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CARRIAGE AND INSURANCE PAID TO (CIP) - Incoterms explained

Carriage and Insurance Paid To - CIP

When the goods are in transit, the biggest burden on the minds of the seller and buyer is what if something goes wrong? Who will take responsibility in case of any contingency? Will the contact stand null and void or will the cost of the contract increase manifold?

To cater to the requirements of importers and exporters and make the terms of contract simple and transparent, International Chamber of Commerce has coined 11 Incoterms, and Carriage and Insurance Paid To is one of the most frequently used incoterm in trade transactions.

Meaning of Carriage and Insurance Paid To(CIP)

As the name suggests, the terms of such an agreement require the seller to pay for the carriage and insurance to deliver the goods at the agreed location which is the pace of shipment and not the destination. Till the time the goods are in the custody of the seller, loss and risk will be shouldered by him. But once the goods are handed over to the person or at the destination, the liability of the buyer begins.

Mechanism of CIP:

Carriage and Insurance Paid To is one such agreement wherein insurance is mandatory, and the goods are insured for 110% of the contract value.

The seller seeks insurance of the goods with a minimum amount, and in case the buyer wishes to seek additional insurance, he must pay for it. It is advisable to do so because the risk of the buyer would increase if anything happens to the goods upon transfer to shipment.

CIP is valid for all sorts of modes of transport i.e. rail, road, air freight, ocean freight or a combination of any.

Obligations of buyer and seller

Buyer:

  1. Buyer has to pay for the consignment as per the contract entered into by both the parties.
  2. Assume the risk upon obtaining the goods from the point of shipment.
  3. Carriage is paid by the seller, but it is advised to get the insurance done to cover the risk.
  4. Export license and import permit need to be taken.
  5. All the expenses related to duties, taxes and clearance upon the arrival of the goods at the destination have to be borne by the buyer.

Seller:

  1. The seller is obliged to send the goods as per the terms of the contract.
  2. Insurance has to be paid by the seller. In case of any emergency, the terms should be such that the buyer is easily able to claim insurance of the goods from the company.
  3. The delivery of goods has to be made to the point of the first carrier.
  4. Export costs, delivery charges related to loading of goods and unloading at the first carrier, duties and taxes have to be paid. Export license to ensure comfortable transit from one border to the other has to be obtained by the seller.
  5. The seller is obliged to pay for all the costs of operations, packaging, labeling and quality check.
  6. He must show the necessary documents sufficing that the goods have been delivered.

The 11 types of incoterms 2010 are

  1. EXW (Ex Works)
  2. FCA (Free Carrier)
  3. FAS (Free Alongside Ship)
  4. FOB (Free on Board)
  5. CFR (Cost and Freight)
  6. CIF (Cost, Insurance and Freight)
  7. CPT (Carriage Paid to)
  8. CIP (Carriage and Insurance Paid To)
  9. DAT (Delivered at Terminal)
  10. DAP (Delivered at Place)
  11. DDP (Delivered Duty Paid)