Incoterm CIP (Carriage and Insurance Paid To): your supplier pays for transport and insurance
Incoterm CIP (Carriage and Insurance Paid To) is one of the most favourable terms for the buyer. Under CIP, the seller not only pays for the main carriage to the agreed destination but also has the obligation to contract "all-risk" insurance in your favour.
This Incoterm is ideal if you want the seller to handle the management and costs of transport and insurance, but it is crucial that you understand when the risk is transferred under this term:
The Transfer of Risk at Origin
As with Incoterm CPT, CIP is based on a "double point" system:
Delivery Point (Transfer of Risk)
The seller fulfils their obligation to deliver at the moment they place the goods at the disposal of the first carrier at the place of origin. At that instant, the risk of loss or damage passes from the seller to you, the buyer.
Destination Point (Distribution of Costs)
The seller pays all costs of the main carriage to the agreed place of destination (e.g., your warehouse in Barcelona, a terminal in Madrid, etc.). In addition, they contract insurance.
Practical Example:
You buy an electronics order from a supplier in China under Incoterm CIP (Carriage and Insurance Paid To Madrid).
1Point 1 (Origin - Transfer of Risk)
The supplier delivers the goods to a carrier at their factory in China. At that moment, the risk of the cargo passes to you. If the truck suffers an accident on the way to the port, the responsibility is yours.
2Point 2 (Destination - Distribution of Costs)
The supplier undertakes to pay all costs up to Madrid (transport in China, export customs clearance, air/sea freight). In addition, they take out "all-risk" insurance in your name.
Your responsibility:
You assume the risk from the start of transport, but you have the guarantee that the insurance contracted by the seller will protect you. Once the goods arrive in Madrid, you are responsible for import customs clearance and final transport.
Responsibilities under Incoterm CIP
Seller's Responsibility:
Package and prepare the goods.
Manage and pay for transport to the delivery point.
Manage and pay for export customs clearance.
Contract and pay for the main carriage to the destination.
Contract all-risk insurance in favour of the buyer with maximum coverage (Institute Cargo Clauses A).
Your Responsibility (as the buyer):
Assume the risk of the goods from the moment of delivery to the first carrier at origin.
Manage and pay for import customs clearance, taxes, and duties.
Assume unloading costs at the destination.
Contract and pay for transport from the agreed place of destination to your final warehouse.
CIP vs. CPT: The key difference is insurance
The main difference between CIP and CPT is the insurance obligation. While under CPT the seller is not obliged to contract insurance, under CIP they are, and it must be with the maximum possible coverage (Institute Cargo Clauses A). This offers you much greater protection as the buyer.
Other Incoterms
Ex Works
The least responsibility for the seller. The goods are delivered at their warehouse or factory. The buyer assumes all costs and risks from that point.
Free Carrier
The seller delivers the goods to the carrier designated by the buyer.
Carriage Paid To
The seller pays for transport to the agreed destination.
Delivered at Place Unloaded
The seller assumes all costs and risks until the goods are delivered and unloaded at the agreed destination (e.g., a terminal or warehouse).
Delivered At Place
The seller delivers when the goods are made available at the agreed place.
Delivered Duty Paid
The seller assumes all costs and risks until final delivery.
Free Alongside Ship
The seller delivers the goods to the carrier designated by the buyer.
Free On Board
The seller delivers when the goods pass the ship's rail.
Cost and Freight
The seller pays the cost and freight to the destination port.
Cost, Insurance and Freight
The seller pays the cost, insurance and freight to the destination port.