Yes. Under CIP, that is completely paid for and insured by the seller, not the buyer. link to Letter of Credit Process and Procedure, link to What Is Drayage? Let’s take a closer look. The ICC updated the Incoterms rules most recently in 2010, and it made a few notable changes. is the easy part; CIF 2020 is classified for sea transportation only. Unloading and loading at the import countryâs dock can sometimes still be partially paid (and therefore partially controlled) by the buyer, even under CIP. Under CIP terms, the seller clears the goods for export and is responsible for delivering the goods to the carrier nominated by the seller. There are 2 important differences between the two versions. However, this disregards the buyerâs local knowledge that he could have otherwise used with CIF. In The major difference to the seller of transporting goods under CIF or CIP is that under CIF, the seller only needs to take out marine insurance against the buyer's risk of loss of or damage to the goods during the sea or inland waterway journey. Rather, these goods are simply put on the ship and that is it. CIF Cost, Insurance & Freight Incoterms 2020 is one of the most used Incoterms in the world. Once the freight is unloaded off the ship or airplane, it is loaded on to vehicles for delivery. The level of cover mandated by the CIP and CIF rules is minimal, and may not satisfy the buyer’s requirements. Export customs declaration is when the shipper tells their respective countryâs customs authority a variety of things about the shipment: Regulatory authorities need to confirm that no banned or illicit products are being shipped before they are sent on their way, so everything must pass through them first before it is loaded on a ship or plane. They still cover the insurance while the ship sails but are virtually uninvolved once it arrives. Differences between CIF and CIP: Mode of Transport. Our company works as a freight forwarder in Thailand, CFR and CIF trading conditions are used by the customer, due to the volume of exports from Thailand. However, it is not allowed to use CIF Incoterms using more than one mode of transportation. However, for the first time in the process, the buyer is responsible. Under CIF the buyer is responsible for unloading the freight (or paying the cost to do so). the carriage of goods to a named destination, plus insurance, the seller’s risk CIF recognizes that it cannot be the sellerâs responsibility to know every little shipping law about every other country on Earth besides his own. These are not legal regulations, per say, but more commercial regulations. The transfer of risk does not mean the same thing as the transfer of transport responsibility. The main difference between CIF and CIP is where the insurance and logistical responsibility for freight shifts. That is always the responsibility of the shipper. Donât forget to check with your Freight Forwarder for this coverage. They will frequently offer an, HAZMAT Shipping – The Basics of Shipping Hazardous Materials, An Easily Attainable Vision of a Digitized Supply Chain, Loading on truck in port of import: buyer, A receiver will be on site with that equipment (if not provided by the carrier), The receiver will know where to drop the freight, The receiver will be able to sign for the freight, Loading on Truck in Port of Import: seller. eval(ez_write_tag([[580,400],'maxfreights_com-leader-1','ezslot_2',170,'0','0'])); At Marine Cargo Insurance has 3 forms of coverage, Institute Class (A), Institute Class (B), and Institute Class (C). For CIF, it is the moment the freight reaches the dock of import. They still cover the insurance while the ship sails but are virtually uninvolved once it arrives in the destination countryâs port. Below are the significant changes that you should know: The only difference between CPT and CIP is that the CIP seller must contract for insurance against the buyer’s risk. But if even this is too much for you, you may want to consider some other Incoterm options such as: All of which trigger the buyer acting significantly earlier in the process than CIF. The ICC has made the following substantive changes to the parties' obligations in response to industry concerns: (i) Bills of Lading with an on-board notation (FCA - Free Carrier) Nevertheless, in CIF, the seller is fully responsible for the cost and insurance associated with everything. But do not forget, the seller is still insuring everything here. Differences between Incoterms® 2010 and 2020: The Incoterms® FCA (Free Carrier) now provides the additional option to make an on-board notation on the Bill of Lading prior loading of the goods on a vessel. If you are a buyer, it is a good idea to make sure that what you are purchasing can actually make it through customs before completing the transaction. You might realize we specifically avoid using the term “Transfer of ownership” to describe the transfer of risk too. Further breakdown in cost allocation. I Am the Seller. A lot of these terms deal with similar topics but are not exactly the same thing, like Carriage and Insurance Paid (CIP) and Cost Insurance and Freight (CIF). It is essentially as it sounds: importing is not always free. Difference Between CIP, CIF, CFR, FOB FAQs on CIP Incoterms The CIP incoterm stands for ‘Carriage and Insurance Paid to’, wherein the seller is responsible for goods only till the first port, which is the exporter's country's port and not the terminal. It addresses the conflicts with CIF and makes a few changes.