What is CIP in Incoterms?

I. WHAT IS CIP IN INCOTERMS?

 

CIP (abbreviation for: Carriage and Insurance Paid To, in Vietnamese: Cước phí và Bảo hiểm trả tới) is a term in international trade that specifically stipulates the corresponding obligations, costs and risks involved in the transfer of goods from seller to buyer according to Incoterms standards published by the International Chamber of Commerce (ICC [1]) .

 

Under CIP terms, “Carriage and Insurance Paid To” means that the goods and risks are transferred to the buyer when the seller delivers the goods to the carrier or another person nominated by the seller at a location agreed upon (if that location has been agreed upon by the parties) and the seller must contract and pay the transport costs necessary to bring the goods to the named location. In addition, the seller will have to buy insurance for the goods.

 

The seller must also sign an insurance contract to cover the risks of loss or damage to the goods that the buyer must bear from the place of delivery to at least the place of destination. Sellers should also note that under the CIP Incoterm ^®2020, the seller must obtain insurance in conformity with Clauses (A) of the Institute Cargo Clauses. However, the parties can still agree on a lower coverage ^[2].

How to include CIP conditions on foreign trade contracts:

 

CIP [ named destination ] Incoterm ^® 2020

 

For example, if the delivery location specified by the buyer is at Tien Sa port, Da Nang, located at 01 Yet Kieu, Tho Quang, Son Tra, Da Nang. The CIP of this foreign trade contract will be written as follows: CIP 01 Yet Kieu, Tho Quang, Son Tra, Da Nang, Vietnam Incoterms 2020.

 

II. USAGE GUIDES

 

1. Regarding transportation methods:

 

This term shall be used for all modes of transport and may be used where more than one mode of transport is involved.

 

2. Transfer of goods and risks (CIP – Carriage and Insurance Paid To):

 

Carriage and Insurance Paid To means that the goods and risks are transferred to the buyer when the seller delivers the goods to the carrier or another person nominated by the seller at a location agreed upon (if that location has been agreed upon by the parties) and the seller must contract and pay the transport costs necessary to bring the goods to the named location. In addition, the seller will have to buy insurance for the goods.

 

When using the CIP term, the seller is considered to have fulfilled his delivery obligation when he has delivered the goods to the carrier, and not to the place of destination.

 

It should be clarified that in CIP terms there are two tipping points, because risks and costs are transferred at two different locations. The parties should specify as clearly as possible in the contract the place of delivery at which risks are transferred to the buyer, and the named destination to which the seller must hire means of transport to deliver the goods. If more than one carrier is involved in transporting the goods to the named destination and the parties have not agreed on a specific point of delivery, the risk passes when the goods have been delivered to the first carrier at the place entirely up to the seller's choice and over that location the buyer has no control. If the parties want the risks to be transferred at a later time (for example at a port or at an airport), they must specifically stipulate it in the sales contract.

 

The parties should also specify as clearly as possible the point at the named destination, as the costs to that point are for the seller's account. The seller must sign a contract of carriage appropriate to this location. If the seller is required to pay additional costs under the contract of carriage in connection with unloading the goods at the named destination, the seller shall not be entitled to recover those costs from the buyer unless otherwise agreed between the parties.

 

3. Cargo insurance:

 

The seller is obliged to conclude an insurance contract covering the buyer's risks of loss or damage to the goods during transportation to the place of delivery. This may create difficulties if the importing country requires insurance to be purchased domestically: so if this is the case, the parties need to consider using CPT terms and the buyer purchasing the insurance themselves. Buyers also need to note that according to Incoterms 2020, the seller is required to buy the highest level of insurance, which is type A insurance or equivalent to type A instead of the minimum insurance level of type C according to Incoterms 2010. However, if the parties want, they can negotiate to lower the insurance level and include this in a clause of the contract.

 

4. Unloading costs at place of destination:

 

If the contract of carriage signed by the seller includes unloading costs at the destination port, the seller will have to pay these costs, unless the two parties have agreed in advance that the buyer will refund this cost to the seller.

 

5. Export/import customs clearance obligations:

 

The CIP term requires the seller to clear the goods for export, if necessary. However, the seller is not obliged to carry out customs clearance when importing or transiting in a third country that the goods must go through, and does not have to pay import taxes or import customs clearance costs.

 

III. OBLIGATIONS OF BUYER AND SELLER UNDER CIP

 

A. OBLIGATIONS OF THE SELLER:

 

A1. General obligations of the seller

 

The seller must deliver the goods and the commercial invoice in accordance with the sale contract and provide information, documents as the contract may require.

 

Any documents provided by the seller may be in paper form or in electronic form if agreed by the parties or prescribed by custom.

 

A2. Delivery

 

The seller must deliver the goods by handing them over to the carrier contracted in accordance with A4 on the date or purchase so delivered. In both cases the seller must deliver the goods on the date or within the period agreed upon [3].

 

The seller's delivery obligations in CPT and CIP are exactly the same: deliver the goods to the carrier designated by the seller at the place of origin or purchase goods that have been delivered to the carrier at the place of origin within the agreed period. [4].

