CIP
Also known as: Carriage and Insurance Paid To
CIP, Carriage and Insurance Paid To, is CPT with an insurance obligation. The seller pays freight and insurance to the destination, while the risk already passes at the first carrier.
Who arranges what under CIP?
The seller concludes the contract of carriage to the named destination, insures the cargo and files the export declaration. The buyer handles import and pays duties and VAT. The seller chooses the carrier and the policy, the buyer bears the risk from the first carrier and claims on that policy themselves if there is damage. The insurance is in the buyer's name or gives them the right to claim directly, because it is their risk that is covered. A policy that only names the seller as beneficiary does not suffice. The seller must give the buyer the policy or the certificate before the shipment is on the way, not only once there is damage. CIP applies to any mode, like CPT. For sea freight in containers CIP is the logical counterpart of CIF: the same idea (freight and insurance to the destination), but with the risk point at the first carrier and with wider cover. CIF stays at clause C and the on-board point, and is meant for bulk, not for the container stack.
What cover is mandatory under CIP?
Since Incoterms 2020 the seller under CIP must take out the wide cover of Institute Cargo Clauses A, at least 110 percent of the contract value. Previously the minimum cover of clause C sufficed. Clause A covers all risks of external origin, with a limited list of exclusions. Clause C covers only the listed events. Under CIF that has not changed: clause C remains the minimum there. That difference between CIP and CIF is one of the few real changes of 2020. Anyone treating the two terms as identical on insurance is working with the 2010 rules. The parties may agree a lower cover in writing. If they do not, clause A is the default. A seller who does not want to carry that level must put it in the contract or use CPT, where insuring is not mandatory at all. A buyer who agrees CIP and receives no certificate has a term without the cover they are entitled to.
Where does the risk pass under CIP?
On handover to the first carrier, as under CPT. The insurance does not change the moment of risk transfer; it only covers the financial consequences. If the container is lost between the inland depot and the port of destination, that is the buyer's risk, who then claims on the policy the seller has taken out. That is why under CIP too it is wise to name both the handover point and the destination expressly. CIP warehouse buyer (handover terminal of origin) makes both points visible. CIP Rotterdam alone says where payment runs to, not where the risk passed. The buyer must be able to use the policy. That means a certificate in their name or an assignment, in the currency of the contract, for at least 110 percent of the value, running to at least the named destination. A reference to the seller's open cover without a certificate is not enough, at a loss, to approach the insurer.
What does CIP mean for the customs value?
Under CIP both the freight and the insurance to the named destination sit in the price. For the customs value on import into the EU nothing then has to be added, and costs after entry may be deducted if they can be shown separately. The premium to the external border belongs in the value, the premium after that does not, but that split is rarely on an invoice. Because the insurance premium is built into the amount, Customs often asks for the build-up at an audit. An invoice that only names a total makes it impossible to deduct the intra-EU part. Specify goods, freight and insurance separately, and split the freight into the leg to the border and the leg after that. On the import declaration the named place is the destination, as under CPT. Customs reads CIP Amsterdam as a price that runs to Amsterdam, with a possible deduction of the inland stretch. Without a specification the whole CIP price stays in the customs value.
When do you choose CIP over CPT?
You choose CIP when the buyer wants certainty that the cargo is insured but the seller has the better policy or the better rate. That occurs with exporters who have an open cargo policy. The buyer then does not have to take out a one-off policy for a shipment they did not book. Since Incoterms 2020 that argument has grown stronger, because CIP now requires the wide cover of clause A instead of the minimum clause C. A buyer purchasing under CIP therefore gets cover that includes all risks of external origin as standard, instead of only the listed events. If the seller does not want to carry that level, they must agree it expressly or use CPT. CIP is not the same as bearing the risk to the destination. Anyone who wants that needs DAP or DPU. CIP covers the financial consequence of damage after the first carrier, but the claim, the excess and the exclusions stay with the buyer. Read the policy before you treat CIP as safe.
How does CIP appear on the import declaration?
On the import declaration you enter CIP as the delivery term, with the named destination. That place usually lies in the country of import. Customs assumes that freight and insurance to that place sit in the price, and that only costs after entry into the EU may be deducted if they appear separately. Supply the build-up with the file: goods, freight to the EU border, freight after that, insurance. Without those four lines the CIP price is one amount, and you pay duty on the inland leg and on a premium that in part runs after entry. At high values that is a standing leak. Check that the insurance certificate covers the shipment to at least the place of entry. A policy to the port of shipment does not cover the sea voyage, and then a component of the customs value that you should have had under CIP is missing. The declarant then has to fill that gap with an add-back.
Which documents and pitfalls belong with CIP?
Besides invoice, packing list, export declaration and transport document, CIP requires the insurance certificate. That certificate must enable the buyer to claim directly, for at least 110 percent of the contract value, with clause A unless otherwise agreed in writing. A mention insured on the invoice is not a certificate. The first pitfall is thinking the insurance moves the risk point. It does not. The second is supplying clause C while 2020 requires clause A, which produces a refusal on theft or water damage. The third is a policy in the seller's name without an assignment, so the buyer has no standing to claim at a loss. Ask for the certificate before the shipment leaves, not only on arrival. Without a document you cannot claim, and an insurer who has to issue a certificate after the event for a loss already known rarely does so. Make delivery of the certificate a condition in the contract, alongside the term itself.