Under Incoterms® 2020, CIP (Carriage and Insurance Paid To) requires the seller to arrange and pay for international transport and comprehensive cip incoterms insurance to an agreed destination, while transit risk transfers to the buyer once goods are handed over to the first carrier at origin. Unlike CIF, CIP applies to all transport modes, including multimodal container shipping, and mandates Institute Cargo Clauses (A) all-risks coverage at 110% of the contract value. This structure gives buyers high-tier transit protection while allowing sellers to manage export logistics.
Key takeaways
- Under CIP, transit risk transfers to the buyer upon handover to the first carrier at origin, while transport and insurance costs remain with the seller until the named destination.
- Incoterms® 2020 mandates that sellers purchase Institute Cargo Clauses (A) or equivalent all-risks insurance for at least 110% of the total contract value.
- CIP is a multimodal rule suitable for air, ocean container, rail, and road freight, making it the International Chamber of Commerce (ICC) recommended replacement for CIF in containerised transport.
- The buyer is responsible for import customs clearance, tariffs, and taxes, and holds the legal right to claim directly against the insurer for transit damages.
- Under Canadian CBSA and U.S. CBP regulations, importers can deduct properly itemised international freight and cargo insurance charges from CIP invoices to lower dutiable value.
How do risk and cost transfer work under CIP Incoterms 2020?
Under CIP, risk and cost transfer at two completely different points in the supply chain. The seller pays for carriage and insurance to the named destination, but risk passes to the buyer the moment goods are handed over to the first carrier at origin.
According to the International Chamber of Commerce (ICC) cip rules 2020 (specifically Rule A2/B2), legal delivery occurs when the seller surrenders the cargo into the physical custody of the carrier, not when the goods arrive at the buyer’s facility or destination terminal. Buyers frequently assume that because a contract states “CIP Toronto Warehouse” or “CIP Chicago Rail Ramp,” the seller bears the risk of loss until the truck or train arrives at that city. In reality, the geographic location following the CIP acronym indicates where the seller’s freight and insurance cost obligations end (Rule A6/B6), while the buyer assumes all physical transit risk from the origin handover point onward.
In multimodal shipments—such as when a manufacturer in Vietnam loads a 40-foot high-cube (40HC) container onto a drayage truck bound for Cat Lai Port, followed by an ocean vessel to Vancouver, and rail transport to Toronto—risk transfers at the very first carrier handover. Unless the commercial contract defines a specific delivery handover point at origin, the buyer takes on the risk as soon as the origin trucking company accepts the cargo at the seller’s factory gate. If an accident occurs between the factory and the export port, the buyer bears the loss and must rely on the insurance policy to recover funds.
Because the split between cost and risk requires precision in the sales contract, both parties should always define two distinct locations when negotiating Incoterms rules for cross-border trade:
- The point of delivery (risk transfer): The exact origin facility, freight station, or port terminal where the seller hands the goods to the first carrier.
- The named place of destination (cost transfer): The exact destination port, rail terminal, or inland warehouse up to which the seller pays for the contract of carriage and insurance.
- Seller responsibilities at origin: Packaging goods for export, clearing export customs, obtaining export licences, paying origin terminal handling charges (OTHC), and executing the freight and insurance contracts.
- Buyer responsibilities from origin onward: Bearing physical transit risk during main carriage, handling any third-country transit formalities, completing import customs clearance, paying import duties and taxes, and unloading the vehicle at the final destination (unless unloading is included in the seller’s freight contract).
Comparing CIP and CPT (Carriage Paid To)
CIP and CPT (Carriage Paid To) are the two multimodal “C-group” terms published by the ICC, and they share the exact same operational structure for delivery, freight contracting, and risk transfer. As detailed by Export Development Canada (EDC), the sole difference between the two rules is the mandatory insurance obligation under CIP.
Under CPT, neither the seller nor the buyer is legally obligated by the Incoterms® rules to insure the cargo during transit, leaving the buyer exposed if they forget to arrange their own marine or air policy. Under carriage insurance paid to (CIP), the seller is contractually required under ICC Rule A5 to procure and pay for comprehensive cargo insurance in the buyer’s favour, bridging the gap between origin risk transfer and destination arrival.
