International trade needs clear rules. Misunderstandings cause problems. They lead to delays. They cost money. Incoterms solve this problem.
CIP is one of these rules. It stands for “Carriage and Insurance Paid To”. It is a common term for all types of shipments. This guide will explain CIP in simple terms.
1. What does CIP stand for in Shipping Terms?
CIP means “Carriage and Insurance Paid To”.
The seller delivers the goods to a carrier. The seller chooses this carrier. The seller pays for transportation to a named destination. This destination is agreed with the buyer. The seller also buys insurance for the journey.
The Key Concept: Risk vs. Cost
This is very important. In CIP, risk and cost transfer at different times.
Cost: The seller pays for the main transport and insurance to the destination.
Risk: The risk transfers to the buyer much earlier. It happens when the seller hands over the goods to the first carrier.
Example:
A seller in Ningbo uses CIP to ship goods to a buyer in Berlin.
The seller is responsible for costs until the goods reach Berlin.
But the buyer bears the risk of loss or damage after the goods leave the seller’s warehouse in Ningbo.
Place of Destination
The named place of destination is critical. It must be clearly defined in the contract. For example: “CIP, Buyer’s Warehouse, 123 Main Street, Berlin, Germany”.
Suitable for All Transport Modes
CIP is very flexible. It can be used for:
Ship, air, road, rail, and multi-modal transport.
2. What are the Buyers and Sellers Responsibilities with CIP Agreements?
A clear division of responsibilities is key. The following tables outline the obligations for each party.
Seller’s Responsibilities:
The seller has many obligations. Their main task is to get the goods to the agreed destination safely and insured.
A. Delivery and Packaging
Deliver the goods to the carrier at the agreed place.
Provide packaging suitable for transport.
Provide a commercial invoice and proof of delivery.
B. Export Formalities
Handle all export procedures.
Obtain export licenses and permits.
Complete customs declarations for export.
Pay all export duties and taxes.
C. Carriage (Transportation)
Contract and pay for carriage to the named place of destination.
Arrange the main transport (truck, ship, plane, etc.).
D. Insurance
Obtain insurance coverage for the buyer’s benefit.
The insurance must cover minimum 110% of the contract value.
It must be against the Institute Cargo Clauses (A) or similar. This is all-risk coverage.
Pay the insurance premium.
E. Proofs and Notices
Provide the buyer with the transport document (e.g., Bill of Lading).
Provide the insurance certificate or policy.
Notify the buyer that the goods have been delivered to the carrier.
Buyer’s Responsibilities:
The buyer’s role begins once the goods are in transit. Their main tasks involve taking delivery and handling the import process.
A. Taking Delivery
Take delivery of the goods at the named place of destination.
Accept the transport document from the seller.
B. Import Formalities
Handle all import procedures.
Obtain import licenses and permits.
Complete customs declarations for import.
Pay all import duties, taxes, and customs fees.
C. Costs and Risks
Bear all risks of loss or damage from the point the seller delivers to the first carrier.
Pay for unloading at the destination (if applicable).
Pay for all costs after the goods arrive at the destination (e.g., local trucking).
D. Proofs and Notices
Provide the seller with any needed information for obtaining insurance.
Notify the seller if they change the time or place for shipment.
3. Advantages and Disadvantages for the Buyer
Choosing CIP has clear benefits and some risks for the buyer.
Advantages for the Buyer:
Simplicity and Convenience. The buyer does not arrange main transport. The seller handles the logistics. This is good for buyers with less shipping experience.
Predictable Main Costs. The price from the seller includes transport and insurance to the destination. The buyer knows this cost upfront. There are no surprise freight charges from the seller.
Minimum Insurance Coverage. The seller must provide insurance. The buyer has basic protection against loss or damage during transit. This is better than having no insurance.
Better for Smaller Shipments. It can be easier to let the seller manage the entire shipping process. This is true for smaller volume orders.
