By Sherine    Photo： Mikhail Nilov

In global trade, choosing the right Incoterms is crucial, as it greatly affects the details of international transactions. There are 11 standardized terms in Incoterms that define the responsibilities of buyers and sellers in international trade transactions. Decisions about Incoterms have a wide-ranging impact, affecting how responsibilities, risks, and costs are distributed in each transaction. Therefore, it is crucial for both shipper and buyer to fully understand and carefully choose Incoterms. 

This article will mainly discuss CIF and CIP. We'll look closely at each term to help you understand them better. By the end, you should have a clear idea of the differences between CIF and CIP, helping you make informed decisions.

What is CIF?

CIF stands for Cost, Insurance, and Freight. In CIF, the seller covers all costs and insurance from the pickup location to the agreed port. The seller is also responsible for clearing the goods for export. Once the goods are loaded on board, the risks are transferred to the buyer, who then assumes responsibilities for the customs clearance, duties, taxes, and transportation in the destination country. CIF is commonly used for sea or inland waterway transport. 

What is CIP? 

CIP stands for Carriage and Insurance Paid To. CIP means the seller covers all costs and insurance from the pickup location until the goods reach the agreed place in the destination country. Similar to CIF, in CIP, the seller also handles export clearance. Once the goods are handed to the first carrier, the risks are transferred to the buyer, who then assumes responsibilities for customs clearance, duties, taxes, and transportation in the destination country. CIP can be applied to various modes of transportation.

How to choose between these two terms? 

If the agreed destination is a port, you can use CIF (Cost, Insurance, and Freight). For example: CIF Los Angeles. If the agreed destination is a city, airport, or railway station, you can use CIP (Carriage and Insurance Paid To). For example: CIP Chicago. 

Whether choosing CIF or CIP, your decision should align with the specific needs and preferences of those involved. Understanding these terms is crucial for making informed decisions and promoting smoother global trade. Always remember that ensuring the transaction's cost aligns with the budgets of both parties is of utmost importance.

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