cip-shipping-incoterm

Are you interested in knowing about CIP shipping incoterm?

Do you want to know about it before dealing with trade-related agreements?

 If yes, then you are in safe hands. We will guide you about CIP in this blog.

CIP shipping incoterm is widely used in trade. CIP stands for Carriage and Insurance Paid To.

In CIP, the seller is responsible for paying the delivery and insurance costs till the goods reach the import terminal.

 The import duties and import customs clearance is the responsibility of the buyer.

In this blog, we will discuss all the essential things about CIP incoterm to make the best decision for yourself.

Table of Content

Chapter 1: Understanding CIP shipping incoterm

Chapter 2: Things you should know before using CIP shipping

Chapter 3: Stepwise shipping process

Chapter 4: More about CIP shipping incoterm

Chapter 5: Frequently asked questions about CIP shipping incoterm

Chapter 1: Understanding CIP shipping incoterm

The most important thing to consider while shipping goods globally is the complete knowledge about incoterms.

The word incoterm means International Commercial Term. Incoterm is a set of rules that defines which parties are to be held responsible for the shipment of goods and which party will have to pay at different points during transport to your country.

What is meant by CIP shipping incoterm

The examples of incoterm are FOB, EXW, and CIF.

In this chapter, we will discuss the detailed introduction about CIP shipping incoterm.

1. What is meant by CIP shipping incoterm?

The term CIP is an abbreviation used for Carriage and Insurance Paid to.

It is the widely used method of importing and exporting goods. It is one of the 11 shipping incoterms.

 In CIP Incoterm, the seller is responsible for paying the delivery costs and insurance costs.

The seller is liable for any damage that may occur to the goods until they reach the destination port.

CIP Incoterm is recommended when you are using a letter of credit. In CIP shipping, the seller assumes all risks of goods before their delivery to the buyer.

Once the delivery is completed, the risks are shifted to the buyer. The seller takes responsibility for costs as well as insurance of goods.

Multimodal shipment is often used in CIP incoterm, but the seller pays the shipment charges.

2. When is it best suited to use CIP shipment?

CIP incoterm is very lenient in the case of shipping. According to CIP, you can use multimodal transport to ship your goods.

So, in cases like that, when you require different modes of shipping, CIP becomes the best option for you.

CIP is one of the best incoterms because it gives the buyer freedom from worries.

In cases when the buyer wants the seller to manage all processes and take complete responsibility for goods until they reach his place, CIP is the best incoterm.

In this way, the buyer becomes free of the duties and the liabilities of damage until the goods reach the agreed destination.

CIP shipping incoterm is best suited when a buyer wants the seller to fulfil all formalities until they reach the destination country.

This is because it is continually troublesome to manage things from far off places than to manage them from the immediate area.

3. Alternatives of CIP shipping incoterm

When you are tested in a situation where you need to choose one incoterm to process your trade, you wish to get the best one.

 Eleven main incoterms are very frequently used in the shipping industry. They can be used as an alternative to CIP shipping in different cases.

The main reason for choosing an incoterm is the comfort it provides you.

So, to adopt the best-suited incoterm, you should compare your needs with the benefits provided by a certain incoterm.

If an incoterm matches your requirements, you should not hesitate to use it.

You can use any of the following incoterms instead of CIP according to your requirements.

Incoterms instead of CIP Incoterms instead of CIP
  • CIF (Cost, Insurance and Freight)
  • FOB (Free on Board)
  • EXW (Ex Works)
  • CPT (Carriage paid to)
  • CFR (Cost and Freight)
  • DAP (Delivered at Place)
  • DAT (Delivered at Terminal)
  • FCA (Free Carrier)
  • FAS (Free Alongside Ship)
  • DDP (Delivery Duty Paid)

4. Pros and cons of using CIP shipping incoterm

Pros and cons of using CIP shipping incoterm

Both parties manage the goods at their end. The seller handles everything when the goods are in the country of export, and the buyer handles everything when the goods reach the country of import, hence making the process easier and more feasible.

 So, there is an equal division of risk factors.

Pros of using CIP shipping incoterm Cons of using CIP shipping incoterm 
  • CIP provides you with flexibility.
  • The seller can choose the mode of transportation according to your comfort and requirement.
  • The seller can quickly negotiate with the insurance companies.
  • The buyer does not need to pay the transportation charges.
  • The costs are divided into both parties, the seller and the buyer.
  • The liability is transferred to the buyer at the destination port.
  • Seller takes care of all the formalities until goods safely reach the destination.
  • The buyer can negotiate and pay for additional insurance if he fears the security of the goods.
  • The seller has to bear all the charges until goods reach the destination port.
  • The seller is responsible for the safety of goods until they reach the destination.
  • If any damage occurs during the shipping process, the seller becomes liable to pay for it.
  • Due to high-risk factors, the seller cannot avoid buying an insurance policy.
  • There are increased risks of loss for sellers due to damage to the shipment.
  • The buyer might be asked to pay more amount in advance than in any other incoterm.
  • The buyer becomes liable for the risks and responsibilities once the goods have reached the destination port.

