What Is Carriage and Insurance Paid to (CIP)?
In the realm of international trade, insurance plays a pivotal role, ensuring the safety of goods during transit. Carriage and Insurance Paid to (CIP) is a contractual arrangement where the seller assumes the responsibility for both freight and insurance to deliver goods to a specified location agreed upon by both parties. Once the goods are handed over to the carrier or the designated recipient, the risk shifts from the seller to the buyer.
CIP, distinct from Cost, Insurance, and Freight (CIF) commonly used in maritime and commodity trading, mandates that the seller must insure the goods in transit for 110% of the contract value. Should the buyer seek additional insurance coverage, they must make separate arrangements. This Incoterm is part of the set of 11 globally recognized trade terms devised by the International Chamber of Commerce (ICC) in their latest 2020 publication.
- The term “carriage and insurance paid to (CIP)” indicates that the seller will cover both freight and insurance costs in delivering goods to a mutually agreed-upon recipient.
- The seller is required to insure the goods for 110% of their contract value.
- CIP is an Incoterm established by the ICC and universally accepted in trade.
How CIP Works
When using CIP, a specific destination is typically assigned. For example, CIP New York signifies that the seller covers the freight and insurance expenses up to New York. Similar to Carriage Paid To (CPT), CIP includes transportation charges for various modes of transport like road, rail, sea, air, or a combination thereof.
To illustrate, let’s consider a scenario where LG in South Korea ships tablet computers to Best Buy in the US. Under CIP, LG is responsible for all shipping costs and basic insurance to deliver the goods to Best Buy’s designated carrier or recipient at the agreed-upon destination. Once the handover is complete, LG’s obligations terminate, and Best Buy assumes full liability for the shipment.
If buyers require higher insurance coverage exceeding 110% of the contract value, they must arrange and pay for it independently.
Additional Coverage Under CIP
Given that the seller only procures minimum insurance coverage for the shipping process, buyers should assess the need for further protection against all risks. Without additional coverage, buyers risk substantial losses in case of unforeseen events not covered by the standard insurance provided by the seller.
Buyers can also negotiate with the seller for additional insurance cover, potentially sharing or transferring part of the extra insurance costs based on their bargaining power.
What Does Carriage and Insurance Paid to (CIP) Cover?
CIP, an Incoterm endorsed by ICC, governs the shipping costs in commercial transactions. It obligates the seller to handle both freight and insurance expenses when delivering goods to a buyer specified by the seller at an agreed-upon location. Once the goods reach the recipient, the risk of loss or damage transfers to the buyer.
How Much Insurance Does CIP Require?
The seller is mandated to secure insurance equivalent to 110% of the contract value. Any additional insurance desired by the buyer must be arranged and paid for independently.
What Kind of Transport Is Eligible for CIP?
CIP accommodates a wide range of transportation modes, including road, rail, sea, air, inland waterway, and combinations thereof.
The Bottom Line
Carriage and Insurance Paid to (CIP) involves the seller bearing the freight and insurance expenses for shipping goods to a designated party at a mutually agreed location. The seller is required to insure the goods for 110% of their contract value. This Incoterm, integral to international trade, is established by the ICC and followed across the globe.