Article 7 in our series of Incoterms® 2020 – In each article we will identify the responsibilities of the seller and buyer in the transaction at different points in the shipping journey.

What are Incoterms used for?

Incoterms® are primarily used for determining how the sale of equipment for delivery across international boundaries will be handled and who will pay for what in the transaction. They will not address the consequences of a breach of contract or exemptions of liability. Incoterms® relate to the terms between the exporter and importer.

Incoterms® cover the following broad points:

• Delivery – Incoterms® 2020 specify when seller delivers to buyer:
• Risk – Incoterms® 2020 specify when risk transfers from seller to buyer. Risk passes from seller to buyer when seller has fulfilled his obligation to deliver the goods
• Costs – Responsibility of costs passes from seller to buyer at a point up to which the seller is obliged to pay transport (and insurance) costs

Our sixth Incoterms® is CIP – Carriage and Insurance paid to (Place of Destination) – Incoterms® 2020

• CIP can be used in any transport mode, and the risk transfers from the seller to the buyer as soon as the goods reach the nominated first carrier and the carrier takes charge of these.

Under CIP terms, the seller clears the goods for export and is responsible for delivering the goods to the carrier nominated by the seller. The seller must pay the cost of carriage, but the seller’s risk ends at the place of shipment or first carrier point. The seller must procure the minimum insurance until the named place of destination. The buyer has the option to contract additional insurance. The risk is passed when the goods are received by the first carrier. This term can be used for any mode of transportation.

Quick overview:

What are the seller’s obligations

• Seller provides commercial invoice and other required documents in paper or electronic form.
• Seller is responsible for delivery of goods to the first carrier at the place of delivery on the agreed date or within the agreed period.
• Seller is responsible for damage or loss of goods until they are handed over to the first carrier at the named point and within the specified time.
• Seller has to contract or organize the transport of goods to the named place of destination. If such a place does not exist, the seller can choose the point that best suits this purpose.
• One of the seller obligations is operating according to all transport-related security requirements for transport to the destination.
• Seller has to carry out and pay for export clearance, as well as assisting the buyer with correct information/paperwork for buyer to do import clearance.
• Seller counts and weigh goods and, if required, packs the goods at its own expense.
• Seller informs the buyer about the delivery of goods to the first carrier and provides the buyer with documents authorizing the buyer to take over the risk of the goods.
• The seller must procure the minimum insurance until the named place of destination.
• The risk is passed when the goods are received by the first carrier. This term can be used for any mode of transportation and the seller is obliged to make a contract of insurance and must provide information for this purpose at the buyer’s request.

What are the buyer’s obligations?

• Buyer takes up the delivery of the goods.
• He takes responsibility for damage or loss of goods from the time they have been handed over to the first carrier.
• Buyer accepts documents provided by the seller.
• Buyer has to carry out and pay for import clearance, as well as assist the seller with information if required for export clearance.
• Buyer informs the seller about the place and date of delivery.
• The buyer is not obliged to make a contract of carriage.
• The buyer is not obliged to make a contract of insurance as the seller must have already done this.
• The buyer has the option to contract additional insurance.

Important points to note

CIP Incoterms® can be used for any mode of transport as well as for multimodal transport.

Carriage Paid To Incoterms® 2020 Rule – Key Changes & Updates.

The CIP rule has two important places, the place of delivery in the seller’s country and the destination to where the seller contracts the carriage. It is important to not confuse the two.

Despite being recommended in place of CIF for cross-ocean container shipments this rule in practice is largely unworkable for most. This is because in such shipments the buyer wants to only take on the risk of damage or loss of the goods when they have actually been exported. Initially the buyer is not only unaware of when or where delivery has occurred but also to whom, as it will be the seller’s carrier. They do not want to be faced with any possibilities of having to deal with any problems whatsoever in the exporting country. The seller has no obligation to put the goods on board a ship by a given date, but as it is using its own contracted carrier it should be easily able to obtain an on- board bill of lading.

Important note: Even though the carriage may be paid to a final overseas destination the place of delivery risk transfer will be in the exporter’s country.

The buyer should note that under the CIP term the seller is only required to obtain minimum insurance coverage. The CIP term requires the seller to clear the goods for export. This term may be used for any mode of transport including multimodal transport. This term is the same as the CPT term but with the addition that the seller also has to procure transport insurance against the risk of loss of the goods or damage to them during carriage. The extent of insurance cover required has to be the minimum for the mode of transport used unless expressly agreed otherwise.

Different level of insurance cover between CIF and CIP

CIF and CIP are the only two Incoterms® that require the seller to purchase insurance in the buyer’s name. Under Incoterms® 2010 the insurance cover for both CIF and CIP was required under Institute Cargo Clause C. Under the new Incoterms® 2020, CIP requires insurance cover complying with Institute Cargo Clause A. Clause A covers a more comprehensive level of insurance which is usually suitable for manufactured goods, where Clause C would likely apply to commodities.

If you missed previous articles Incoterms® 2020 articles,  you can catch on them here.