5. What is the rough estimated cost of CIP shipping?

The cost of CIP shipping on the seller’s end includes all the charges of packaging, loading, payment of export taxes, insurance fee, freight charges and charges for documentation.

The seller pays all the fees and costs until the goods reach the agreed destination. Any loss or damage during this time frame causes loss to the seller.

The buyer holds all the responsibilities once the goods reach the import terminal. The buyer has to pay import fees, taxes and customs.

The buyer also does any inland movement of goods from the import terminal to the warehouse. Losses and damage occurring after this are the responsibility of the buyer.

Chapter 2: Things you should know before using CIP shipping

There are a few things that you should know before diving deep into CIP shipping.

 In this chapter, we will discuss all those crucial things to increase your understanding of CIP shipping incoterm.

1. How does CIP shipping work?

How does CIP shipping work

The term CIP: Carriage and Insurance Paid To is used in addition to the destination.

CIP Los Angeles means that the seller is liable to pay for the freight and also deal with insurance charges to Los Angeles.

It should be kept in mind that all the risks and responsibilities are assumed by the seller.

The carriage charges or freight charges here mean the transportation charges.

There are different charges for different modes of shipping.

 You can use air shipping, ocean freight, railways, seas and roads for the purpose of transportation.

Another suitable option can be multimodal transportation, where you are not obliged to stick to only one mode of transportation.

The buyer assumes all the risks and responsibilities once the seller hands over the goods.

2. Tips and tricks related to CIP Shipping

The process of CIP shipment can be made much more interesting if you know some tips and tricks about it.

 Here we have gathered some tricks for you to get more ease and comfort.

  1. Insurance arrangement is not mandatory for pre-carriage and carriage in the export and import country. The only condition when it becomes compulsory is when the terms are specified with mutual agreement, somewhere in the contract.
  2. The seller has to arrange the minimum insurance cover only. Minimum cover insurance is the invoice value of all the goods one has ordered. If the buyer thinks that the cover is insufficient, then the cover can be included in the contract of sale according to the agreed level of cover.
  3. It should be known that the risks and responsibilities are transferred to the buyer before the carriage.
  4. Difference between CIP and CIF

3. Difference between CIP and CIF

Tips and tricks related to CIP Shipping

CIP and CIF are two incoterms that are very widely used in the shipping and export industry. CIP, as discussed earlier, means Carriage and Insurance Paid To.

 On the other hand, CIF means Cost, Shipping, and freight.

CIP and CIF are very similar incoterms, so people often get confused. The main difference between CIF and CIP is that CIF is used only for sea freight, while CIP applies to all modes of transportation.

Grossly, we can say that the risks and responsibilities are transferred to the buyer at the seaport in CIF shipping while this can be done at any agreed-upon destination in case of CIP shipping incoterm.

 (The agreed location should be in the country of origin.)

4. Additional coverage of CIP

As we know that the seller is only responsible for purchasing the minimum amount of insurance coverage in CIP shipment so that the shipment can be transported to the destination, the buyer may be at a loss.

The reason for the buyer’s loss is that in case of any damage to the shipment, the seller will not be responsible.

Hence, the buyer should always make sure to arrange extra insurance coverage.

Additional coverage of CIP includes all those methods that can provide extra care to the products and protect them from risk factors.

 Neglecting additional coverage can result in huge losses on the end of the buyer in case of any mishap.

Another way to deal with this situation is that the buyer may ask the seller for additional insurance coverage.

 This change in terms only depends upon the negotiating ability of the buyer.

5. CIP insurance

CIP insurance

CIP insurance primarily refers to the insurance of the cargo in which the goods are transported.

 In CIP and CIF seller holds the responsibility to obtain cargo insurance.

If a buyer finds better and cheaper insurance, he can opt for CPT incoterm so that the contractual duty of the seller to provide the insurance can be removed.

To be able to make the best decision, the buyer should be familiar with the detail of incoterms and their obligations.

Chapter 3: Stepwise shipping process

Importing goods from any country around the world involves a step-by-step process. The stepwise procedure of shipping goods is discussed below.

1. Request quotations

The first step of shipping goods is to request quotations from different suppliers. This process will help you choose and select the best supplier.

Once you have precisely gone through all the initial steps, you will find a trustworthy or well-reputed supplier that suits your demands to place your order.

Your exporter will provide you with a commercial invoice. The commercial invoice is a document that serves as a piece of evidence regarding the trade between the two countries.

