- What is CIP?
The Incoterm CIP, (Carriage and Insurance Paid to), is an international trade term that states that the seller is responsible for arranging and paying for the carriage and insurance of the goods to a specified destination.
Although the seller is responsible for the organization and costs of transport and insurance, it is important to note that responsibility for the goods is transferred from the seller to the buyer at the point of origin, once the goods have been delivered to the carrier or to the agreed place of transport.
In summary, the CIP Incoterm is a valuable tool that helps traders mitigate the risks associated with the transportation and insurance of goods in international trade transactions, providing clarity and certainty as to the responsibilities and obligations of the parties involved.
- The responsibilities of both parties:
It is essential to understand the responsibilities involved in the use of the CIP Incoterm to avoid misunderstandings and problems during the freight forwarding process. This is where the CIP establishes a clear demarcation of obligations between the seller and the buyer.
- Seller’s responsibilities
Preparation of the goods: The seller is responsible for preparing and packing the goods in accordance with the sales contract.
Delivery and transport: The seller must deliver the goods to the carrier at the agreed place and is responsible for the transport costs to the specified destination.
Insurance: The seller must contract and pay for the insurance of transportation of the goods to the specified destination. The level of insurance cover must be in accordance with the minimum clause (Clause C) of the Institution of London Underwriters (or similar), unless otherwise agreed.
Documentation: The seller must provide the buyer with the necessary documentation to obtain the goods from the carrier.
- Buyer’s responsibilities
Receipt of the goods: The buyer must receive the goods once they have been delivered by the seller to the carrier at the agreed place.
Importation: Buyer is responsible for complying with all import regulations, including obtaining any necessary licenses or permits.
Additional costs: All costs and risks associated with the goods after they have been delivered to the carrier are the responsibility of the buyer. This includes any additional transportation or insurance costs, as well as any damage or loss that may occur after delivery to the carrier.
- The Advantages and Disadvantages of CIP:
Advantages of CIP
Transportation flexibility: Unlike some other Incoterms, CIP is a multimodal term, which means that it can be used regardless of the type of transportation. This flexibility can be very useful if your goods need to be transported by several modes of transport during their journey.
Security for the buyer: As the seller is responsible for arranging and paying for transport insurance, the buyer is assured that the goods are insured for most of their journey.
Clarity of responsibilities: The CIP clearly states the responsibilities of each party, helping to avoid confusion and misunderstandings.
Disadvantages of CIP
Early transfer of risk: Although the seller bears the costs of transport and insurance to the destination, the risk is transferred to the buyer as soon as the goods are handed over to the carrier at the point of origin. This can be problematic if damage or loss occurs during transport.
Minimum Insurance Coverage: Seller is only obligated to provide the minimum insurance coverage (Clause C). If the buyer desires more comprehensive insurance coverage, he must negotiate separately or take out his own additional insurance.
Import responsibilities: Once the goods have been delivered to the carrier at the agreed location, all import responsibilities, including obtaining licenses or permits, are the responsibility of the buyer.
In considering these advantages and disadvantages, it is important to bear in mind that the choice of the appropriate Incoterm depends to a large extent on the specific circumstances of each transaction and the needs and preferences of the parties involved.
- Practical Uses of CIP
Multimodal transactions: Since CIP is a multimodal trade term, it is commonly used in transactions that require different modes of transportation. For example, if the goods need to be transported by road and then by sea, CIP can be an effective option.
Sale of heavy or expensive machinery: CIP is often the preferred option when selling heavy or expensive machinery, as this Incoterm ensures that the goods will be covered by insurance for most of their journey. This is an important consideration for buyers who wish to protect against potential damage or loss.
Business with less experienced buyers: In cases where the buyer has less experience in logistics or international trade, the use of CIP can simplify the process for them. With CIP, the seller is responsible for arranging transportation and insurance, which can be a great advantage to a buyer with less knowledge or resources in these areas.
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Contact legal consultant:
TLA Law is a leading law firm with a team of highly experienced lawyers specializing in criminal, civil, corporate, marriage and family law, and more. We are committed to providing comprehensive legal support and answering all your legal questions. If you have any further questions, please do not hesitate to contact us.
1. Lawyer Vu Thi Phuong Thanh, Manager of TLA Law LLC, Ha Noi Bar Association
Email: vtpthanh@tlalaw.vn;
2. Lawyer Tran My Le, Chairman of the Members’ Council, Ha Noi Bar Association
Email: tmle@tlalaw.vn.
– Trần Quang Huy –