If you’re engaging in international trade, you’ll want to make sure you’re on top of your Incoterms® rules. These 11 rules are the ICC’s internationally accepted standards for who is responsible for what during an international delivery.
CIP is one of your 11 options, and one of the ones that changed the most in the last update of the rules. So here’s our guide to exactly what the CIP Incoterms® rule is, and how it works.
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CIP stands for “Carriage and insurance paid to.” When you use CIP, you need to define the place of destination – a place in the destination country that’s been agreed by both buyer and seller.
According to the CIP rule, the seller is responsible for:
- Insuring the goods for their main carriage.
- Clearing the goods for export.
- Getting the goods to the place of destination.
Once the goods are at the destination, the buyer assumes responsibility for the process. That does include import formalities.
However, there’s a complication. Risk transfers from the seller to the buyer as soon as the carrier has taken on the goods. That means that for the main part of the journey – for instance, a flight or sea voyage between two countries – the seller shoulders the risk of anything going wrong.¹ ² ³ ⁴
CPT is a similar Incoterms® rule, which stands for “carriage paid to.” In fact, there’s only one major difference.
Under CPT, the seller isn’t responsible for insurance, so the buyer has to arrange that as they wish. Other details are the same, including the point at which risk transfers.⁵
You can find out more about the insurance requirements of CIP in a moment.
CIF is another similar Incoterms® rule. The key difference is that CIF can only be used for waterbound transportation – it’s one of four rules that fall into that category. CIP, on the other hand, is one of the seven rules that can be used for any sort of transportation.
One point specific to CIF is that it’s the seller’s responsibility to load the vessel at the port.⁶ That relates to the fact that CIF is not intended for use with containerized freight, whereas CIP is.
Other than that, the two rules are similar.
Under the Incoterms® rules 2020, there’s another key difference relating to insurance. CIP now has a higher minimum insurance threshold than CIF. There’s more information about this below.
The ICC generally updates the Incoterms® rules once every decade, and the latest update came out in 2020.
If you’d rather stick with Incoterms® 2010, the previous edition, that’s absolutely fine, so long as all parties agree and it’s clearly stated in the contract you draw up.
There aren’t any sets of rules referring to other recent years – Incoterms® 2015, Incoterms® 2016, Incoterms® 2017 and so on don’t exist; you’ll have to choose Incoterms® 2010 or 2020. Or an older set of rules, if you really want.
One of the most notable changes in the 2020 rules was to the CIP rule. The minimum required amount of insurance is now higher.⁸ ⁹ Insurance under CIP now has to comply with the ICC’s Institute Cargo Clauses (A), rather than C, like it did before. That means covering things like breakage and theft.⁹
This change applies only to CIP, and not to CIF. The level of insurance required under CIF remained the same in 2020.⁶
Here are a few words of advice if you’re considering using the CIP Incoterms® rule.
- Be wary of exactly where responsibilities start and end. The seller pays for the process until it arrives at the place of destination (in the buyer’s country) – but the buyer assumes risk at the place of delivery, which is where the carrier takes control. So make sure both of these places are clearly agreed by all parties.¹ ² ³ ⁴
- Check carefully about the required amount of insurance. If you’re using the 2020 rules, make sure that insurance meets those new requirements. And bear in mind that additional insurance may be required, covering other parts of the journey. That isn’t specified under the CIP rule, so should be clearly stated elsewhere in the contract.³ ⁷
- Be careful when it comes to terminal handling charges. A terminal operator might demand some fees from the carrier. It’s worth making sure if those fees are covered in the prices that all parties have agreed in advance.⁴
CIP can be a useful term to go for, whichever method of transportation you’ll need to use. The new insurance stipulations make sense, and have been implemented because of demand, so that’s another point in this rule’s favor.
However, it’s worth knowing your way around all 11 of the rules, to make absolutely sure you’ve picked the right one.
- Shipping Solutions - Incoterms 2020 CIP: Spotlight on Carriage and Insurance Paid To
- Freightos CIP Incoterms: Carriage and Insurance Paid to Shipping
- Investopedia Carriage and Insurance Paid To (CIP) Definition
- Incoterms Explained Carriage & Insurance Paid To
- Incoterms Explained Carriage Paid To (CPT)
- Incoterms Explained Cost Insurance & Freight
- Incoterms Explained - Delivery
- International Chamber of Commerce (ICC) What are the key changes in Incoterms® 2020?
- Incoterms Explained Freight Insurance
All sources checked 14 May 2020
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