Moreover, the exporter will also provide you with a packing list and bill of lading.

It will help if you calculate the total landed cost of the products you want to ship from anywhere globally.

 It includes the total amount you are obligated to pay to bring the goods you ordered from the seller’s warehouse in the country of export to yours. It is how you will be able to order your products precisely according to your budget.

It is the point when you agree on shipping terms. So, here you can choose CIP shipping incoterm if you want.

2. Order goods

Order goods

The next step is to identify suitable goods. It is essential to know a few things before importing the goods.

The goods should be highly in-demand in your country because people will only buy them if they need them.

 The goods should have a profit margin of 40 to 50% because selling the goods can help you generate the amount already used on the duties and all other taxes paid.

Another vital thing to consider is whether the goods you want to import from any country are allowed in your country or not.

 If the goods are permitted, then it may be a bright chance for you and your business to flourish, but if not, then it is just a waste of time and money to order those goods.

Some goods are permitted in almost all countries, but a few exceptions exist.

 The goods that might not be allowed in some countries require licensing, which is a relatively lengthy and also costly process.

 Hence, it is not advised to import such products.

3. Arrangement for shipping

Nowadays, the products are transported globally through air freight or sea freight to your country.

It usually takes only one to two days for the shipping of goods. But in some exceptional cases, shipping of goods can take even more than that due to lengthy custom clearance processes.

The principal determiner of shipping time is the mode of shipping. The goods shipped through-plane need less time to reach the destination.

 Similarly, the shipping cost is also dependent on the shipping mode. Faster modes of shipping are costlier.

4. Processing of goods

The goods are processed and made sure that there is nothing illegal. The processing also includes checking the quality of the packaging.

Some goods require special packaging, so one should take care of them more diligently.

Ensure that the goods you wish to import are easy to handle and do not require special care because making arrangements for special care will cause you extra sums.

you should also ensure the import of goods with fewer warranty cases. Importing those goods on which minimum import taxes are applicable is far more beneficial.

5. Export and import clearance

Export and import clearance

Each product imported from a country has a specific tax classification number.

The tariff classification number consists of ten digits in total, and it helps identify the goods during custom processing.

When you import goods, you are obligated to pay taxes on them. The customs and duties paid are determined by the unique tax number of the goods and also by the certificate of origin.

Therefore, before importing goods, it is essential to consider whether all the customs and duties applied to those goods fall within your budget or not.

A customs broker will help you to clear your shipment. After clearing the customs, you can easily take your shipment.

6. Goods reach the import terminal.

The initial few steps were investigation-based. In the beginning, after considering different crucial aspects of importing goods, the buyer placed the order for goods.

After placing the order, the seller paid all customs and duties, and the goods were finally shipped to your country.

So, after diligently completing all the legal steps, the goods reach the destination port at the import terminal. Here the seller can hand over the goods to the buyer.

Chapter 4: More about CIP shipping incoterm

Seller's obligation in CIP

In this chapter, we will discuss the obligations of CIP incoterm for buyers and sellers. Other areas of focus will be costs and customs of CIP shipping incoterm.

1. Obligations in CIP incoterm

Whenever we discuss any shipping incoterm, we see that there are some specific obligations of sellers as well as buyers.

 One cannot ignore these obligations if one is willing to use any of the incoterms. In the following section, we have discussed the responsibilities of sellers and buyers in CIP one by one.

  • Seller’s obligation in CIP

If the contractual basis of shipping is CIP, the seller is obliged to fulfil the following responsibilities.

  • Proper packaging and intricate wrapping according to the guidelines.
  • Marketing of goods along with preparation for an export license.
  • Transport of goods until they reach the agreed-upon location, I.e., the destination.
  • Making arrangements for all the inland transportation.
  • Handling the customs and duties at the point of origin.
  • Paying the origin charges.
  • Paying for the international freight. (According to the mode of transportation)
  • Insurance of the shipment.
  • Fulfilling the customs formalities.
  • Pre-carriage and delivering all the goods and documents safely to the buyer.
  • Buyer’s obligations in CIP

First, the buyer has to pay for the goods he has ordered and then fulfil other obligations mentioned below.

  • Manage all customs at the destination port.
  • To pay all duties and taxes at the destination point.
  • To Transport goods from the agreed location. All in-land transportation of goods within the destination country is the buyer’s responsibility.
  • To Fulfil all import formalities at the destination port.
  • Inspection of the shipment.
  • Negotiable

Negotiable

There are a few things that can be compromised. The seller and the buyer can negotiate and impose some change in the terms and conditions of the CIP shipping incoterm rules.

The main objective of this negotiation is to create comfort for both parties.

