If you are in the business of export and import, you need to familiarize yourself with incoterms.

These are rules and regulations set by ICC to make the trade within countries easier.

Two common incoterms you will come across are CIP and CIF. What do they mean?

How can you differentiate the two? This and more will be discussed in the blog.

CIF means Cost Insurance and Freight (followed by a destination. CIA means Carriage and Insurance Paid (up to name destination). So, what is the difference? Read on to know mORE.

Table of Content

Chapter 1: CIP V.S. CIF: Understanding the Differences

Chapter 2: Advantages of CIF and CIP  

Chapter 3: Which one is better for you between CIP and CIF?

Chapter 4: How to Decide between CIP and CIF?

Chapter 5: FAQs About CIP & CIF

Chapter 1: CIP V.S. CIF: Understanding the Differences

INCOTERM 2020

In international shipping, incoterms confuse many exporters/importers. Two of the frequently used incoterms are CIP and CIF. Deciding between CIP vs CIF is a challenge for many.

The more experienced exporters even use these terms interchangeably which leaves others more confused.

So, what is the difference between the two? The major difference lies in where the logistics and insurance responsibility for the freight shifts from the seller to the buyer.

1. What is CIP?

CIP is the abbreviation of Carriage and Insurance Paid. It is a globally accepted trade term in which a seller pays for both the insurance and freight incurred to deliver goods.

These goods are supposed to be delivered to the point which has been decided mutually between the buyer and seller.

The risk is transferred to the buyer once the seller delivers the goods to the appointed carrier or place of destination.

For any additional cost, the buyers paid for it. CIP is a newer incoterm that was developed to handle the freight challenges of the 21st century. It can be used in sea, air, rail or road transportation.

2. What is CIF?

CIF is the abbreviation for cost, insurance and freight. It is an incoterm that is used internationally for shipping goods from one place to another.

In it, the seller covers all the insurance, freight and costs of the order for the duration that it is in transit. It is very similar to CIP.

The biggest difference is that CIF is only applicable to goods that are transported through ocean, sea or water.

The point of destination is the pre-decided location in the sales contract. All the risks and costs are incurred by the seller until the goods reach the destination port.

CIP CIF Understanding the Differences

If there are any additional costs like custom tax and duties, those are also paid by the seller. Once the goods are delivered, all the risks and responsibilities are transferred to the buyer. These include delivery and unloading charges.

3. What are the major differences between CIP and CIF?

We have already discussed the major difference between CIP VS CIF. CIP can be used for any mode of transportation while CIF is used only for water transport.

This is not the only difference that is present between them. CIF is one of the oldest incoterms while CIP is one of the newest ones. Let’s look at the major differences between the two.

a) Transport obligations

As already mentioned, the main difference is which mode of transport either one applies to. CIP can be used with water, railway, road and air transport while CIF is solely applicable to water transport. Even the way both the incoterms are written is different.

  1. CIF stands for Cost, Insurance and Freight (port of destination)
  2. CIP stands for Cost and Insurance Paid to (place of destination)

In CIF, the port of destination needs to be mutually decided upon. This is because it is only used for water transport.

On the other hand, in CIP, the exporter and importer mutually decided destination. This can either be an airport, port or even a train station.

b) Risk

risks-to-avoid

A difference between incoterms is when the risk is transferred from the seller to the buyer. The risk shifts to the seller once the goods reach the mutually decided place of shipment

In CIF, the transfer of risk is straightforward. As it is only related to sea transport, the risk is transferred from the seller to the buyer once goods reach the buyer’s port of destination.

Confusion occurs when you are using CIP. The carrier might be unclear in this case. If you are sending goods over by air freight, who is the carrier? Is the aeroplane the carrier that takes the goods from seller to buyer?

Or, is the truck that delivers the goods to the plane the carrier?

To avoid confusion, ICC specifies that the risk will transfer over to the buyer once the goods are places in the first carrier. In this case, the first carrier is the truck in which goods are transported to the airport.

c) Insurance coverage

Both the incoterms place the responsibility of purchasing the insurance on the seller. In CIF, the insurance is covered until the goods reach the port of destination.

Similarly in CIP, the insurance is also covered by the seller but there is no hard and fast rule on the amount of minimum coverage required.

4. Comparison of Responsibilities

Responsibilities CIF CIP
Loading of goods at the origin Seller Seller
Export customs declaration Seller Seller
Transport of goods to the export port Seller Seller
Unloading goods in the export port Seller Seller
Loading on vehicle/vessel Seller