What specific cip incoterms insurance is mandatory under the 2020 rules?
Incoterms® 2020 requires the seller to obtain cip incoterms insurance complying with Institute Cargo Clauses (A) or equivalent all-risks coverage. The policy must cover at least 110% of the contract value and be issued in the currency of the sales agreement.
When the ICC updated its trade rules on 1 January 2020, the most substantial operational revision was elevating the mandatory insurance baseline for CIP from basic Institute Cargo Clauses (C) to comprehensive Institute Cargo Clauses (A) (issued by the Lloyd’s Market Association and International Underwriting Association). Because CIP is predominantly used for high-value manufactured goods, electronics, machinery, and retail inventory moving in containers or by air freight, the ICC determined that minimum catastrophe coverage was insufficient for modern multimodal supply chains.
To comply with ICC Rule A5 under CIP Incoterms® 2020, the seller’s insurance arrangement must satisfy five strict conditions:
- Coverage tier: The policy must provide all-risks protection under Institute Cargo Clauses (A) or a locally recognised domestic equivalent (such as PICC all-risks clauses in China), unless the buyer and seller explicitly agree in writing to a lower level of cover.
- Minimum insured value: The insured amount must equal at least 110% of the total contract price (comprising the commercial invoice value of the goods, international freight charges, and the insurance premium itself). The extra 10% is designed to compensate the buyer for administrative costs, currency fluctuations, and lost foreseeable profit if the shipment is lost.
- Contract currency: The insurance certificate or policy must be denominated in the exact same currency as the commercial sales contract (for example, USD or CAD) so the buyer does not suffer foreign exchange losses during a claim payout.
- Direct claim rights: The seller must provide the buyer with an original insurance policy, an official certificate of insurance, or a declaration under an open cover that legally entitles the buyer—or any subsequent party with an insurable interest—to file a claim and collect indemnification directly from the underwriter.
- Transit duration: Coverage must attach from the exact point of delivery at origin (when goods are handed to the first carrier) and remain continuously in force until at least the agreed named place of destination.
Common pitfalls with Institute Cargo Clauses (A) and origin policies
Even though Institute Cargo Clauses (A) is referred to in the industry as “all-risks” insurance, importers and exporters must understand that it does not cover every possible loss scenario. Standard Clause (A) policies strictly exclude damage caused by insufficient or improper packaging (such as poor palletisation or inadequate container blocking and bracing), inherent vice or natural spoilage of the product, ordinary leakage or wear and tear, willful misconduct of the assured, and financial default or insolvency of the ocean carrier. Furthermore, risks related to geopolitical conflict, piracy, or labour disruptions are excluded unless the seller specifically purchases supplementary Institute War Clauses and Institute Strikes Clauses at the buyer’s request and expense.
A frequent operational pitfall occurs when an exporter purchases a local insurance policy in their home country without properly endorsing the certificate to the North American buyer, or uses a domestic underwriter that lacks a claims settling agent in Canada or the United States. If a Canadian importer receives damaged cargo in Mississauga and the insurance certificate names the overseas supplier as the loss payee, the importer cannot collect payment directly from the insurer.
To avoid uncollectible claims or policy gaps on high-value shipments, many importers and exporters coordinate directly with their freight forwarder to issue compliant cargo insurance certificates that clearly name the buyer as the assured party and provide accessible local claims adjustment.
What is the difference between CIP and CIF in container shipping?
The primary differences lie in transport modes and insurance levels. CIF (Cost, Insurance and Freight) is restricted to non-containerised sea and inland waterway transport with basic Clause (C) coverage, whereas CIP covers all transport modes with mandatory Clause (A) all-risks insurance.