According to the rules and regulations of CIP incoterm, from loading the cargo to dealing with the insurance of shipment are the seller’s responsibilities.

The buyer has to carry goods to the destination and pay customs duties. The seller and buyer can negotiate regarding two things. I.e. loading and unloading the trucks at the port of destination.

2. Cost and customs of CIP incoterm

In CIP Incoterm, the seller is held responsible for all the costs till the shipment reaches the destination port.

After handing over the shipment to the buyer, the seller becomes free from the risks and responsibilities.

The buyer has to take care of all the costs and customs after taking them from the seller at the destination port.

The costs involved in the whole process include :

  • The charges are required to ensure proper maintenance of goods in the warehouses.
  • All types of depot charges.
  • Charges of the freight (for example, air freight and sea freight etc.) and the freight forwarder.
  • Insurance charges for safe and secure transport of goods.
  • Charges of inland transportation.
  • Freight costs

Freight costs are the shipping costs. The seller must pay for all such arrangements until the destination port with the decided time.

 The range of freight charges may vary according to the mode of transportation. One has to pay more expenses for air freight and relatively fewer charges for ocean freight.

Similarly, there are other factors also that affect the freight costs.

  • Duties and custom clearance

Duties and custom clearance

CIP shipping also includes duties and customs. The seller is obligated to pay the export customs and duties and any settlement charges.

He has to look after the proceedings of freight forwarding as well. All costs involved in the preparation of required necessary documents that are needed for customs clearance are also paid by the seller.

Other charges include loading charges, delivery costs, pre-shipping inspection costs, and costs of packaging.

 The buyer is liable to pay for the ordered goods, destination charges, inland transportation charges, customs handling in the destination port, and the import price.

  • Insurance

The seller is liable to pay for any damage to the goods until the destination port. So, the seller is responsible for paying the insurance costs.

Once the goods have reached the destination port, the seller is no longer responsible for any damage anymore.

At the destination port, the seller hand over all the goods and necessary documents to the buyer.

Chapter 5: Frequently asked questions about CIP shipping incoterm

Frequently Asked Questions OEM ODM

1. What are the responsibilities of a seller in CIP incoterm?

In CIP shipping, the seller is responsible for packing the goods and loading them.

The seller pays the export customs, freight charges, insurance charges of the shipment, documentation charges and handling the customs and duties.

Any damage to the shipment and goods before reaching the destination port is a liability of the seller. He has to pay for any such unfortunate loss of goods.

2. What is the usual process of CIP shipping?

The process of CIP shipping starts when a buyer places an order. The seller makes arrangements for the shipping, prepares documents needed, pays for the freight and delivers goods to the buyer at the agreed destination.

The buyer then takes charge of the process by clearing customs and duties. The liability of goods is transferred to the buyer at the destination port.

3. Is customs clearance included in CIP?

Yes, customs clearance is added included in the CIP shipment process. Once the goods reach the destination port, the buyer has to pay the customs duties of the import terminal.

The customs officer thoroughly checks the goods, and the customs clearance process is completed.

CIP incoterm makes both parties liable to pay the customs. All the charges related to the export terminal are a matter of concern for the seller, while all the costs that are linked with the export terminal are a matter of concern for the buyer.

The seller pays for the goods, necessary documentation, documentation and insurance. The buyer is responsible for customs clearance at the import terminal.

4. What is the cost of CIP shipping?

The cost of CIP shipment is the total of all the duties, customs, and charges included in the shipment process.

For the buyer, it is the piece of quotation of goods, the transit cost of goods, unloading costs and additional insurance costs. The buyer is also obligated to pay for the import duties and taxes.

The seller pays all costs until delivery. These costs include transportation charges, loading charges, unloading charges under the contract of carriage, delivery charges and insurance charges. The seller also pays all duties and taxes of export.

The seller has to pay for the documentation necessary for the export of goods as well.

5. How much time does it take for CIP shipping?

To calculate the time needed for CIP shipping, one should consider the mode of shipping. If the goods are shipped through air freight, the process can be done within days, while if you use other shipping methods, the process may become lengthy.

Slower the mode of shipment longer it takes for completing the process.

Other factors that may cause delays in the process include customs clearance and inspection of goods.

Sometimes the customs officers suspect something fishy and may stop the shipment for thorough checking, so in those cases, unloading, unpackaging and reloading takes a lot of time.

Hence one cannot predict the actual time frame needed for the shipping of goods.

Conclusion

CIP shipping incoterm is one of the most frequently used terms in trading. In this blog, we discussed the significance of CIP shipping incoterm.

We shared all the essential knowledge to help you while importing goods from different countries using CIP.

 The blog was concluded with some frequently asked questions. If you still have any questions, you can connect us at https://www.ejet.com/. We will be delighted to help you.