Carriage and Insurance Paid To (CIP) is a trade term used in international agreements where the seller takes on the responsibility of paying for freight and insurance to deliver goods to a predefined location accepted by the buyer. Upon delivery to a carrier or another appointed entity, the risk transfers down to the buyer, accounting for any potential damage or loss.
CIP stands distinct but similar to Cost, Insurance, and Freight (CIF), particularly utilized in maritime and commodity trading. Under CIP, sellers are obligated to ensure goods in transit for 110% of their contract value, leaving buyers to arrange any extra insurance they deem necessary in pursuit of complete protection.
Why CIP is Necessary
Among the 11 Incoterms prescribed globally for commercial transactions by the International Chamber of Commerce (ICC), CIP specifies clear responsibilities for both the seller and buyer, thus facilitating smoother cross-border trade.
Key Takeaways
- Carriage and Insurance Paid To (CIP): Indicates the seller responsible for paying both freight and insurance to a desired location chosen by the buyer.
- Mandatory Insurance: Sellers must ensure shipment at an insurance covering 110% of the total contract value.
- Global Incoterm: One of the international rule sets devised by the International Chamber of Commerce to harmonize cross-border commercial activities.
How CIP Functions
CIP commonly pairs with a specific destination. For instance, CIP New York ensures that the seller bears the cost covering both freight and insurance charges to New York. CIP, akin to Carriage Paid To (CPT), entails charges covering frequent modes of transportation, which can include road, rail, sea, inland waterway, air, or a multimodal concoction.
Real-Life Example: LG Shipping Tablets to the USA
Consider LG, a Korea-based company, shipping tablets to Best Buy in the USA. Under a CIP agreement, LG assumes responsibility for covering all freight costs and a minimal insurance supply to conveniently ship the tablets to the appointed Best Buy location. When the tablets are handed to the carrier in South Korea, LG’s direct responsibilities end, passing the rest of the risk to Best Buy during the shipment transit.
Prolonged Safety Coverage via CIP
Sellers following the CIP pact are bound to extend insurance under minimal coverage projected to complement the journey. Hence, buyers must continually ensure ample measures protecting shipments against potential risks overly beyond default insurance. Collaboration with carriers could ensure added insurance where costs might distribute based on negotiations.
Benefits of CIP Arrangement
CIP remains extensively seen advent for balanced roles in global trade expeditions. While obligated payments stimulating trade relations stay inclined to sellers, risk management covering mishaps ensures overall shipment security benefits vendors.
Equipment & Factoring Transport Under CIP
Accredited transportation modes under CIP span a wide range improvising from standard transport through recognized roadways, rail systems, marine conduct, inland watering sites to comprehensive air segments, modulating digitally facilitating conveyance.
The Essence of CIP
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Related Terms: CIF, FOB, CPT, Incoterms.
References
- University of Cambridge. “Incoterms”, Pages 3-4.
- International Trade Administration, U.S. Department of Commerce. “Know Your Incoterms”.