Focus on Core Business. The buyer can focus on sales and distribution. They do not need to manage international freight logistics.
Disadvantages for the Buyer:
Limited Control Over Shipping. The buyer has little control. The seller chooses the carrier and shipping route. The seller may choose the cheapest option, not the fastest or safest.
Inadequate Insurance Coverage. The minimum insurance (110% of value, Clause A) might not be enough. It may not cover all risks or have low claim limits. The buyer might need to buy additional insurance.
Early Transfer of Risk. This is the biggest disadvantage. The buyer bears the risk during transit. If the goods are lost or damaged, the buyer must file the insurance claim. This can be complex and time-consuming.
Hidden Destination Costs. The seller’s price does not include import duties or local fees. The buyer must pay these. They can be significant and unexpected.
4. When to Use a CIP Agreement?
CIP is a good choice in several specific situations.
① When the Seller Has Better Shipping Rates.
Sellers often ship large volumes. They may have negotiated better freight rates with carriers. Using CIP can leverage these lower costs.
② For Multimodal Transport.
CIP is perfect when a shipment uses multiple transport modes. For example: truck to port, ship to another port, then train to a final destination. The seller manages this entire chain.
③ When the Buyer is Inexperienced.
New importers may find CIP easier. The seller handles the complex international logistics. The buyer only needs to manage the import process at their end.
④When the Seller Has More Market Knowledge.
The seller may have more experience shipping to the buyer’s country. They know the best routes and reliable carriers.
⑤ For High-Value or Fragile Goods.
The mandatory “all-risk” insurance under CIP provides good protection. This is important for valuable or delicate items.
5.CIP Agreement FAQ’s
Q1. What is the difference between CIP and CIF?
This is a common question.
CIF (Cost, Insurance, and Freight) can only be used for sea and inland waterway transport.
CIP (Carriage and Insurance Paid To) can be used for all modes of transport.
Insurance: CIF requires minimum insurance coverage under Institute Cargo Clauses (C). This is a more basic cover. CIP requires higher insurance under Clause (A), which is “all-risk”.
Q2. Who pays for unloading costs under CIP?
This depends on the carrier’s contract.
If the freight cost paid by the seller includes unloading, the seller pays.
Often, unloading at the destination is a separate cost. In this case, the buyer is responsible for the unloading cost.
Q3. Can the buyer use their own insurer under CIP?
No. The seller is obligated to contract the insurance. The buyer can request more coverage. But the seller arranges and pays for the base policy. The buyer can purchase additional insurance separately.
Q4. What happens if the goods are damaged when they arrive?
The risk is with the buyer.
The buyer must note the damage on the carrier’s document immediately.
The buyer must contact the insurance company provided by the seller.
The buyer files a claim with that insurer, providing all evidence.
Q5. Is CIP better for the buyer or the seller?
It depends on the situation.
For the seller, it offers control over the shipping process. It can be a value-added service.
For the buyer, it offers convenience but less control and early risk transfer.
Conclusion
CIP is powerful and flexible. It simplifies the process for the buyer. The seller manages the main logistics and insurance.
But buyers must be cautious. They assume risk early. They may pay more and have less control.
Successful use of CIP requires a clear contract. The named place of destination must be specific. The insurance coverage should be verified.
If you want to know the details of other incoterms, you can visit Incoterms Guide [Updated 2025] With Chart.
Tennie Chen is responsible for sourcing and supplier evaluation, with a focus on balancing product quality, cost efficiency, and supply chain reliability. My role involves identifying trustworthy manufacturers, comparing quotations, analyzing total landed costs, and ensuring compliance with international standards. I always prioritize long-term partnerships over one-time deals, aiming to work with suppliers who can provide consistent quality, competitive pricing, and flexible solutions. When making purchasing decisions, I evaluate not only the product itself but also the supplier’s production capacity, lead time, and after-sales support, ensuring that every cooperation contributes to sustainable business growth.
