Carriage and Insurance Paid to (CIP)

Carriage and Insurance Paid to (CIP) is an international trade term, known as an Incoterm, created by the International Chamber of Commerce (ICC). Incoterms define a series of pre-determined commercial terms and are widely used in international commercial transactions or procurement processes. CIP specifically details the responsibilities of the seller in providing goods to the destination specified by the buyer, covering carriage and insurance. This condition helps clarify which party is responsible for costs and risks at various points throughout the transportation process.

Definition of CIP

Under CIP, the seller is responsible for delivering the goods to a carrier or another person nominated by the seller at an agreed-upon place, paying for the carriage to the named place of destination. Furthermore, the seller is required to procure minimum insurance coverage against the buyer’s risk of loss or damage to the goods during the carriage.

Key Responsibilities Under CIP

1. Seller’s Responsibilities:
   • Delivery: The seller must deliver the goods by placing them at the disposal of the carrier they have contracted, on the date or within the period mutually agreed upon.
   • Insurance: The seller is obliged to take out insurance coverage at their expense, with minimum coverage. However, if additional coverage is needed, the buyer will have to arrange for it.
   • Costs: The seller bears all costs until the goods are delivered to the carrier. This includes export clearance and any loading costs.
   • Risk Transfer: The risk transfers from the seller to the buyer once the goods have been delivered to the first carrier. From this point on, the buyer assumes any risk for loss or damage to the goods.
   • Documentation: The seller must provide the buyer with the transport document necessary for the latter to obtain the goods from the carrier.
2. Buyer’s Responsibilities:
   • Import Clearance: The buyer is responsible for handling all import formalities and clearing the goods through customs in the destination country.
   • Costs: Upon the goods’ arrival at the destination, the buyer assumes all costs, including unloading, import duties, taxes, and transport to the final destination.
   • Risk: As mentioned earlier, the risk transfers to the buyer once the goods are delivered to the carrier.

Example of CIP

Assume that a seller in Germany is exporting machinery to a buyer in Brazil. They agree to use the CIP term, with the port of Santos in Brazil being the named place of destination. Here’s how the transaction might unfold:

1. Contract Agreement: Both parties agree upon the CIP Incoterm and the port of Santos as the destination.
2. Seller’s Actions:
   • The seller arranges and pays for the transportation of the machinery from their factory in Germany to the port of Santos.
   • The seller also procures an insurance policy to cover the risk during the international transportation. The coverage needs to be a minimum level insurance unless otherwise agreed.
   • After shipping, the seller hands over the necessary documentations such as the bill of lading to the buyer.
3. Buyer’s Actions:
   • The buyer, after receiving the transport documents, arranges for the import clearance in Brazil and pays any associated tariffs or taxes.
   • The buyer further organizes local transport to the final destination within Brazil, bearing the costs and risks of this segment.

Practical Considerations with CIP

• Insurance Coverage: The minimum coverage required by CIP may not always be sufficient for all shipments. Buyers and sellers should discuss the insurance needs and may agree upon a higher level of insurance if necessary.
• Carrier Responsibilities: Since responsibility and risk transfer to the buyer once the goods are in the hands of the first carrier, the choice of a reliable carrier is crucial.
• Customs Clearance: Efficient handling of export and import customs processes is vital to avoid delays, which might affect the delivery schedule.

Conclusion

The CIP Incoterm offers a clear framework for international trade transactions, specifying the allocation of costs and risks between the buyer and seller. It is especially useful in scenarios where the buyer needs assurance that the seller has covered the transportation and minimum insurance costs up to a specific point. Proper understanding and implementation of CIP help avoid disputes and ensure a smooth transaction flow. For further information and guidelines on Incoterms and their applications, you may refer to the official International Chamber of Commerce (ICC) website at ICC.