Carriage and Insurance Paid To (CIP) is an Incoterm that outlines the division of responsibilities between a buyer and seller in international trade. According to the CIP delivery Incoterms, the seller is responsible for both the freight and insurance costs needed to transport goods to a specified location.

Once the goods arrive at that location, both the responsibility and risk are transferred to the buyer or the appointed carrier. This allows the buyer to ensure goods are covered for loss or damage while in transit.

Under CIP, the seller’s obligations include paying for the CIP freight to the agreed-upon location and purchasing insurance for the value of the goods, which must cover at least 110% of the sale value.

The buyer assumes responsibility for the goods once they are handed over to their appointed party at the destination. At that point, the buyer must handle further carriage and insurance costs. If the buyer wants additional or better insurance coverage, they are responsible for arranging it themselves.

(CIP) carriage and insurance paid to can be applied to all forms of transportation, including road, rail, air and sea. It is a flexible term, but for non-containerised sea shipments, the CIF (Cost, insurance and freight) incoterm might be more appropriate since it is specifically designed for maritime trade.

If the buyer prefers not to have the seller provide insurance, they may opt for CPT (carriage paid to), which shares many similarities with carriage and insurance paid to but does not require the seller to insure the goods during transit.

-A1 : General Obligations

Provide goods and commercial invoices as per the sales contract.

Supply any other evidence of conformity if required, such as an analysis certificate.

Documents may be in paper or electronic form, as agreed.

-A2 : Delivery

Deliver the goods by handing them over to the contracted carrier by the agreed date.

Delivery occurs when goods are passed to the first carrier, not at the final destination.

-A3 : Transfer of Risk

The seller bears the risk of loss or damage to the goods until they are delivered to the carrier.

Exceptions occur if the buyer fails to provide necessary dispatch instructions.

-A4 : Carriage

Arrange and pay for the carriage contract from the place of delivery to the named destination.

Comply with transport-related security requirements.

-A5 : Insurance

Arrange insurance at own cost to cover the buyer’s risk for at least 110% of the invoice value.

Provide an insurance certificate or policy to the buyer for claims.

-A6 : Transport Document

Provide the buyer with the necessary transport documents, such as the bill of lading or air waybill, as required.

-A7 : Export or Import Clearance

Complete all export clearance formalities, such as licences or permits, at the seller’s own cost and risk.

-A8 : Checking or Packaging

Pay for any necessary checking operations such as quality, weight, etc., and package the goods appropriately for transport.

-A9 : Allocation of Costs

Pay costs up to the point of delivery, including insurance, transport and export-related expenses.

-A10 : Notices

Notify the buyer that the goods have been delivered to the carrier.

Provide any necessary notices for the buyer to receive the goods.

-B1 : General Obligations

Pay the price for the goods as per the sale contract.

-B2 : Delivery

Take delivery of the goods from the seller’s carrier at the destination.

-B3 : Transfer of Risk

Bear the risk of loss or damage to the goods once they are delivered to the seller’s carrier.

If the buyer fails to inform the seller of the required delivery details, the risk will be transferred earlier.

-B4 : Carriage

No obligation to arrange a contract of carriage.

-B5 : Insurance

No obligation to insure the goods, but must provide the seller with the necessary information for additional insurance, if requested.

-B6 : Transport Document

Accept the transport document provided by the seller as long as it complies with the contract.

-B7 : Export or Import Clearance

Handle all import and transit formalities, such as permits and licences.

Assist the seller with export clearance, if requested.

-B8 : Checking or Packaging

No obligations regarding checking, packing or marking, unless agreed upon in the contract.

-B9 : Allocation of Costs

Pay unloading costs only if the seller has not already paid for them and any transit or import duties and taxes.

-B10 : Notices

Provide the seller with a notice about the delivery location and time, if required by the contract.

When conducting international trade under the Carriage and Insurance Paid To Incoterms, using a letter of credit (LC) for payment requires careful attention to the wording in the LC. This is crucial because some issuing banks may not have updated their practices since the 1970s or may include unnecessary clauses that complicate the transaction.

An ideal LC should specify that the seller provides ‘one original of the insurance policy or certificate for 110% of the full CIP value of the goods shipped’. It should also clearly state that the insurance covers institute cargo clauses (A) or (Air), as well as institute war clauses (Cargo) or (Air Cargo) and institute strikes clauses (Cargo) or (Air Cargo). This clarity helps ensure that the coverage is appropriate and aligns with industry standards.

However, banks sometimes include outdated clauses, such as requiring ‘claims payable in X country’. In today’s electronic payment systems, this is unnecessary, as insurers typically process payments from their head office, regardless of geographical location. Similarly, phrases like ‘in the currency of the draft’ are redundant, as insurance must already be issued in the LC currency according to established rules.

Another common mistake made by banks is requiring insurance documentation to state ‘from seller’s warehouse to buyer’s warehouse’. This is unnecessary because Article 8.1 of the Institute Cargo Clauses (A) already defines the duration of coverage. Adding such wording could potentially create discrepancies rather than clarify the coverage.

Marine insurance is a vital component of the shipping industry, providing essential protection for goods and vessels during transit. It mitigates potential losses, ensures compliance with legal requirements and facilitates international trade, promoting confidence in businesses engaged in global commerce.

TATA AIG stands out as a trusted provider of comprehensive marine insurance solutions, including tailored marine cargo insurance policy packages that cater to the specific needs of businesses. This allows businesses to customise their marine cargo insurance policies based on unique risk factors, such as piracy or natural disasters.

Furthermore, purchasing our marine insurance policy ensures that your assets are safeguarded against risks such as theft, damage or loss during transit. This coverage is especially crucial for high-value cargo, providing peace of mind that your investments are protected.

With TATA AIG marine cargo insurance, businesses can confidently engage in global trade, knowing they have a reliable safety net in place.

(CIP) carriage and insurance paid to is a valuable Incoterm for international trade, offering a balanced allocation of risks and responsibilities between buyers and sellers. By requiring the seller to arrange both transportation and insurance until the goods reach a designated destination, CIP minimises the buyer’s exposure to potential losses during transit.

To ensure a smooth and secure trading experience, it is essential for both parties to thoroughly understand and agree upon the specific terms of the CIP incoterm. This includes clearly defining the destination point, the level of insurance coverage required and any additional costs or responsibilities that may be involved.

By carefully negotiating and adhering to the CIP terms, businesses can mitigate risks, streamline their supply chains and foster stronger relationships with their trading partners.

-What is the key difference between CIP and CPT in terms?

CIP requires the seller to arrange and pay for insurance coverage for the goods up to the destination, while CPT does not.

-Can the buyer request a specific level of insurance coverage under CIP?

Yes, the buyer can request a specific level of insurance coverage, but the seller is ultimately responsible for arranging and paying for it.