 

A3. Risk transfer

 

The seller bears all risks of loss or damage to the goods until they have been delivered in accordance with A2, except in cases of loss or damage referred to in B3.

 

A4. Carriage

 

The seller must contract for the carriage of the goods from a named point of delivery, if any, at the place of delivery to a point of receipt, if any, at the agreed place of receipt. The contract of carriage must be made on usual terms at the seller's expense and for carriage by the usual route and in the usual manner. If the place of destination is not agreed or is not determined by custom, the seller may choose the point of delivery and the place at the named destination that best suits his purposes.

 

The seller must meet any shipping-related security requirements for carriage to the place of destination[5].

 

Although Incoterms® 2010, Group D rules require the seller to “contract” carriage, the seller may nevertheless arrange for carriage by the seller's own means. This is further clarified in the [6]Incoterms ^® 2020 as it changes the phrase "sign a contract" to "contract or arrange " for transportation. Therefore, according to group D rules, the seller can use his own means of transport and does not necessarily have to hire means of transport from a third party carrier. This regulation will be favorable for group D sellers who have available means of transport for transportation.

 

If in group F, the seller only needs to meet any security requirements related to transportation until delivery at the place of origin, then in groups C and D, the seller must meet all security requirements relating to the carriage which the seller intends to carry the goods to the named place or port of destination[7].

 

A5. Insurance

 

Unless otherwise agreed or according to the custom of the trade, the seller must at his own expense insure the goods in accordance with the level of cover under Clause (A) of the Institute Cargo Clauses (LMA/ IUA) or any similar conditions appropriate to the means of transport used.

 

Insurance must be in force from the point of delivery as set out in Article A2 to at least the named place of destination.

 

Insurance must be with a reputable insurer or insurance company and give the buyer, or any other person with an insurable interest in the goods, the right to claim compensation directly from the insurer.

 

At the buyer's request, at the buyer's expense, subject to the buyer providing any necessary information required by the seller, the seller must provide any additional insurance, if practicable, for example, under the War and/or Strikes Conditions (LMA/IUA) or any similar conditions (unless such cover is included in the general cargo insurance) described in the previous paragraph).

 

At minimum, insurance shall cover the contract price plus 10% (i.e. 110%) and must be expressed in the contract currency.

 

The seller must provide the buyer with an insurance policy or Certificate or any other evidence of the insurance contract.

 

In addition, at the buyer's request, at the buyer's risk and expense, the seller must provide the buyer with the information the buyer needs to purchase additional insurance[8].

 

A6. Delivery/transportation documents

 

If the custom dictates or the buyer requests, the seller must bear the costs of providing the buyer with common transport documents; according to the contract of carriage specified in section A4.

 

This transport document must clearly state the contract goods and indicate the date of delivery within the agreed delivery period. If agreed upon or required by custom, the transport document must also permit the buyer to make a claim against the carrier in respect of the goods at the named place of destination and permit the buyer to sell the goods during transport by transferring documents to the next buyer or by notifying the carrier.

 

Where a transport document is issued in transferrable form and contains multiple originals, a complete set of originals must be presented to the buyer.

 

A7. Export/import customs clearance

 

a) Regarding export customs clearance

 

If necessary, the seller must carry out and pay all costs related to export customs procedures prescribed by the exporting country such as:

 

• Export license;
• Security check of goods before export;
• Inspection of goods before export; and
• Any legal regulations.

 

b) Support in carrying out import procedures

 

If necessary, the seller must assist the buyer upon request, at the buyer's risk and expense, to obtain documents/information necessary for customs clearance upon transit/import, including security information and goods inspection, as regulated in the country of transit or import.

 

A8. Checking – Packaging – Marking

 

 

The seller needs to pay the costs of inspection (such as quality inspection, weighing, measuring, counting) necessary for delivery as prescribed in section A2.

 

The seller must package the goods at their own expense unless industry practice specifically requires that the goods be sent unpackaged.

 

The seller must package and mark the goods in accordance with the mode of transport, unless both parties have specifically agreed on packaging and marking when the contract is signed.

 

A9. Cost division

 

Seller must pay:

 

a) All costs relating to the goods until they are delivered to the buyer in accordance with section A2, except those payable by the buyer in accordance with section B9;

 

b) Transportation costs and all related costs arising from section A4, including loading costs and costs related to transportation security;

 

c) Any additional charges for unloading at the destination port but they must be in the contract of carriage that the seller signs with the carrier

 

d) Transit costs if these costs are included in the transport contract signed by the seller;

 

e) The costs of providing evidence to the buyer in accordance with A6 that the goods have been delivered;

 

f) Insurance costs as specified in section A5;

 

g) If necessary, customs clearance, export tax payment and any other costs related to export according to item A7( a); and

 

h) Pay the buyer all costs and charges relating to assisting the seller in obtaining the necessary documents and information under B7( a).

 

A10. Notifying the buyer

 

The seller must notify the buyer that the goods have been delivered in accordance with A2 and must also notify the buyer of any information necessary to enable the buyer to take delivery of the goods.

