The Complete Breakdown of CIP Incoterm: Seller and Buyer Responsibilities

When it comes to international trade, shipping terms can often be confusing. One such commonly used term is CIP (Carriage and Insurance Paid to), which plays a crucial role in defining the responsibilities of both the buyer and the seller. This guide breaks down the details of CIP in simple language, making it easy for you to understand its working, responsibilities, and differences from other incoterms.

What Does CIP Mean?

The CIP Incoterm refers to a trade term where the seller is responsible for delivering the goods and handling the insurance until the goods reach the agreed-upon destination. This incoterm is often used in multimodal shipments (where goods are transported using more than one method, such as road, rail, or sea).

The latest version of CIP was published by the International Chamber of Commerce (ICC) in January 2020, receiving widespread approval from traders and governments around the world. While the seller takes care of the goods’ shipment and insurance until the goods arrive at the designated port, the risk shifts to the buyer at that point.

Seller’s Responsibilities Under CIP

Under CIP, the seller plays a critical role, particularly up until the goods reach the agreed-upon destination. Here’s a detailed look at what responsibilities the seller holds:

1. Shipping and Transit

The seller is responsible for moving the goods from their warehouse to the first port. This could involve using road, rail, or another mode of transport to ensure the goods are properly dispatched. From there, the seller arranges the shipment to the destination port, which could be located in the importing country.

2. Insurance

One key difference between CIP and other incoterms is that the seller is responsible for insurance. The seller must provide insurance that covers the goods during transit. However, this only applies until the goods reach the agreed port. If additional insurance is needed beyond that point, the buyer must bear the cost, though this can be discussed and agreed upon beforehand.

3. Customs Clearance

The seller is responsible for export customs clearance. This means they have to prepare the necessary documentation and handle duties related to sending the goods out of their country. The buyer, on the other hand, handles the import customs at the destination.

4. Costs Covered by the Seller

Freight Forwarding Charges: The seller must handle all charges related to the movement of goods, including inland transit and sea freight charges.

• Warehousing Fees: If goods are held in storage before shipping, the seller pays these fees.
• Marine Insurance: For goods being shipped via sea, the seller covers the marine insurance.

The seller essentially takes on full responsibility for the goods’ journey from their warehouse to the destination port, covering any associated costs and ensuring that the buyer receives the goods safely at the designated location.

Buyer’s Responsibilities Under CIP

While the seller takes care of most of the process in CIP, the buyer also has some responsibilities, especially after the goods arrive at the agreed destination port. Here’s a breakdown of the buyer’s duties:

1. Inland Transit

If the delivery is agreed to take place at a second port (i.e., the importing country’s port), the buyer must take over the responsibility for inland transit. This means the buyer will have to arrange for the transportation of the goods from the destination port to their final location, such as a warehouse or facility.

2. Customs Clearance

After the goods arrive at the destination port, the buyer is responsible for clearing the goods through import customs. This means paying duties, taxes, and completing the necessary paperwork to legally bring the goods into their country.

3. Insurance Beyond the Port

Although the seller provides insurance until the destination port, if the buyer wants coverage for the goods beyond this point (e.g., from the port to their warehouse), they will need to arrange and pay for additional insurance.

4. Costs Covered by the Buyer

• Inland Freight Charges: If the goods need to be transported further from the port, the buyer bears this cost.
• Import Customs Duties: All charges associated with bringing the goods into the buyer’s country are the responsibility of the buyer.
• Storage and Unloading Fees: The buyer must cover any unloading or storage fees at the destination port.

Key Differences Between CIP, CIF, CFR, and FOB

It’s important to distinguish CIP from other incoterms commonly used in international trade, such as CIF (Cost, Insurance, and Freight), CFR (Cost and Freight), and FOB (Free on Board). Here’s a brief comparison:

CIP vs. CIF

In CIF, the risk is transferred from the seller to the buyer once the goods are loaded onto the shipping vessel. In CIP, the risk is transferred at the agreed-upon destination port. Moreover, under CIP, the seller must provide a higher level of insurance, while in CIF, only minimal insurance is required.

CIP vs. CFR

In CFR, the seller is responsible only for the cost and freight to the destination port, but insurance is not included, meaning the buyer must arrange their own insurance. In contrast, CIP includes insurance as part of the seller’s responsibility.

CIP vs. FOB

FOB is an entirely different concept where the seller’s responsibility ends once the goods are loaded onto the vessel at the port of origin. After that, the buyer takes over both the cost and risk for the remainder of the journey.

FAQs on CIP Incoterm

Conclusion

The CIP incoterm is a useful tool for international trade, as it clearly outlines the responsibilities of both buyers and sellers. By understanding the specific roles each party plays in terms of shipping, insurance, and customs clearance, you can ensure smoother transactions and fewer disputes. Whether you’re new to international trade or just looking to refresh your knowledge, the CIP incoterm is essential for ensuring secure and well-structured shipping agreements.

Also Read: How Have INCOTERMS Changed Since 2010