Despite being one of the most widely used terms in global trade, CIF is frequently misapplied by shippers moving full container load (FCL) or less than container load (LCL) cargo. Under CIF, risk transfers from the seller to the buyer only when the goods are physically placed on board the vessel at the port of loading. While that works for bulk commodities (like grain, oil, or timber) or break bulk machinery loaded directly into a ship’s hold by crane, it creates a severe legal and insurance blind spot for modern ocean freight moving in sealed intermodal containers.
When you ship a 20-foot or 40-foot container, the seller does not load the box onto the vessel themselves; instead, they hand the container over to the ocean carrier at an origin Container Yard (CY) or deliver loose pallets to a Container Freight Station (CFS) several days before the ship arrives. Under CIF, the seller physically loses control of the cargo at the terminal gate, yet legally retains the risk of damage until the container crosses the ship’s rail days later. If a container is dropped by a terminal straddle carrier or flooded in the port yard before vessel loading, determining when the damage occurred—and whether the seller’s pre-shipment policy or the buyer’s marine policy pays—often leads to contentious disputes.
The ICC explicitly instructs importers and exporters to stop using CIF for containerised shipments and use CIP instead. The table below outlines the operational differences between CIP, CPT, and CIF under Incoterms® 2020:
| Feature / Obligation | CIP (Carriage and Insurance Paid To) | CPT (Carriage Paid To) | CIF (Cost, Insurance and Freight) |
|---|---|---|---|
| Permitted Transport Modes | Any mode: Ocean container (FCL/LCL), Air, Road (FTL/LTL), Rail, Multimodal | Any mode: Ocean container, Air, Road, Rail, Multimodal | Sea and Inland Waterway transport only (Bulk / Break Bulk) |
| Point of Delivery (Risk Transfer) | Handover to the first carrier at origin (e.g., factory gate, CFS, or CY) | Handover to the first carrier at origin | When goods are placed on board the vessel at the port of loading |
| Point of Cost Transfer | Named place of destination (port, terminal, or inland facility) | Named place of destination (port, terminal, or inland facility) | Named port of destination (maritime port only) |
| Mandatory Cargo Insurance | Yes: Seller must buy Institute Cargo Clauses (A) (All-Risks) at 110% | No: Neither party is required to insure (Buyer bears transit risk) | Yes: Seller must buy Institute Cargo Clauses (C) (Minimum cover) at 110% |
| Export Customs Clearance | Seller’s responsibility and cost | Seller’s responsibility and cost | Seller’s responsibility and cost |
| Import Customs & Duties | Buyer’s responsibility and cost | Buyer’s responsibility and cost | Buyer’s responsibility and cost |
| Best Operational Use Case | Manufactured goods in ocean containers, air freight, or door-to-terminal multimodal lanes | Multimodal shipments where the buyer already holds an annual open cargo policy | Bulk raw materials, agricultural commodities, or non-containerised ocean cargo |
By switching containerised contracts from CIF to CIP, both parties align the legal transfer of risk with the physical handover of the container at the origin terminal or factory, while automatically upgrading the buyer’s insurance protection from basic catastrophe cover to comprehensive all-risks coverage.
How does CIP affect customs clearance and duties in Canada and the US?
Under CIP, the seller clears goods for export, while the buyer assumes all responsibility for import declarations, customs brokerage, tariffs, and taxes at destination.
While the division of customs responsibilities under ICC Rule A7/B7 is straightforward, CIP pricing structures have a direct financial impact on how import duties and taxes are calculated in North America. Unlike the European Union or the United Kingdom—which calculate customs duty on a CIF/CIP basis (including international shipping and insurance in the dutiable value)—both Canada and the United States assess customs valuation on an FOB origin or transaction value basis.
Specifically, under Section 48 of the Canadian Customs Act (enforced by the Canada Border Services Agency — CBSA) and 19 U.S.C. § 1401a in the United States (enforced by U.S. Customs and Border Protection — CBP), the cost of international transportation and cargo insurance incurred after the goods leave the place of direct shipment at origin is legally excluded from the Value for Duty.