 

B. BUYER'S OBLIGATIONS (Buyer)

 

B1. General obligations of the buyer

 

The buyer must pay for the goods as stipulated in the sales contract.

 

Any documents provided by the buyer may be in traditional paper form or in electronic form if agreed by the parties or prescribed by custom.

 

B2. Delivery

 

The buyer must take delivery of the goods when they have been delivered in accordance with A2 and must take delivery of the goods from the carrier at the named place of destination or if agreed, at a point at that destination[9].

 

B3. Risk transfer

 

The buyer must bear all risks related to loss or damage to the goods from the time the goods are delivered according to section A2.

 

If the buyer fails to give notice in accordance with Clause B10, the buyer bears all risks of loss of or damage to the goods from the agreed date or the expiry of the agreed delivery period, provided that the goods have been clearly identified as the contract goods.

 

B4. Carriage

 

The buyer has no obligation to the seller to make a contract of carriage.

 

B5. Insurance

 

The buyer has no obligation to the seller to conclude an insurance contract. However, the buyer must provide the seller, if requested by the seller, with any information necessary to enable the seller to procure additional insurance required by the buyer in accordance with A5.

 

CIP and CIF sellers are obliged to buy insurance according to certain insurance levels (clause A for CIP and Clause C for CIF), these insurance levels do not include risks that may occur with the goods. such as war, strike, etc. The buyer can request the seller to purchase additional insurance for those risks. The buyer must then provide the necessary information required by the seller to purchase additional insurance [10].

 

B6. Transport/delivery documents

 

The buyer must accept the transport documents provided in accordance with A6 if they comply with the contract.

 

B7. Export/import customs clearance

 

a) Supporting export customs clearance

 

If necessary, the buyer must assist the seller at his request, at the seller's risk and expense, in obtaining documents/information relating to export clearance, including security or Pre-export inspection required by the exporting country.

 

b) Import customs clearance

 

If necessary, the buyer must carry out and pay the costs related to customs clearance specified in the transit country and the importing country, such as:

• Import permit or any permit required for transit;
• Security checks for import and transit;
• Goods inspection; and
• Any legal regulations.

 

B8. Checking – Packaging – Marking

 

The buyer has no obligations to the seller.

 

B9. Cost division

 

Buyer must:

 

a) Pay all costs incurred related to the goods from the time the goods are delivered according to section A2, except for the costs paid by the seller according to section A9;

 

b) Costs of transit of goods, unless they are included in the transport contract signed by the seller;

 

c) Unloading costs, unless they are included in the transport contract entered into by the seller;

 

d) The cost of purchasing any additional insurance required by the buyer in accordance with sections A5 and B5 ;

 

Since the CIP or CIF seller is obliged to purchase insurance for the goods, compared to CPT or CFR, the CIP or CIF buyer must bear the additional cost of additional insurance if the buyer requests the seller to purchase additional insurance and the seller has fulfilled this request.

 

e) Refund all costs and fees incurred by the seller in helping the buyer under section A5 or A7( b);

 

f) If required, pay all taxes, fees and other charges as well as customs clearance fees for transit and import in accordance with section B7(b ) ;

 

g) Pay all costs arising from failure to promptly notify the seller in accordance with B10, from the date specified or the date of expiry of the period specified for dispatch, provided that the goods have been identified as the contract goods.

 

B10. Notifying the seller

 

In cases where the buyer has the right to decide on the time of delivery and/or the place of destination or the point of receipt at that destination, the buyer must give the seller full notice thereof.

 

This condition clearly describes the sale and carriage of the goods from the seller to the buyer, with the seller responsible for transporting and insuring the goods to their destination at the seller’s expense. Here are the advantages and disadvantages of CIP conditions:

Advantages

Disadvantages

1. The seller is responsible for the costs of transporting and insuring the goods to the destination, helping the buyer save costs and time in transporting goods and purchasing insurance. 2. CIP is a common and easy-to-understand delivery condition, therefore it minimizes the risk of disputes between parties. 3. Buyers can decide for themselves the appropriate shipping route and shipping time, depending on their needs.

1. Goods insurance purchased by the seller may not be sufficient to protect the buyer from risks during the transportation of goods. 2. The buyer may be solely responsible and liable for the costs of importing the goods into the destination country, including taxes and fees related to importation. 3. If the buyer does not have experience shipping goods from abroad into their country, they may have difficulty handling import-related procedures.

 

Therefore, when using CIP terms, parties need to pay attention to purchasing adequate cargo insurance and ensuring that the seller is using reputable shipping services. In addition, the parties should also pay attention to factors such as costs and responsibilities during the transportation of goods, to ensure transactions are carried out more smoothly.

 

Above is a summary of information to help you better understand the CIP Incoterms ^® 2020 conditions. In general, in commercial activities, each condition clearly shows the responsibilities of the seller and the buyer. Therefore, if you have any questions and need any advice on import and export of goods, you can contact FDVN for legal support.

 

 

 

 

Read more: 

WHAT ARE THE DAP CONDITIONS?

 

EXW CONDITIONS IN INCOTERM 2020 - THINGS YOU MAY NOT KNOW

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