primary transportation mode.
• Main freight charges: Bearing expenses for the primary transportation to the agreed site.
• Destination terminal charges: Paying for expenses at the destination terminal, such as unloading and handling, up to the agreed delivery point.

Buyer’s responsibilities

• Delivery to the final destination: Assuming responsibility for the goods upon their arrival at the specified place, port, or terminal, and arranging further transportation to the final destination (buyer’s premises or designated place).
• Unloading at destination: Covering the costs and taking charge for unloading the items, unless otherwise agreed.
• Import formalities: Fulfilling all import requirements and associated expenses, including customs duties, taxes, and clearance in the buyer’s country.

💡 Important: While CIP Incoterms agreement stipulate that the supplier must provide insurance coverage, buyers need to understand the nuances and potential need for further protection. Depending on the specific nature of the goods and risks involved in transit, the buyer should consider acquiring supplementary insurance for added peace of mind.

An example of CIP Incoterm

Say Caffeinated Dreams, a renowned Seattle-based coffee shop chain, has forged a partnership with Volcanic Coffee Estates, a prestigious Costa Rican coffee grower, to import their specialty coffee beans using CIP Incoterms.

Supplier's responsibilities (Volcanic Coffee Estates)

Under CIP, Volcanic Coffee Estates is responsible for packaging the specialty coffee beans, arranging all necessary export documentation, and handling export customs clearance in Costa Rica. They arrange and pay for the shipment of the beans from their estates to the Port of Limon, including any local transportation costs.

Volcanic Coffee Estates also secures and pays for insurance for the coffee beans throughout the shipping process. They cover the cost of ocean freight from the Port of Limon to the Port of Seattle, as well as any terminal charges at the destination.

The risk of loss or damage shifts to Caffeinated Dreams once Volcanic Coffee Estates hands the coffee beans over to the main carrier at the Port of Limon.

Buyer's responsibilities (Caffeinated Dreams)

Upon the coffee beans' arrival at the Port of Seattle, Caffeinated Dreams assumes control. They manage and finance import customs clearance, duties, and taxes related to the imported beans. Additionally, Caffeinated Dreams arranges and pays for the inland transportation from the Port of Seattle to their roastery facility.

Caffeinated Dreams is also responsible for unloading the coffee beans at their roastery and performing quality inspections to ensure the beans meet their high standards.

Learn more: Using a Letter of Credit in international imports and exports

Advantages and disadvantages of CIP Incoterms

Like any Incoterms, CIP rule has its pros and cons. Understanding these can help businesses decide if the CIP Incoterms rule is the right choice for their transactions.

Advantages

• Supplier handles main transportation: The supplier takes care of the major transportation leg, which can be beneficial for buyers unfamiliar with international shipping procedures.
• Insurance coverage: The supplier provides insurance coverage, offering the buyer protection against loss or damage during transit to the named destination point.

Disadvantages

• Expense burden: Since suppliers must bear the cost of insurance and carriage, they might need to factor in these additional costs when pricing their goods, which can impact pricing strategies.
• Risk transfer at delivery to the carrier: Any potential risk transfers once the exporter delivers the products to the main carrier, which might be before the goods leave their country. If the items are damaged after this point but before reaching the destination, the buyer must rely on the insurance arranged by the supplier.

💡It’s crucial for both parties to thoroughly assess these advantages and disadvantages in light of their particular business requirements, risk appetite, and logistical capabilities.

CIP Incoterms: Frequently Asked Questions (FAQs)

To further clarify Carriage and Insurance Paid To Incoterms, let's address some common questions.

What is included in CIP?

Under CIP, the supplier pays for freight and insurance to the named destination, including loading costs and export formalities. The buyer assumes responsibility upon delivery to the main carrier.

Who pays for unloading under CIP?

Under CIP, the buyer pays the cost of unloading at the destination, unless the supplier has agreed to cover it within the carriage contract. The buyer is also responsible for import clearance costs, duties, taxes, and any transit-related expenses not covered by the supplier.

Incoterms CIP vs. CIF

CIP and CIF (Cost, Insurance, and Freight) are both Incoterms that involve the supplier arranging and paying for shipment and insurance. However, CIP applies to any mode of transport, while CIF is strictly for sea and inland waterway transport. 

What is the difference between CIP and CPT?

Both CIP and CPT (Carriage Paid To) involve the supplier arranging and paying for the carriage of goods to the named destination. The primary distinction is that, under CIP, the supplier is also responsible for obtaining and paying for insurance coverage during transportation. With CPT, insurance is negotiable.

When to use CIP Incoterms

CIP Incoterms can be a strategic choice for international transactions where the supplier has the expertise and resources to handle the intricate logistics and risk management aspects of transportation.

However, businesses must carefully evaluate factors such as the mode of transportation, transit clearance requirements, and the potential need for intermediate stops before adopting Carriage and Insurance Paid To Incoterms. 

A unique advantage of CIP Incoterms rule lies in the insurance coverage secured by the supplier. This added layer of protection can be particularly valuable for high-value or sensitive goods, ensuring peace of mind throughout the supply chain journey.

Learn more about other Incoterms:

• EXW (Ex Works)
• FCA (Free Carrier)
• FAS (Free Alongside Ship)
• FOB (Free On Board)
• CFR (Cost and Freight)
• CIF (Cost, Insurance, and Freight)
• CPT (Carriage Paid To)
• DAP (Delivered at Place)
• DPU (Delivered at Place Unloaded)
• DDP (Delivered Duty Paid)

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