Â. Class A is the most extensive coverage therefore the most expensive whereas Class C is less extensive and demands lower insurance premiums. This seems kind of obvious when the buyer is located at the same place as the delivery, as they would be expected to take everything off the truck or trucks and have the equipment necessary to do so. Below are three freight insurance carriers available: To read more about Mike, check out his full bio here. Another relatively easy freight transportation step to understand, carriage to place of destination is simply when the goods are brought from the port to the buyerâs doorstep. Figure 2 represents the proportion of Incoterms used throughout the period between the previous (2010 edition) and the new amendments (2020). Get content like this delivered directly to your inbox. The seller wants cheaper insurance, which means a more expensive carrier. In Incoterms 2020, 11 rules divided into groups C, D, E and F still apply. this specific point, before the Original Bill of Lading reaches the hand of the This time, let’s look at Incoterms C Group – CFR/CIF/CPT/CIP. Required fields are marked *. The only difference between CPT and CIP is that the CIP seller must contract for insurance against the buyer’s risk. The seller is no longer insuring a process of which he has no idea how it works. It depends on the specific buyer and seller agreement. I hope that you enjoy reading them as much as I do posting them. are the aspects we will look into to decipher the difference between CIF and CIP. Therein lies a major advantage of CIF. In Incoterms® 2010 the only difference between DAP and DAT was that in DAT the goods were delivered unloaded, whereas in DAP, the seller delivered the goods when the goods were placed at the disposal of the buyer on the arriving means of transport for unloading. The Incoterms 2020 rules provide for different levels of insurance coverage in the Cost Insurance and Freight (CIF) rule and Carriage and Insurance Paid To (CIP) rule. This step specifically describes when the truck is unloaded, after arriving on its journey from the seller, but before the contents are actually loaded on the vessel or airplane. Since the buyer pays for the carrier from the destination port, they also make sure that the carrier has the equipment to unload the products, if the buyer does not have any. For contracts signed between now and 1 January 2020, wording that refers to the “latest version” or similar will be construed as referring to the Incoterms 2010, unless the parties specify that the 2020 … And it is not difficult to see why: It is an old Incoterm, one of the original rules published by the International Chamber of Commerce in its first publication of the Incoterms in 1936, therefore it is widely known by merchants worldwide. In summary: buyer. On the other hand, the Transfer of transport responsibility is where the responsibility of moving the cargo has been transferred from one party to another. DAT is now DPU. Once the cargo is staged at the port’s container yard, effectively the responsibility of transporting the cargo from the destination’s port yard to the final destination lies on the buyer. We see that FOB is the most recurrent Incoterm overall, with almost 55% of the quotes. Either way, CIF directs this responsibility to the freight buyer. That will greatly simplify your paperwork and payment schedule. @incotermsguru on Twitter @J. Montezuma on LinkedIn Contact via email CIF – Cost, Insurance and Freight paid to (Port of Destination) - Incoterms 2020 Explained. The CIP … There are actually plenty of freight insurance companies available out there that are CIF and CIP compliant. The word “Drayage” when used as a verb as an act of transferring... Hello! The level of cover has been changed in Incoterms® 2020 to be the maximum of Institute Cargo Clauses (A), (Air) or similar, for 110% of the CIP value, or similar — what is sometimes referred to as an “all risks” cover. Essentially, the seller is responsible for the sold goods until loaded onto the ship. These regulations are designed to keep buyers and sellers from across the globe on the same page when negotiating shipping contracts. I'm Kelvin, I work as a custom broker and I'm thrilled with having the experience to share my industry knowledge with you. On the FOB rule, the delivery is completed when the goods have been loaded on board. buyer, the ownership of the goods is not yet transferred to the buyer, however, With the CIP 2020, the seller takes the responsibility for transporting the cargo to a named destination of the buyer’s choice. Or, more likely, he chooses an unloading company that he knows and trusts. A demo The new organisation of the individual articles of the rules will better reflect the logic of a business transaction. key distinction between CIF and CIP is that although in a CIP term the seller arranges Instead he may have an eye on