Incoterms CIP – what does Carriage and Insurance Paid mean?

In global trade, each delivery involves not only the goods themselves, but also precise arrangements regarding the division of costs, risks and responsibilities.

One of the rules that effectively organises these issues is Incoterms CIP (Carriage and Insurance Paid). It is a tool developed by the International Chamber of Commerce as part of the Incoterms system. Thanks to it, the parties to the transaction can clearly define who organises the transport, who finances the insurance and at what point the risk passes to the buyer.

Although the name itself may seem meaningless, in practice CIP is a very useful solution for companies exporting and importing goods by various means of transport. It is therefore worth taking a closer look at it.

CIP in a nutshell: definition and meaning of the rule

CIP (Carriage and Insurance Paid) is an Incoterms 2020 rule in which the seller concludes a contract of carriage and insures the goods to the specified destination, while the risk of loss or damage passes to the buyer when the goods are handed over to the first carrier.

In practice, this means that the seller delivers the goods and covers their transport and insurance costs, but once they have been handed over to the carrier, the seller is no longer liable for any damage during transport.

CIP is a flexible rule – it can be used in air, sea, road and rail transport, as well as in multimodal logistics chains.

How does CPT differ from CIP Incoterms 2020?

CPT (Carriage Paid To) means that the seller covers the costs of transport to the agreed destination, but does not have to provide insurance – unlike CIP, where ‘insurance paid’ is an integral part of the rule.

In CPT, the risk of loss or damage to the goods also passes to the buyer when they are handed over to the carrier, but the lack of compulsory protection may increase the risks associated with transport. CIP, on the other hand, requires the seller to conclude a contract for the carriage of goods and to purchase a policy that normally covers 110% of the value of the shipment.

Therefore, CIP is particularly advantageous for the transport of high-value or damage-prone cargo, where safety en route to the designated destination is crucial.

CPT Incoterms 2020 – what does the Carriage Paid To rule mean? >>>

What exactly does ‘insurance paid’ mean in CIP?

‘Insurance paid’ in the CIP rule means that the seller is obliged to purchase a cargo insurance policy that protects the shipment on its way to the agreed destination.

The Incoterms 2020 standard requires that the cover be at least 110% of the value of the goods and cover risks typical for transport. In practice, the seller concludes a contract for the carriage of goods and insurance, transfers the transport document to the buyer and covers the costs associated with the policy. The buyer may request additional insurance or purchase it on their own if the shipment is particularly valuable or sensitive.

Obligations of the parties: what the seller does, what the buyer does

In the CIP rule, the obligations of the seller and the buyer are clearly defined: the former is responsible for transport and insurance, the latter for unloading and other post-delivery activities.

This division of tasks allows both parties to better control costs and responsibilities in international trade.

Seller’s obligations: transport and insurance

The seller concludes a contract of carriage, pays the transport costs and purchases an insurance policy.

The seller is also responsible for preparing documents such as the commercial invoice and transport document, as well as completing export clearance.

Once the shipment has been handed over to the first carrier, the seller transfers the risk to the buyer, although the seller remains responsible for the proper preparation of the cargo and the completeness of the documentation.

Buyer’s responsibilities: risk, unloading and post-delivery activities

The buyer assumes the risk of loss or damage to the goods when they are handed over to the first carrier and is responsible for all post-delivery activities at the destination.

The buyer’s obligations under CIP:

receipt of the shipment,
unloading of the goods,
payment of customs duties and taxes,
completion of import clearance.

The buyer also bears the costs of any additional insurance if they want higher protection.

Key points to remember: from the moment the goods are delivered to the carrier by the seller, the risk passes to the buyer, who is responsible for import formalities, unloading and further transport to the final place of delivery.

Incoterms 2020 CIP – summary

CIP is one of the Incoterms 2020 rules that combines transport with insurance on the seller’s side.

The seller concludes a contract for the carriage of goods, covers the costs of transport and insurance, and the buyer assumes the risk of loss or damage at the moment the shipment is handed over to the first carrier.

This solution provides clarity for both parties regarding costs and responsibilities, and makes the transaction itself safer and more predictable, regardless of whether the transport is by sea, air, rail or multimodal.

Frequently asked questions

What do Incoterms CIP mean?

Incoterms CIP (Carriage and Insurance Paid to a specified destination) is a trade rule in which the seller bears the costs of transport and insurance up to a specified point of delivery.

However, the risk passes to the buyer when the first carrier picks up the goods from the seller.

This allows for a clear definition of costs and responsibilities of the parties in international transactions.

How does CIP differ from DAP?

In CIP, the seller provides transport and insurance, and the risk passes to the buyer when the goods are handed over to the carrier, while in DAP, the risk remains with the seller until the goods are delivered.

Importantly, DAP (like CIP) does not include unloading of the goods.

How does CIF (Cost Insurance and Freight) differ from CIP (Carriage and Insurance Paid)?

CIF (Cost, Insurance and Freight) applies only to sea transport and covers costs, freight and insurance to the port of destination, while CIP is a multimodal rule used in various modes of transport.

CIP also provides a higher standard of insurance coverage (110% of the value of the cargo) than classic CIF.

When does the transfer of risk occur in CIP?

In Incoterms 2020 CIP, the transfer of risk from the seller to the buyer occurs when the goods are handed over to the first carrier.

From that moment on, the buyer’s responsibility covers all events during transport, regardless of the means of transport used. That is why it is so important to clearly specify the point of handover in the contract of carriage.

Why is CIP one of the basic trade rules?

CIP is one of the basic trade rules of the International Chamber of Commerce because it combines the obligation to arrange transport with the requirement for insurance.

Seller: will arrange for the delivery of the goods by signing the contract of carriage and providing a cargo insurance policy.

Buyer: gains predictability of costs and protection in case of damage.

It is this clear division that makes CIP a popular choice in international trade.

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