Carriage and Insurance Paid To (CIP)

Carriage and Insurance Paid To (CIP) is one of 11 Incoterms 2020 rules published by the International Chamber of Commerce. Under CIP, the seller pays for transportation to a named destination and provides all-risk cargo insurance covering the full transit. Risk transfers to the buyer when the goods are handed to the first carrier, not when they arrive at the destination. The insurance must cover at least 110% of the contract value under Institute Cargo Clauses A, which is the broadest all-risk standard. CIP applies to all modes of transport.

Think of CIP like booking a flight and purchasing travel insurance for your package: you arrange and pay for both, but the traveler (the buyer) takes ownership of the risk the moment the bag leaves your hands at check-in.

CIP Was Upgraded in Incoterms 2020 to Require All-Risk Coverage

Under Incoterms 2010, the seller's insurance obligation under CIP required only Institute Cargo Clauses C, the most basic limited-coverage standard. The 2020 revision upgraded this requirement to Institute Cargo Clauses A, which provides all-risk coverage. This was a significant change that makes CIP one of the two most protective Incoterms for buyers in terms of insurance quality. The other is CIF (Cost Insurance and Freight), which still requires only Clauses C but is restricted to sea and inland waterway transport.

Sellers and Buyers Each Control Different Portions of the Transaction

Under CIP, the seller controls and pays for the entire logistics chain from origin to the named destination. The seller chooses the carrier, arranges the insurance, and handles export clearance. The buyer is responsible for import clearance and duties at the destination, as well as any costs incurred after the goods arrive.

The named destination in the CIP contract must be specified precisely. The more specific the destination, the more transport cost the seller bears. "CIP London port" and "CIP buyer's warehouse in London" produce very different cost allocations for the seller, even though both use the same Incoterm.

Risk Transfer Occurs at the First Carrier, Not at the Destination

The most common misunderstanding about CIP is that risk transfers when the goods arrive. It does not. Risk passes from seller to buyer at the moment the goods are delivered to the first carrier in the origin country. After that point, the goods are traveling at the buyer's risk, even though the seller is still paying for the freight and insurance. If the ship sinks or the truck crashes after that delivery moment, the loss falls on the buyer, who must claim against the insurance policy the seller arranged. CIP first appeared in Incoterms 1980, making it one of the original members of the Incoterms framework.

Sources:
https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/
https://www.trade.gov/incoterms-2020
https://www.freightcourse.com/cip-incoterms/
https://corporatefinanceinstitute.com/resources/accounting/cip-carriage-insurance-paid-to/