Carriage and Insurance Paid (CIP): A Complete Guide

In global trade, buyers and sellers often agree on specific terms that explain who is responsible for transportation, insurance, and risk during shipping. These are called Incoterms (International Commercial Terms).

One of the most commonly used is CIP – Carriage and Insurance Paid To. Under CIP, the seller is responsible not only for arranging and paying the transportation costs but also for buying insurance to protect the buyer’s goods during transit.

This gives the buyer added security, especially in international shipments. Understanding CIP is key if you are importing, exporting, or simply studying trade agreements.

What is Carriage and Insurance Paid (CIP)?

CIP is an Incoterm defined by the International Chamber of Commerce (ICC). It means that the seller delivers goods to a carrier, pays the transport costs to the named destination, and also provides insurance coverage.

• Seller pays for carriage (transportation).

• Seller arranges insurance covering the buyer’s risk.

• Buyer takes responsibility once goods are handed to the first carrier, but insurance is already included.

This makes CIP one of the most buyer-friendly terms, as it combines delivery and insurance in one agreement.

Seller’s Responsibilities under CIP

When CIP is agreed, the seller has several clear duties:

• Arrange Carriage – Seller books and pays for transport to the named place.

• Insurance – Must provide insurance with minimum coverage (110% of goods’ value under ICC rules).

• Export Formalities – Handles customs clearance in the exporting country.

• Documentation – Provides the buyer with documents like invoice, insurance certificate, and transport contract.

Essentially, the seller ensures the goods are safely dispatched and insured until they reach the destination.

Buyer’s Responsibilities under CIP

Although CIP favors the buyer, they still have responsibilities:

• Import Customs – The buyer pays duties, taxes, and handles clearance at the destination.

• Risk After Delivery – Risk passes from seller to buyer once goods are given to the carrier.

• Unloading – The buyer covers unloading costs unless agreed otherwise.

This division ensures both parties clearly understand their roles.

How CIP Works Step by Step

Here’s a simplified process of how CIP transactions flow:

1. Seller prepares and packages the goods.

2. Seller arranges transport to the agreed destination.

3. Seller buys insurance covering potential risks.

4. Goods are handed to the carrier.

5. Buyer receives documents (invoice, insurance certificate, waybill).

6. Buyer handles import clearance and unloading.

This structured flow minimizes disputes and ensures safe delivery.

Difference Between CIP and CIF

Many confuse CIP with CIF (Cost, Insurance, and Freight), but there are key differences:

• CIP – Can be used for all modes of transport (air, road, rail, sea). Insurance is required to 110% of the goods’ value.

• CIF – Only for sea and inland waterway transport. Insurance coverage is usually less strict.

Thus, CIP is broader and often safer for international trade.

Benefits of CIP

• Buyer Protection – Insurance arranged by the seller ensures security.

• Convenience – Seller handles major transport and paperwork.

• Clarity – Clear allocation of costs and responsibilities.

• Global Use – Accepted in contracts worldwide.

For buyers, CIP reduces stress, since the seller guarantees delivery and insurance.

Limitations of CIP

• Higher Cost for Sellers – Seller pays both carriage and insurance.

• Buyer Risk Timing – Risk transfers earlier (at carrier handover), even though seller pays for transport.

• Limited Control – Buyers may not influence choice of carrier or insurer.

• Customs Duties – Still fall on the buyer, which can be costly.

These limits mean CIP is not always the best choice, depending on trade conditions.

Example of CIP in Practice

A French company sells electronics to a buyer in Brazil under CIP São Paulo. The seller books air freight, pays transport charges, and buys insurance covering the goods. Once the goods are handed to the airline in Paris, the risk shifts to the buyer. Still, the insurance ensures the buyer is protected during the journey.

Conclusion

Carriage and Insurance Paid (CIP) is a widely used Incoterm that combines delivery and insurance, making it buyer-friendly and reliable. The seller takes on the responsibility of arranging transport and purchasing insurance, while the buyer manages customs and import duties. CIP works across all transport modes and provides security in international trade. However, both sides should understand when risk transfers to avoid misunderstandings.

FAQs

What does CIP mean in shipping?

CIP stands for Carriage and Insurance Paid To. It’s an Incoterm where the seller pays for transport and insurance up to a named destination. Risk transfers to the buyer once goods are handed to the first carrier. It’s commonly used in global trade because it combines delivery responsibility with mandatory insurance.

How is CIP different from CIF?

CIP can be used for any mode of transport, including air, rail, road, or sea, and requires insurance for at least 110% of goods’ value. CIF, by contrast, applies only to sea and inland waterway transport. Insurance under CIF is usually less comprehensive. CIP is considered broader and often more protective for buyers.

Who pays for insurance under CIP?

Under CIP, the seller pays for insurance covering the buyer’s risk during transit. The seller must purchase at least minimum coverage (110% of the goods’ value) according to international standards. This ensures that the buyer is financially protected, even though risk transfers once goods are handed to the carrier.

When does risk transfer in CIP terms?

In CIP terms, risk transfers from seller to buyer the moment goods are handed over to the first carrier, not at the final destination. However, the seller is still responsible for arranging and paying for transport and insurance, which protects the buyer in case of damage or loss during shipment.

Is CIP good for buyers?

Yes, CIP is generally favorable for buyers because the seller covers transport and insurance. Buyers get peace of mind that their goods are insured during the journey. However, buyers should note that risk passes to them at carrier handover, so they must understand the terms clearly to avoid confusion about liability.