However, because a CIP sale bundles the price of the merchandise, the international freight, and the insurance premium into a single delivered price to the destination, importers risk overpaying duties if their commercial documents are not formatted correctly. If an overseas supplier issues a commercial invoice stating a single lump-sum amount—for example, “1,000 Industrial Valves — CIP Vancouver — $50,000 USD”—without breaking out the logistics costs, customs regulations may prevent the broker from deducting the freight and insurance. Consequently, the importer ends up paying ad valorem tariff rates and Goods and Services Tax (GST) on the ocean freight and insurance premium.
To ensure compliant duty reduction during customs clearance in Canada and the United States, buyers importing under CIP terms should enforce the following documentation checklist with their suppliers:
- Require itemised commercial invoices: Instruct the seller to break out the FOB / FCA origin value of the goods, the international freight charges, and the cargo insurance premium as three distinct line items on the commercial invoice.
- Maintain carrier proof of payment: During a post-entry compliance verification or audit, CBP and CBSA auditors may require objective evidence of the actual freight and insurance costs paid by the seller (such as a rated Bill of Lading, Air Waybill, or carrier invoice) to substantiate the deduction. Always confirm current documentation thresholds with your customs broker or the relevant border authority, as regulatory audit standards can change.
- Provide the Master/House transport document: Ensure the seller transmits the Bill of Lading (B/L), Sea Waybill, or Air Waybill (AWB) promptly after origin departure so your customs broker can file advance security filings (such as U.S. ISF 10+2 or Canadian eManifest / ACI) within mandatory statutory deadlines.
- Verify HS classification and origin certificates: Because the buyer is the Importer of Record (IOR) under CIP, the buyer is legally liable to CBSA or CBP for accurate HS classification, valuation, and preferential tariff claims (such as CUSMA or CPTPP), regardless of what the seller writes on the export paperwork.
Frequently asked questions
Who files the insurance claim if cargo is damaged during a CIP shipment?
The buyer files the insurance claim. Because transit risk transfers to the buyer upon delivery to the first carrier at origin, any loss or damage occurring during main carriage is at the buyer’s risk. Under Incoterms® 2020, the seller must provide an endorsed insurance policy or certificate that legally entitles the buyer to claim directly with the underwriter.
Can the buyer and seller agree to lower insurance coverage under CIP?
Yes. While Incoterms® 2020 establishes Institute Cargo Clauses (A) as the mandatory default for CIP, Rule A5 explicitly permits the buyer and seller to agree to a lower tier of coverage, such as Institute Cargo Clauses (B) or (C). Any reduction in coverage must be expressly written into the commercial contract of sale to override the default ICC rule.
Does the seller pay for destination terminal unloading charges under CIP?
The seller pays destination unloading costs only if those charges are already included in their contract of carriage with the carrier. Under ICC Rule A6/B6, if the carrier’s freight rate includes Destination Terminal Handling Charges (DTHC) or container unloading at the named port or terminal, the seller cannot recover those costs from the buyer unless previously agreed. If unloading at an inland warehouse is not covered by the freight contract, the buyer must arrange and pay for unloading.
What happens if a seller issues a CIP invoice with basic Clause (C) insurance?
Supplying basic Institute Cargo Clauses (C) insurance under an unmodified CIP Incoterms® 2020 contract constitutes a breach of contract by the seller. If the cargo suffers damage during transit from perils excluded under Clause (C)—such as theft, pilferage, rainwater damage, or rough handling—the seller can be held financially liable to the buyer for the uninsured losses that a compliant Clause (A) policy would have covered.
Navigating Incoterms® rules and structuring compliant cip incoterms insurance requires precise coordination across international supply chains. Because trade regulations and customs valuation procedures change, businesses should always verify contract terms and import declarations with a qualified logistics professional or the relevant customs authority. Soleil Transportation supports your business with multimodal air, ocean, and ground forwarding, cargo insurance solutions, and customs brokerage across Canada, the USA, Vietnam, and Asia. To review your shipping terms or request a freight quote, contact our team at info@soleiltransportation.com, call +1 888-998-5199 (Mon–Fri, 8:30am–4:30pm Eastern), or reach out through our contact page.