Full form of CIP (Carriage and Insurance Paid)


  Full form of CIP means Carriage and Insurance paid up to a certain point. CIP is part of "INCOTERMS" which stands for International Commercial Terms. There are total 11 "INCOTERMS" of which CIP is a part. The International Chambers of Commerce defines INCOTERMS. INCOTERMS helps to standardize the export and import process.


  Features

  The seller pays all the costs related to the delivery of goods such as transportation, carriage, freight at a certain point.

  It can be used in any transport mode, let's say you are shipping goods by air, sea or land. it can be used.

  The most important feature of paid carriage and insurance is that it is still a fixed location. So when you are mentioning carriage and paid insurance, you have to mention the place.


  There is a rule of CIP for SEA transfer. This applies only to goods that are transported in sealed cargo. This does not apply if there is any goods that are not stored and shipped in containers, such as coal or raw materials.


  Suppose CIP is mentioned till a location say New York port, then seller's responsibility ends up to the port, now whether seller will pay for unloading or not depends on the pre-determined terms.


  When the goods reach the fixed carriage and insurance payment point, the buyer assumes responsibility, from there the buyer pays all other costs here.


  how does it work?

  Let us understand this concept, stepwise.

  Suppose a vendor in Sri Lanka wants to export 5 tonnes of coconut extract to New York. He mentioned that the carriage and insurance payments were made at New York Port, USA.


  Step 1: The Sri Lankan seller will have to pay the loading charge, the transportation fee of the goods from the factory to the Sri Lankan port and any freight charges charged for land transportation.


  Step 2: When the goods arrive at the port, it needs to be stored in a warehouse that the seller will pay the fee. The seller will also bear the unloading charges at the port.


  Step 3: Now, the goods have to be loaded into the vessel for transportation. The seller also bears this cost.


  Step 4: The seller will pay the SEA freight charges for the transportation.


  Step 5: Any goods must be insured when shipped. So the seller has to ensure 110% of the contract value. Any additional insurance will be borne by the buyer.


  Step 6: Once the goods arrive at New York port, whether the seller or buyer will pay the unloading cost must be predetermined as it can be confusing.


  Step 7: The buyer shall bear the customs clearing charges as the goods have reached the point where carriage and insurance payment have been agreed. If the office agrees on paid carriage and insurance in New York, the seller will pay the customs fee.


  Difference Between CIP and CIF

  The main difference between CIF and CIP INCOTERMS is that CIP covers all modes of transport, and CIF only covers transport through SEA. So that's a huge difference. The scope of CIP is much bigger than CIF.


  Under CIF, it is the seller's responsibility to load the goods into the vessel at the loading point. Suppose it is decided that the goods will be transferred from Port A to Port B, so CIF will help the buyer to deliver the goods safely to the loading point of Port A by the seller. In carriage and insurance payments, all responsibility rests with the seller until the goods reach a predetermined location. All travel fees and insurance will be paid by the seller until the buyer receives the goods.


  Benefit

  It is part of INCOTERMS, so it is a standardized agreement that helps ease trade between countries. Without proper guidance and stipulated conditions, it would not have been easy to lay down terms about who would pay for the transportation charges, freight and other charges required to transport goods from one place to another.


  This gives buyers confidence because they believe there are business rules that the seller cannot break. So it ultimately improves the frequency of buying and selling of goods between countries.


  It is also helpful for sellers as they now know an agreed upon place where their responsibility ends. Earlier it was difficult for the seller to know where exactly their responsibility ended. Whenever there was any obstruction in transit, the buyer used to sue the seller.


  It helps the seller to know the exact charges they will have to pay, so it helps them to add the cost to the selling price.


  Conclusion

  This is of great help to businesses that are engaged in the export and import of goods. The export of goods involves a lot of customs clearing and duties. So it is important to know who will pay the fee. This standardization is necessary for the expansion of international trade.


  The world is drawing closer to a growing economy. Hence there has been a tremendous increase in exports/imports. Importing the goods is also necessary if you are getting it at a cost less than the in-house production. So for this we need to standardize trade between countries. It is a form of standardization.


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  This has been a guide to the full form of CIP, ie (Carriage and Insurance Paid). Here we discuss the features of CIP and how it works along with the benefits and differences between CIP and CIF. You can refer the following articles to know more about Finance