cip incoterm

CIP Incoterm – Simple Explanation and Examples

What is CIP Incoterm?

The CIP Incoterm (Carriage and Insurance Paid To) is one of the 11 standard Incoterms established by the International Chamber of Commerce (ICC). CIP Incoterm sets out the responsibilities and obligations of buyers and sellers in international trade. Under this term, the seller is responsible for arranging and paying for the transportation and insurance of the goods to the named destination. The risk, however, transfers to the buyer once the goods are handed over to the first carrier.

Key Responsibilities under CIP Incoterm

Under the CIP Incoterm, both parties—buyer and seller—have specific responsibilities:

Seller’s Responsibilities:

  1. Transport Costs: The seller pays for the transportation of the goods from their location to the named place of destination.
  2. Insurance: The seller must provide insurance coverage against the buyer’s risk of loss or damage to the goods during transit. This insurance should be for 110% of the contract value.
  3. Export Clearance: The seller handles any export customs clearance documentation and formalities.
  4. Delivery: The delivery obligation of the seller is fulfilled once the goods are handed over to the first carrier at the agreed point.

Buyer’s Responsibilities:

  1. Import Clearance: The buyer is responsible for import customs clearance, including duties and taxes.
  2. Risk after Delivery: Once the goods are handed over to the first carrier, the risk shifts to the buyer.
  3. Receiving the Goods: The buyer is responsible for receiving the goods at the named place of destination.

Examples of CIP Incoterm in Practice

Here are some practical examples of how the CIP Incoterm applies in international trade:

Example 1: Machinery Export from Germany to Brazil

A German manufacturer of industrial machines sells its products to a company in Brazil. The terms agreed are CIP São Paulo, meaning:

  • The German seller will arrange and pay for the transportation of the machinery to São Paulo, including insurance.
  • The risk transfers to the Brazilian buyer once the machinery is handed over to the first carrier in Germany.
  • The Brazilian buyer will handle the import customs clearance and any associated duties and taxes once the machinery reaches São Paulo.

Example 2: Textile Export from India to France

An Indian textile company exports goods to a retailer in France on CIP Marseille terms:

  • The Indian seller pays for the shipment and also arranges insurance coverage up to 110% of the shipment value.
  • The risk of damage or loss shifts to the French retailer as soon as the goods are handed over to the ocean carrier in India.
  • The French retailer takes care of the import clearance and any taxes once the goods arrive in Marseille.

Important Considerations with CIP Incoterm

When using the CIP Incoterm, there are several important considerations to keep in mind:

  1. Adequate Insurance Coverage: Although the seller arranges insurance, buyers should review the coverage provided. If additional coverage is needed (e.g., lower deductibles or higher coverage limits), the buyer may need to arrange supplementary insurance.
  2. Clear Contract Terms: Clearly specify the named place of destination in the contract to avoid any ambiguity.
  3. Multiple Carriers: Since the risk transfers to the buyer once the goods are handed over to the first carrier, it’s crucial to understand that any subsequent carriers are under the buyer’s risk.
  4. Documentation for Customs: Both parties should ensure that all necessary documentation for customs clearance (both export and import) is completed accurately to prevent delays.

Conclusion

The CIP Incoterm is a convenient term for international shipments where the seller is willing to handle transportation and insurance up to the named destination, making it simpler for the buyer. It streamlines the logistics and ensures insurance coverage during transit, although the risk shifts earlier in the shipping process.

If you are planning to engage in international trade and need expert assistance with customs clearance, import/export documentation, or understanding Incoterms, contact eezyimport. Our experienced team can help you navigate the complexities of international logistics and ensure compliance with all relevant customs regulations. Visit our website for more information.

CIP Incoterm – FAQ

 

What does CIP stand for in Incoterms?

CIP stands for Carriage and Insurance Paid To. It is an Incoterm that specifies the seller is responsible for arranging and paying for the transportation and insurance of the goods to the named destination. However, the risk transfers to the buyer once the goods are handed over to the first carrier.

Who is responsible for insurance under the CIP Incoterm?

Under the CIP Incoterm, the seller is responsible for providing insurance for the goods. The insurance should cover 110% of the contract value against the buyer’s risk of loss or damage during transit. Buyers should review the insurance coverage details and arrange for any additional coverage if necessary.

When does the risk transfer from seller to buyer in CIP?

The risk transfers from the seller to the buyer as soon as the goods are handed over to the first carrier. Even though the seller arranges transportation and insurance up to the named place of destination, the buyer assumes the risk once the goods are in transit with the first carrier.

eezyimport is an online platform and is not a licensed customs broker. However, we work closely with a third-party licensed customs broker who can assist with any entry-related issues.

eezyimport is an online platform and is not a licensed customs broker. However, we work closely with a third-party licensed customs broker who can assist with any entry-related issues.

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