CIP incoterm is similar as CPT, the only difference is in CIP seller arranges insurance.
There is a separate article available for CPT, click here to read.
Under CIP seller delivers the goods at named place and insure it, all responsibilities are transferred to buyer at this point. In CIP seller arranges freight as well as insurance. CIP can be used in any mode of transport (Surface, air, ocean or rail). Seller prepares the goods, packs it, load the goods, arranges primary transportation, does custom clearance, takes insurance, arranges freight and hands over the goods to 1st carrier from this point responsibilities are transferred to buyer.
As you understood in case of CPT, the carrier can a liner, a freight forwarder, a transporter, an airline or a railway.
CIP is preferable for containerized cargo, for bulk cargo you can use CIF.
Risk:
In CIP seller bears the risk until goods are handed over to 1st carrier at a named place, from that point it is buyer's risk.
Cost:
Seller needs to pay the cost of packing, loading, transportation, origin THC, export custom clearance, freight and insurance and destination THC. Buyer needs to pay for import custom clearance with duties and taxes and unloading at destination.
Insurance:
In CIP seller needs to pay for insurance.
Example:
Let us understand CIP delivery term clearly with the help of an example.
Let us assume a manufacturer of ceramic tiles in Morbi, Gujarat in India contacts a buyer at Vancouver in Canada for the trade of ceramic tiles. Buyer in Vancouver wants the finished goods to be delivered at Vancouver port as he is not much aware of ex works operations and documentation in India, they decide to choose CIP incoterm. Seller sends the samples so that buyer can understand the quality of the product.
Negotiation:
They discuss and finalize the product. After few rounds of negotiation, they also finalize CIP price per square feet and decides to seal the deal.
Contract:
As buyer and seller are doing trader with each other for first time seller decides to go ahead with LC (Letter of credit), buyer has no objection for LC. The contract gets signed with CIP delivery term, which is CIP Vancouver port and an operable LC opened at buyer's bank.
Operations:
After receiving operable LC seller starts the manufacturing at their Morbi plant and share tentative loading date to buyer. Meanwhile seller approaches freight forwarder for container booking. Mundra port is nearest port for seller so they decide to ship the material from Mundra, as the delivery term is CIP Vancouver port containers are booked till Vancouver port.
Port of loading: Mundra, India
Port of discharge: Vancouver, Canada
Once goods are manufactured those will be packed by seller. Seller will call inspection agency for pre shipment inspection, agency will send their representatives to seller's factory for inspection, post completion of inspection, agency will issue inspection certificate. In case of COC buyer will nominate inspection agency and will issue COC request, inspection will be carried out and COC will be given to the buyer.
Now seller will call their transporter and send the goods to CFS, containers will be picked up from CFC empty container yard, goods will be stuffed in containers and presented to custom officers for clearance. Custom officers will check the containers and give clearance "Let export order" once everything found satisfactory. After custom clearance containers will be sent to the port where those will be handed over to the carrier, at this point seller's responsibility will be ceased and buyer's responsibility will be started.
Seller will approach various offices for post shipment documents once documents are arranged seller will submit those documents at their bank as per LC.
Documents:
1. Commercial invoice
2. Packing list
3. Bill of lading
4. Certificate of origin
5. Pre inspection certificate
6. Insurance certificate
7. Other documents if any
Buyer's bank will send notification to buyer once documents are received, buyer approach bank and release documents as per LC terms.
Once vessel arrives at port of discharge which Vancouver in this case, they will appoint a clearing agent for custom clearance and release cargo after custom clearance completion and take the cargo to their premises.
This is all about CIP shipments.
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