What Is Carriage and Insurance Paid To (CIP)?

What Is Carriage and Insurance Paid To (CIP)?

Let me explain what Carriage and Insurance Paid To, or CIP, really means in international shipping. It's an Incoterm where you, as the seller, cover the freight and insurance costs to get the goods from your factory to a carrier you've designated. The moment those goods reach the buyer's representative, the risk of any damage or loss shifts over to the buyer.

You should know that CIP is similar to Cost, Insurance, and Freight (CIF), but it's not the same—CIP works for any transport mode, while CIF is mainly for sea shipments and commodities. Under CIP, you're required to insure the goods for 110% of the contract value during transit. If the buyer wants more coverage, they have to handle that themselves.

Both CIP and CIF are part of the Incoterms, those standard trade terms put out by the International Chamber of Commerce (ICC) that everyone in global trade recognizes.

Key Takeaways on CIP

Here's what you need to grasp: CIP means the seller pays for freight and insurance to send goods to the buyer's representative after the sale. You, the seller, must insure them for 110% of the contract value. If the buyer needs more insurance, they're usually on the hook for it. Remember, CIP gets the goods from your factory or warehouse to the buyer's country, but not all the way to their final spot.

How CIP Works

CIP has been around as a way to handle insurance in international trade, and it puts the onus on the seller to cover delivery costs to a specific destination. For instance, if it's CIP New York, you pay the freight and insurance to get there. This applies to any transport method—road, rail, sea, inland waterway, air, or even a mix of them, just like with Carriage Paid To (CPT).

Take this example: Suppose LG in South Korea is shipping tablet computers to Best Buy in the US under CIP. LG handles all freight costs and the minimum insurance to deliver to the carrier Best Buy picks at the agreed US spot. Once that's done, LG's job is over, and Best Buy takes on the full risk and responsibility.

Important Notes on Incoterms History

You should note that Incoterms started in 1936 and get updated regularly. CIP specifically joined the list in 1980.

Additional Coverage Under CIP

Since the seller only has to buy the bare minimum insurance to reach the destination, I advise you as the buyer to think about getting extra coverage for all possible risks. Without it, you could face big losses if something goes wrong that's not covered by the seller's policy.

CIP only protects from the seller's factory or warehouse to the buyer's specified first destination—you take over the rest of the trip to your facilities. You might even ask the seller for more insurance and negotiate who pays, depending on your bargaining power.

What Does CIP Cover?

CIP is one of those Incoterms from the ICC that spells out shipping costs in sales contracts. It makes the seller pay for freight and insurance to a carrier they choose at an agreed location. Right when the goods are delivered, the buyer assumes the risk of damage or loss.

How Does CIP Differ From CIF?

CIP and CIF both put transport costs and risks on the seller, but here's the key difference: CIP requires the seller to buy insurance for the goods' contract value in transit, while CIF doesn't specify that. CIP eases the buyer's risk until delivery, but CIF can mean higher costs since the seller handles insurance.

How Much Insurance Does CIP Require?

The seller has to secure insurance for 110% of the contract value. If you want more as the buyer, you arrange and pay for it yourself.

What Kind of Transport Is Eligible for CIP?

Any recognized transport works—road, rail, sea, inland waterway, air, freight forwarding, or combinations. For multi-modal, CIP covers just the first carrier at the shipment point.

What Are Incoterms?

Incoterms are those accepted rules for the transport industry. When you put them in sales contracts, they create legal duties for everyone involved, so make sure you understand them and their effects.

The Bottom Line

In short, Carriage and Insurance Paid To (CIP) means you as the seller pay freight and insurance to get goods to the buyer or their rep at the agreed spot. You insure for 110% of the value, and it's an ICC Incoterm used worldwide.