The CIP Incoterm — Carriage and Insurance Paid To — means the seller arranges and pays for transport and all-risks insurance to a named destination, while the risk of loss or damage passes to the buyer much earlier, at the moment the seller hands the goods to the first carrier. That gap between where the seller stops bearing risk and where the seller stops paying for transport is the single most important feature of the term, and it is where most disputes start.
What the Seller and Buyer Each Do
On the outbound side, the seller arranges and pays for transport to the named destination, buys insurance that meets a set standard, handles export clearance, and packages the goods for the journey.1International Chamber of Commerce. Incoterms 2020 Once the carrier picks up the shipment, the seller must promptly notify the buyer and provide whatever information the buyer needs to receive the goods at destination.2ICC Academy. Incoterms 2020 CPT or CIP
The buyer handles the import side: import licenses, customs duties, local taxes, and coordination with a customs broker to clear the goods.3International Trade Administration. Know Your Incoterms The buyer also picks up any costs the seller’s carriage contract with the freight company does not include. Terminal handling charges at destination are the frequent example: some carrier rates bundle them in, others break them out as a separate charge collected from whoever takes delivery.
Packaging sits with the seller and matters more than people expect. The seller pays for packaging suited to the planned transport, unless the goods are customarily shipped unpackaged, such as bulk commodities. The packing has to hold up for the entire journey, not just the first leg, because inadequate packaging is a standard insurance exclusion and a damaged-goods claim will fail on that ground alone.
Where Risk Actually Transfers
Risk passes to the buyer the moment the seller delivers the goods to the first carrier.4ICC Academy. Incoterms 2020 CIP or CIF If a shipment moves by truck to a port, then by vessel across the ocean, then by another truck to a warehouse, risk shifts when that first truck driver takes possession. Everything after that point is the buyer’s exposure, even though the seller keeps paying for the freight all the way to the named destination.
From that handoff forward, the seller does not guarantee the goods will arrive in sound condition, in the stated quantity, or at all.4ICC Academy. Incoterms 2020 CIP or CIF If a container falls off a ship mid-ocean, the buyer bears the loss. The insurance the seller is required to buy exists precisely to protect the buyer through this gap, which is why CIP is often selected over its uninsured equivalent.
Insurance Under CIP
Insurance is what separates CIP from CPT. Under the Incoterms 2020 revision, the seller must buy coverage meeting Institute Cargo Clauses (A), the broadest standard available and commonly called all-risks.1International Chamber of Commerce. Incoterms 2020 This was an upgrade from Incoterms 2010, which only required minimum Clause (C) coverage under CIP.
The policy must cover at least 110% of the contract value — the price of the goods plus freight and insurance — and must be denominated in the currency of the contract.2ICC Academy. Incoterms 2020 CPT or CIP The extra 10% gives the buyer room to recover administrative costs and price movements during a claim. The seller must hand the buyer the insurance certificate or policy so the buyer can file directly with the insurer for damage that occurs after risk has transferred.
What All-Risks Coverage Does Not Cover
The phrase “all risks” is misleading. Institute Cargo Clauses (A) carry significant exclusions that both parties need to understand:5If Insurance. Institute Cargo Clauses (A)
- Willful misconduct by the insured party.
- Ordinary wear, ordinary leakage, and normal loss in weight or volume during transit.
- Inadequate packaging, including improper stowage inside a container.
- Inherent vice — deterioration from the nature of the goods themselves, such as fruit spoiling or metal corroding under normal conditions.
- Losses caused by delay, even where the delay itself stems from an insured event.
- War, civil war, rebellion, and weapons of war.
- Strikes, riots, civil commotions, and politically motivated acts.
Adding War and Strikes Coverage
If the buyer wants protection against war or strike risks, the buyer can request that the seller arrange supplemental coverage under the Institute War Clauses (Cargo) and Institute Strikes Clauses (Cargo). The seller must arrange it if asked, but the buyer pays for it. Buyers shipping through politically unstable regions or areas with active labor disputes should build this request into the original contract rather than trying to add it after the sale is agreed.
CIP vs. CPT
CPT (Carriage Paid To) is identical to CIP in every respect except one: the seller has no insurance obligation. Under CPT, the buyer arranges and pays for insurance independently, at the buyer’s own risk and cost.2ICC Academy. Incoterms 2020 CPT or CIP Buyers with blanket cargo policies, or who want to negotiate their own terms, often prefer CPT to avoid paying for coverage bundled through the seller’s markup. Sellers who don’t want to arrange insurance in the buyer’s country favor CPT for the same reason.
CIP vs. CIF
CIF (Cost, Insurance, and Freight) looks similar on paper but differs in two ways that matter. First, CIF applies only to sea and inland waterway transport; CIP works for any mode.4ICC Academy. Incoterms 2020 CIP or CIF Second, CIF only requires minimum coverage under Institute Cargo Clauses (C), which excludes theft, malicious damage, earthquake, and water intrusion into holds. CIP requires the far broader Clause (A) coverage.
This matters most for containerized cargo. Under CIF, risk transfers when goods are loaded onto the vessel at the port of shipment, but containers are typically delivered to a port terminal days before loading, and the gap creates exposure. CIP transfers risk when the goods reach the first carrier, which for containerized freight means the moment the container is picked up for transport to the port.4ICC Academy. Incoterms 2020 CIP or CIF For containers or any multimodal shipment, CIP is the better fit.
Naming the Destination Precisely
CIP contracts must identify a specific named place of destination, and vagueness here causes more disputes than any other issue. Writing “CIP London” tells the carrier to get the goods to London, but London has multiple ports, airports, and rail terminals. If the buyer expects delivery to a warehouse in East London and the carrier delivers to Heathrow, the buyer pays for the additional transport and the seller has technically performed. Contracts should read something like “CIP Buyer’s Warehouse, 14 Industrial Road, Dagenham, London, UK, Incoterms 2020.”
The named place also fixes where the seller’s insurance obligation ends. If the buyer needs to move the goods further inland from a port terminal to a warehouse, that leg falls outside the CIP policy. Buyers who assume the coverage follows the goods to their final storage location can find themselves uninsured for the last stretch. A separate inland transit policy, or a more specific named destination in the sales contract, closes the gap.
Documents the Seller Must Provide
The seller produces a commercial invoice describing the goods, their value, and the specific named destination. A transport document — bill of lading for sea freight, air waybill for air, or a multimodal transport document for combined methods — comes from the carrier when it takes the shipment.3International Trade Administration. Know Your Incoterms It serves as both receipt and contract of carriage, and the buyer needs it to claim the goods at destination.
The insurance certificate completes the core set. The description of goods on the insurance certificate must match the commercial invoice exactly, since even small discrepancies can result in denied claims. All documents should carry the Harmonized System (HS) codes customs authorities use to classify the shipment and assess duties.
CIP works well when both sides understand that “paid to” and “risk transfer” point to two different places on the map. Confirming the named destination is precise, checking what the seller’s carriage contract actually includes at that destination, and arranging any supplemental insurance before shipment together head off almost every problem the term tends to create.