CIP incoterms are one of the shipping policies by ICC. So how do they impact the shipping between exporters and importers? Let’s explore the critical details of CIP here.
- What is CIP?
- Understanding CIP Incoterms with an Example
- How Does the Shipping Process Take Place Under CIP?
- Obligations Related to CIP Incoterms
- Pros and Cons of CIP Incoterms
- Insurance in CIP Incoterms – An Option or a Necessity
- Who is Responsible for the Payment in CIP Incoterms?
- CIP Incoterms in China
- How are CIP Incoterms Different from CPT, DAP, and CIF?
What is CIP?
“Carriage and Insurance Paid To” is the full name of CIP.
This incoterm published by ICC helps buyers receive 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 the insurance cost.
That means, being a seller, you will pay the price for the shipping (any acceptable shipping mode) after bearing the insurance expense.
In other incoterms, if anything happens to the sent goods, which makes them useless until the buyer takes custody, the supplier is answerable and will be asked to offer a compensation price on the entire spoiled items.
However, under CIP, the goods are backed by an insurance policy, helping exporters to get rid of such damage prices to some extent depending on the coverage.
But apart from the damage coverage by the insurance company, the seller will be responsible for paying the remaining price for the loss or damaged goods to the buyer.
Understanding CIP Incoterms with an Example
Let’s suppose, A Company (the seller) in China is about to ship a loaded container of kids toys to B Company in South Africa (the buyer).
So, under CIP freight terms, the A Company will have to decide a shipping mode, arrange it, and pay the freight charges. Also, the seller will opt for an insurance policy at the maximum value of the goods and pay for it.
Besides, the supplier will also be held responsible for export clearance and customs duty in the country of origin (where the consignment will be shipped).
On the contrary, B Company will appoint a person or a transit service on its behalf to collect the container sent by A Company.
Once the delivery is made to the destination country (the buyer asked to deliver the order), and B Company receives it with proper documentation, B will pay for the import duties and taxes to clear the goods from the customs office.
Once the goods are received, 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 at risk to pay for the damaged goods. But 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, both buyers and sellers have to fulfill their responsibilities as mentioned in the steps below:
Steps on Sellers' side
- Step 1
- Clear exports formalities and buy an insurance policy
- Step 2
- Load goods on a carrier to be taken to the export port
- Step 3
- Unload goods from the carrier at the export port
- Step 4
- Again, load goods on the cargo ship or plane as decided on the export port
- Step 5
- Makes sure the goods reach at the import port
- Step 6
- Unload the goods from the cargo vessel on the import port
- Step 7
- Load goods on the carrier arranged by the buyer at the import port
Steps on Buyers' side
- Step 1
- Make import clearance and pay import duties and taxes
- Step 2
- Receive goods, which are being transported by their nominated carrier (such as a truck) from the import port to their premises (factory, warehouse, and more)
- Step 3
- Unload goods at their premises
Obligations Related to CIP Incoterms
Obligations Sellers Must Fulfill in CIP Incoterms
1. Get insurance on the majority of the goods
2. Necessary to transfer the goods to the export port on the date to which both parties have agreed
3. Got to pay the price associated with lost or damaged goods (if any during the shipping period) until the container is officially delivered to the import port
4. Arrange and pay for the main mode of transportation (by sea, by air, by road) to deliver the goods at the destination/import port
5. Give original transportation documents to the buyer, proving that the cargo arrived on the specified date as mentioned in the CIP agreement
6. Customs clearance in the origin country, and help the buyer for import clearance at the destination country, plus customs exams if there is.
7. Packing, checking and marking of goods to determine and confirm their weight and the number of items, which will be delivered to the buyer
8. Ensuring paying all the costs from the beginning of the export process until the deliverance of goods at the port of destination
9. Notify the buying party that the cargo has reached the destination port and is being unloaded
Obligations Buyers Must Fulfill in CIP Incoterms
1. Receive goods from the destination port or any particular point, such as the name of the terminal
2. Must inform the seller about the exact location where the goods shall be delivered within the agreed period, or else pay for the loss
3. Finding main transportation is not an obligation on the buyer, but they can assist sellers on mutual understanding
4. No need to buy an insurance policy when taking the goods to their premises from the export port with the help of an appointed carriage,
5. Get the delivery evidence from the seller for record-keeping
6. Must perform and pay for all the steps involved in clearing the imported items from the customs duty, as well as help the seller in the export clearance process (if needed)
7. There is no obligation to check the goods at the destination port, but it would be wise to do it
8. Bear the unloading cost from the truck to the premises
9. Inform seller about the destination port and when the goods are unloaded at the premises
Pros and Cons of CIP Incoterms
Advantages for Sellers under CIP Incoterms
- Control on choosing the main mode of transportation
- Free to negotiate with the insurance company
- No need to load the goods at the destination port on the carrier service appointed by the buyer
Advantages for Buyers under CIP Incoterms
- Saved from paying for the main transportation cost
- Enjoy 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 the import duties and customs
- Not forced by 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 for paying for the damaged or lost goods
Disadvantages for Buyers under CIP Incoterms
- Might need to pay more advance amount
- Cannot claim the seller for any wasted goods after receiving them from the destination port
Insurance in CIP Incoterms – An Option or a Necessity
Being a seller, you cannot ignore the fact that you will have to contact an insurance company and obey all expenses related to obtaining an insurance policy on the value of the exported items.
It’s a requirement in CIP incoterms and must be fulfilled at any cost.
Nevertheless, as a buyer, you are not subject to an insurance policy in CIP incoterms. But the option is still available if you think the goods would be affected by any artificial or Godly incidents while taking them from the destination port to the factory or any other place.
That makes buying insurance in CIP incoterms a necessity for a seller and an option for a buyer.
Who is Responsible for the Payment in CIP Incoterms?
Both parties have to face expenses. Nevertheless, if you ask who pays the most in CIP incoterms, the answer is “Seller.”
It is not only the export duties and main transportation charges, but also they even have to pay for the insurance.
CIP Incoterms in China
CIP incoterms in China are not encouraged by the major sellers. Instead, they prefer working on FOB, CIF, and DAP incoterms.
But if you still want to try working with a party in China on CIP, you can contact them to discuss this matter.
On the other hand, you can also call, message, or visit sourcing and shipping companies in China, like Jingsourcing and let them work on your behalf.
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 | Selle | Seller | Seller |
| Import Clearance | Buyer | Buyer | Buyer | Buyer |
| Unloading (At Buyer Warehouse) | Buyer | Buyer | Buyer | Buyer |
CIP versus CPT
While everything is similar in CPT, the only difference is that the seller is not lawfully forced to buy an insurance policy.
CIP versus CIF
CIF incoterms make insurance an obligation for the seller, but these incoterms are applicable to ocean shipping only, unlike CIP.
CIP versus DAP
Comparing CIP vs DAP, sellers under DAP are free from unloading the goods at the import port, and also, they don’t have to go for the insurance policy to send the cargo.
Final Thoughts
All incoterms have something different about them. For instance, in CIP incoterms, the exporter is liable to make sure the goods are insured to make them eligible for shipping at the destination port. In this condition, sellers will pay the cost related to freight and insurance, whereas the buyer is free from these responsibilities.
If you need more help in international shipping, or if you are interested in importing products from China, please don’t hesitate to CONTACT US – Jingsourcing, a leading sourcing company dedicated to helping importers customize and wholesale products from China.
