Created by the International Chamber of Commerce, Incoterms are a series of three-letter designations that define responsibilities between buyers and sellers around the sale of goods, specifically related to transportation costs and liability. If you’re looking for more information on Incoterms, check out our other articles on this topic:

The Complete Guide to All 11 of the 2010 Incoterms Rules

Incoterms 2020 Rules: Everything You Need to Know

Protect Your Bottom Line by Understanding These 5 Common Incoterms

Negotiating contracts to purchase or sell goods can feel complicated—but it doesn’t have to be. That’s where Incoterms® come in. These simple, three-letter designations make it easy to understand who will pay for transportation costs, the seller or the buyer. Plus, when it comes to the CIP Incoterm, it’s even clear who will pay for insurance—the seller.  

If you’re considering a contract under the CIP Incoterm, let’s take a closer look at what it would mean. 

What Does CIP Mean? 

CIP stands for Carriage and Insurance Paid To. Like CPT, it applies to all forms of transportation. Under the CIP Incoterm, the seller is responsible for all the costs associated with delivering an item to a destination or a named place.  

Additionally, the seller is also responsible for purchasing insurance. Along with CIF, CIP is one of only two Incoterms with insurance requirements. 

However, in contrast to the CIF Incoterm, CIP requires higher levels of insurance under the Incoterms 2020 rules. Whereas CIF only mandates basic coverage, under the CIP Incoterm, the seller must purchase more complete coverage. 

However, it’s important to note that there are a few costs the seller isn’t responsible for, including import taxes or customs duties. Additionally, if the buyer needs to move the goods to a final destination that’s different than what’s specified in the contract, the buyer is responsible for any associated costs. 

Yes, but insurance requirements are higher under 2020 rules 

All modes of transportation 

Once the first carrier accepts the shipment 

What Is the Seller Responsible for Under the CIP Incoterm?
When agreeing to a contract with the CIP Incoterm, the seller agrees to pay all the transportation costs associated with moving the specified goods to the destination agreed to in the contract. Additionally, the seller is also responsible for purchasing insurance to cover the goods against loss or damage until they arrive at the specified destination. 

Note: The 2020 Incoterms rules dictate that CIP requires the seller to purchase insurance that covers at least 110% of the value of the goods, as defined by Clause A of the Institute Cargo Clauses. However, if both parties agree to use the 2010 Incoterms rules, the seller is only required to obtain basic coverage, as defined by Clause C of the Institute Cargo Clauses. Make sure it’s clear in your contract which Incoterms rules you’ll be using.

For example, your contract language may look something like this:
{Incoterms rule} {named port or place}, Incoterms 2020 |
CPT 14777 Don Julian Rd, City of Industry, CA, Incoterms 2020

Let’s look at an example. Let’s say a buyer in the Los Angeles area is purchasing some electronic components from a manufacturer in Korea. They agree to a contract stating “CPT Approved Freight Forwarders / 14777 Don Julian Rd. / City of Industry, CA 91746.” In this scenario, the seller in Korea is responsible for all the costs to get the goods to the Approved Warehouse at the address above.  

Since electronics are often shipped via air freight, the seller would pay to get the components delivered to the air cargo terminal at the nearest airport, then pay the air freight to LAX. Any export procedures from Korea would be handled by the seller. On arrival, the seller would also pay for the goods to get moved the Approved Warehouse. 

What Is the Buyer Responsible for Under the CIP Incoterm?
Even though the seller handles a majority of the transportation costs, there are a few costs that are still the buyer’s responsibility. Any import costs, including customs fees, will be paid by the buyer. Additionally, the buyer may need to move the goods to a different final destination than the one specified in the contract. In the example above, the buyer might send these components to several different manufacturing facilities within the U.S., in which case, they’d be on the hook for that cost. 

Like CPT, CIP can be a useful term for a buyer negotiating to buy goods in a foreign country. After all, if you’re not familiar with logistics and transportation in Korea, it might mean a lot of hassle on your part. (Although a freight forwarder could help with that!) 

By choosing CIP, the seller arranges pretty much all of the logistics in their home country, so the buyer doesn’t have to worry about them. Additionally, they’ll also arrange for insurance, checking one more item off the buyer’s list. 

Incoterms InsightsCPT 

In terms of risk transfer, this Incoterm is very similar to CPT. As soon as the carrier takes possession of the goods, ownership and risk passes from the buyer to the seller. However, insurance will cover the shipment until its delivery at the designated location. If buyers don’t want to bother with obtaining coverage of their own, CIP can be a useful Incoterm to leverage. 

If you’re the buyer, choose your designated place carefully. When using the CIP Incoterm, you’ll get the change to specify a delivery destination. Make sure it’s both clear and specific, so there’s no question where to find your goods. Additionally, make sure it’s one that works for you. Any further shipping costs will be on you, as the buyer. 

If you’re considering a contract with the CPT Incoterm, talk to one of our expertsWe can answer any questions you might have and help you select a designated place that makes sense—especially if you need to distribute these goods to multiple locations.  

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