What is CIP (Carriage and Insurance Paid To)?

CIP, or Carriage and Insurance Paid to, is an international trade term used in commercial contracts to specify the responsibilities of the seller and the buyer regarding the transportation and insurance of goods.

Under CIP, the seller is responsible for arranging and paying for the transportation of the goods to a destination agreed upon with the buyer. Additionally, the seller is obligated to purchase insurance for the goods during transit, providing coverage against loss or damage until they are delivered to the specified destination.

Once the goods are handed over to the carrier or another appointed party for transportation, the risk transfers from the seller to the buyer. This term is governed by the rules set forth by the International Chamber of Commerce (ICC) in its Incoterms, which are globally recognized standards for international trade contracts.

CIP stands as a distinct term, although it shares similarities with Cost, Insurance, and Freight (CIF), commonly employed in maritime and commodity trading. Under CIP, the seller is mandated to insure the goods during transit for 110% of the contract value. However, if the buyer desires additional insurance coverage, they must arrange it independently.

Designated as one of the 11 Incoterms, which are universally recognized commercial trade terms, CIP's guidelines were last updated in 2020 by the International Chamber of Commerce (ICC).

CIP in Action

CIP is typically coupled with a specified destination. For instance, CIP New York indicates that the seller covers freight and insurance costs up to New York. Similar to Carriage Paid To (CPT), CIP encompasses transportation expenses for various modes such as road, rail, sea, air, inland waterway, or multimodal transport.

For example, let's consider a scenario where LG in South Korea aims to ship a container of tablet computers to Best Buy in the United States. Under CIP, LG is accountable for all freight expenses and minimum insurance coverage until the tablet computers reach the carrier or appointed party for Best Buy at the agreed destination. Once the goods are in the hands of the carrier or appointed party, LG's responsibility ceases, and Best Buy assumes full liability for the shipment.

Enhanced Coverage under CIP

Since the seller is obligated to secure only the minimum insurance required for transit, the buyer should contemplate obtaining additional coverage to safeguard against all potential risks. Failure to do so might result in substantial losses if the shipment incurs damage or loss due to unforeseen events not covered by the basic insurance provided by the seller.

The buyer may also negotiate with the seller for additional insurance coverage, with the possibility of sharing or entirely covering the cost, depending on their bargaining positions.

Understanding CIP Coverage

CIP serves as a globally accepted Incoterm established by the ICC to regulate shipping costs in commercial transactions. It mandates the seller to bear both freight and insurance expenses when dispatching goods to a buyer designated by the seller at a mutually agreed-upon location. Once the goods are delivered, the risk shifts to the buyer.

Insurance Requirements under CIP

The seller is required to procure insurance coverage amounting to 110% of the contract value. Should the buyer opt for more extensive coverage, they are responsible for arranging and financing it themselves.

Eligible Transport Modes for CIP

CIP accommodates various forms of transport, including road, rail, sea, air, inland waterway, and combinations thereof.