CIP incoterms: Meaning, terms and conditions

What does CIP mean?

CIP, which stands for Cost and Insurance Paid To, is an incoterm suitable for any mode of transportation. This is one of the reasons it is interesting to use it in a multimodal shipping process.

Under CIP Agreement, the seller carries out the same responsibilities as the ones under CIF Agreement. In other words, he is responsible for managing the goods until they arrive at the designated place in the destination country. He also has to pay for freight charges, as well as provide freight insurance for the items. However, the transfer of risks occurs when the goods are delivered to the first carrier, in the origin country.

The cargo insurance level required from the seller has to cover all risks. The seller can refer to Institute Cargo Clause (A), published and managed by the Lloyd's Market Association (LMA).

All in all, CIP incoterm is used for its flexibility, and advantages for both parties.

What are the buyer’s and the seller’s responsibilities with CIP?

Let’s take a closer look at the responsibilities of both parties.

Seller’s obligations under CIP:

• Complete the packaging and labeling of items;
• Load goods onto a local carrier (truck, van, etc.) and pay the fees associated with this process;
• Transport and deliver the goods to the shipping terminal;
• Handle the export clearance, which includes export duties, taxes, and customs clearance;
• Remove goods from the local carrier and load them onto the cargo transport, then pay the Origin Terminal Handling Charges (OTHC);
• Pay freight charges and freight insurance.

Buyer’s obligations under CIP:

• Transfer the items to local transportation once they arrive at the destination port/airport and pay the Destination Terminal Handling Charges (DTHC);
• Deliver the goods to the final destination;
• Unload the goods at the final destination;
• Handle the import clearance, which includes import duties, taxes, and customs clearance.

During the process, the seller’s responsibilities for any risks of loss and damages to goods stop when the goods are delivered at the origin point to the first carrier.

When to use CIP Agreement?

CIP Agreement can be a good option for both seller and buyer because it offers a clear division of responsibilities and risks. It should be used in the following situations:

• When the importer wants a secured shipping process, as solid insurance coverage is included in the CIP Agreement;
• For complex logistics process that includes more than one mode of transport employed;
• For high-value or perishable goods, which are items that require good insurance;
• When the exporter wants to have control over most of the shipping process until the goods reach the destination terminal.