Incoterms 2020 | Obligations Related to CIP

CIP incoterms are one of the shipping policies established by the International Chamber of Commerce. But how do they affect the shipping process for exporters and importers? Let’s take a closer look at the important details of CIP.

Contents:

• What is CIP?
• How Does the Shipping Process Take Place Under CIP?
• Obligations Related to CIP Incoterms
• Pros and Cons of CIP Incoterms
• Insurance in CIP Incoterms – Necessity or Option
• Who is Responsible for Payment in CIP Incoterms?
• How are CIP Incoterms Different from CPT, DAP, and CIF?

What is CIP?

“Carriage and Insurance Paid To” is commonly referred to as CIP. This incoterm, published by ICC, assists buyers in receiving their imported goods at their designated location from the seller. The seller prepares the goods, contracts a shipping service for delivering the cargo, and pays for the insurance cost.

As a seller, you will pay the shipping cost (any acceptable shipping mode) after bearing the insurance expense.

In other incoterms, if anything happens to the shipped goods, making them useless until the buyer takes custody, the supplier is responsible and must offer a compensation price on the entire spoiled items.

Under CIP, however, the goods are backed by an insurance policy, allowing exporters to avoid such damage prices to some extent, depending on the coverage.

In addition to the damage coverage provided by the insurance company, the seller will be responsible for paying the remaining price for any loss or damaged goods to the buyer.

Understanding CIP Incoterms with an Example

Suppose A Company (the seller) in China is shipping a container of kids’ toys to B Company (the buyer) in South Africa. Under CIP freight terms, A Company will decide on a shipping mode, arrange it, and pay the freight charges. The seller will also opt for an insurance policy at the maximum value of the goods and pay for it. Additionally, the supplier will be responsible for export clearance and customs duty in the country of origin where the consignment will be shipped.

On the other hand, B Company will appoint a person or a transit service to collect the container sent by A Company on its behalf. Once the delivery is made to the destination country, and B Company receives it with proper documentation, it will pay for the import duties and taxes to clear the goods from the customs office.

B Company will bear the losses of any damaged goods and cannot demand A Company to pay the price. In this example, A Company was initially at risk of paying for any damaged goods; however, these risks transferred to B Company when its appointed carrier or person officially received the container.

How Does the Shipping Process Take Place Under CIP?

In CIP shipping, it’s important for both buyers and sellers to fulfill their responsibilities as outlined in the steps below:

Steps on Sellers’ side

• Step 1: Complete export formalities and purchase an insurance policy
• Step 2: Load goods onto a carrier to be transported to the export port
• Step 3: Unload goods from the carrier at the export port
• Step 4: Load goods onto the cargo ship or plane as agreed upon at the export port
• Step 5: Ensure the goods reach the import port
• Step 6: Unload the goods from the cargo vessel at the import port
• Step 7: Load goods onto the carrier arranged by the buyer at the import port

Steps for Buyers

• Step 1: Complete import clearance and pay import duties and taxes.
• Step 2: Receive goods from their nominated carrier (such as a truck), who will transport them from the import port to their premises (factory, warehouse, etc.).
• Step 3: Unload the goods at their premises.

Obligations Related to CIP Incoterms

Obligations Sellers Must Fulfill in CIP Incoterms

• Obtain insurance on the majority of the goods.
• Transfer the goods to the export port on the agreed-upon date.
• Pay for any lost or damaged goods during the shipping period until the container is officially delivered to the import port.
• Arrange and pay for the main mode of transportation (by sea, by air, by road) to deliver the goods to the destination/import port.
• Provide the buyer with original transportation documents proving that the cargo arrived on the specified date as mentioned in the CIP agreement.
• Handle customs clearance in the origin country and assist the buyer with import clearance in the destination country, including customs exams if necessary.
• Pack, check, and mark the goods to determine and confirm their weight and the number of items to be delivered to the buyer.
• Pay for all costs from the beginning of the export process until the delivery of goods at the port of destination.
• Notify the buying party when the cargo has reached the destination port and is being unloaded.

Pros and Cons of CIP Incoterms

Advantages for Sellers under CIP Incoterms

• Can choose the main mode of transportation.
• Free to negotiate with the insurance company.
• Not required to load goods at the destination port on the carrier service appointed by the buyer.

Advantages for Buyers under CIP Incoterms

• Saved from paying the main transportation cost.
• Minimum risks for bearing the cost of any lost or damaged items.
• Just need to pick up the goods from the destination port after clearing import duties and customs.
• Not forced by the agreement to buy an insurance plan.

Disadvantages for Sellers under CIP Incoterms

• Bear the cost for almost everything until the goods are available at the named destination (port of destination).
• Cannot avoid buying an insurance policy.
• Increased chances of paying for damaged or lost goods.

Disadvantages for Buyers under CIP Incoterms

• Might need to pay a more significant advance amount.
• Cannot claim the seller for any wasted goods after receiving them from the destination port.

Insurance in CIP Incoterms – Necessity or Option

As a seller, it is important to acknowledge that obtaining an insurance policy on the value of exported items is a requirement in CIP incoterms. This means contacting an insurance company and covering all expenses related to the policy.

As a buyer, however, you are not obligated to obtain insurance in CIP incoterms. Nonetheless, it is still an available option if you believe the goods may be at risk of being affected by unforeseen events, whether natural or man-made, during transportation from the destination port to the factory or any other location.

Therefore, buying insurance in CIP incoterms is a necessity for the seller and an option for the buyer.

Who is Responsible for Payment in CIP Incoterms?

CIP Incoterms in China

Major sellers in China do not encourage the use of CIP incoterms. Instead, they prefer to use FOB, CIF, and DAP incoterms.

If you still wish to use CIP with a Chinese party, you can try contacting them to discuss the matter.

Alternatively, you can contact sourcing and shipping companies in China, such as onestopimport, please feel free contact us to get started.

How are CIP Incoterms Different from CPT, DAP, and CIF?

	CIP	CPT	CIF	DAP
Shipping Mode	All major modes	All major modes	Sea freight only	All major modes
Shipping Cost	Seller	Seller	Seller	Seller
Insurance Cost	Seller	No requirement	Seller	No requirement
Export Clearance	Seller	Seller	Seller	Seller
Loading (From Seller Warehouse)	Seller	Seller	Seller	Seller
Import Clearance	Buyer	Buyer	Buyer	Buyer
Unloading (At Buyer Warehouse)	Buyer	Buyer	Buyer	Buyer

CIP vs CPT

Although everything is similar in CPT, the only difference is that the seller is not legally obligated to purchase an insurance policy.

CIP vs CIF

CIF incoterms make insurance an obligation for the seller, but these incoterms only apply to ocean shipping, unlike CIP.

CIP vs DAP

When comparing CIP vs DAP, sellers under DAP are not responsible for unloading the goods at the import port and are not required to purchase an insurance policy to send the cargo.

The End

All incoterms have their unique features. For example, in CIP incoterms, the exporter is responsible for ensuring that the goods are insured and eligible for shipping at the destination port. In this case, the seller pays the freight and insurance costs, while the buyer is not responsible for these tasks.

If you require further assistance in international shipping or if you are interested in importing products from China, please do not hesitate to contact us. We are a leading sourcing company dedicated to helping importers customize and wholesale products from China.