CIP, or Carriage and Insurance Paid To, defines the point at which risk transfers from the seller to the buyer in an international trade transaction. Under CIP Incoterms, the seller bears the risk of loss or damage to the goods until they have been delivered to the first carrier at the named place of shipment. Once the goods are in the hands of the first carrier, the risk shifts to the buyer, even though the seller remains responsible for paying the freight and insurance to the named place of destination.
Here's a breakdown of key aspects:
- Seller's Risk: The seller is responsible for all risks of loss or damage to the goods until they are delivered to the first carrier. This includes risks related to transportation to the carrier.
- Buyer's Risk: Once the goods are delivered to the first carrier, the buyer assumes all subsequent risks, including during the main carriage to the final destination.
- Insurance Coverage: Despite the risk transfer, the seller is obligated to obtain and pay for insurance coverage for the buyer's benefit, covering the risk of loss or damage to the goods during transit to the named destination. The insurance must be compliant with Clause (A) of the Institute Cargo Clauses, or similar clauses, covering "all risks." The buyer can arrange for additional insurance if desired.
- Importance of Clear Specification: It is crucial to clearly specify the "named place of destination" in the CIP agreement. This ensures that all parties understand where the seller's responsibility for insurance ends.
Example:
Imagine a U.S. company (buyer) purchases goods from a Chinese company (seller) under CIP New York Incoterms. The Chinese seller is responsible for the risk of loss or damage until the goods are delivered to the shipping company at the port in Shanghai (the first carrier). From that point onward, the U.S. buyer bears the risk, even though the Chinese seller arranges and pays for the freight and insurance to New York.
In summary, CIP defines the point of risk transfer in international trade, placing the risk on the buyer once the goods are delivered to the first carrier, while still requiring the seller to provide insurance coverage for the journey to the named place of destination.