the unloading through a dock that he owns or regulates. CIF has been around for well over a hundred years. According to CIF, delivery is completed when the goods pass the ship’s rail at the named port of shipment. To learn more about … CIP – Carriage and Insurance paid to (Place of Destination) - Incoterms 2020 Explained. Under Incoterms® 2010 the insurance cover for both CIF and CIP was required under Institute Cargo Clause C. Under the new Incoterms® 2020, CIP requires insurance cover complying with Institute Cargo Clause A. Loading at origin refers to the very initial part of a shipping process, when the goods are first loaded onto a vehicle for transport to the shipping dock. The 2 major difference between these Incoterms are: CIP can be used for any mode of transport while CIF can only be used for transport by sea or inland waterway The insurance cover required in CIP is more extensive then the cover required by CIF We have a more comprehensive article on Incoterms 2020 that you can find here. In CIF (and, actually, in every Incoterm method except DPU) it is the buyerâs responsibility to unload at the destination and pay for any associated costs.Â. More expensive? The main difference between CIF and CIP is where the insurance and logistical responsibility for freight shifts. To learn more about when to use each one, read below about their specific qualities. This step in the transportation process is when the freight itself is loaded onto the actual vessel (or airplane) that will be moving it between the two countries in question. The Incoterms rules provide specific guidance to individuals participating in the import and export of global trade daily. But the transfer of ownership and the transfer of risk sometimes happen at different points of the transportation journey. This was generally decided already during the loading at origin step. If there is cargo damage on board of the vessel, and the damage is proved to be damaged by the carrier, the buyer cannot argue that he/she hasn’t had ownership of the goods yet if the Bill of Lading hasn’t reached him. Therefore, CIF dictates this responsibility to the buyer. By doing this, the seller is effectively in control of the entire freight shipping process from the moment it leaves his facility all the way to the buyerâs doorstep. Additionally, the ICC has announced they will issue a new set of Incoterms in 2020, so you’ll want to keep your eyes out for this revision. Drayage Explained, the International Chambers of Commerce (ICC), Coverage up to the agreed destination at the. of transportation is transferred to the carrier once the first carrier has This Insurance is generally irrelevant here, except pertaining to the overall shipping process. Not all companies do this. CIF incoterms can only be used with port-to-port sea transportation. For CIP, it transitions more gradually to when delivery at buyer destination occurs. Once the container is “shipped on board”, detailed in the Bill of Lading, the seller then arranges the Original Bill of Lading to be couriered to the buyer once he receives the payment. However, carrier to place of destination cannot be disputed. This is the main part of the journey via ship (or airplane if applicable) from one countryâs port to the other. Overall, the difference between the 2010 and incoterms 2020 is fairly small when compared to the changes from the previous decades. Other differences between Incoterms 2020 FOB and CIF. Differences between Incoterms 2010 and Incoterms 2020 a. It might do you some good to see how qualified the carrier is, even if you are the seller of the goods. Letâs explain what each of these means relative to CIF first. I'm Kelvin, They could either do this with a private carrier, or by themselves. The same applies for insurance. © 2021 Copyright Global Logistics Know How. Difference Between 2010 and 2020 Incoterms As mentioned earlier, Incoterms are continuously updated, every 10 years to be exact. Some have all four. Incoterms 2020 are effective from 1 st January 2020. Once the freight reaches the port of the buyerâs country, it must be unloaded off the ship. the Transfer of Risk is where the risk of moving cargoes is transferred from one party to another, as dictated by the INCOTERM rule arranged. One of the main advantages here is that, if UPS is also your carrier, you can take care of everything with them. What are the differences between Incoterms 2010 and 2020? What is the difference between Incoterms 2010 and Incoterms 2020? On the other hand, although CIP generally sets upfront that the seller is required to purchase insurance, there are no hard rules on how much coverage minimum is required. reiterate, yes the seller pays for the transportation, but at the risk of the Once the cargo is staged at the port’s container yard, effectively the responsibility of transporting the cargo from the destination’s port yard to the final destination lies on the buyer. Last but not least, the freight finally makes it through all these steps and arrives at the customerâs destination, or the delivery location. – They are part of UPSâs massive shipping company umbrella. The Apart from the FOB rule, the most frequently used in bulk cargo transport by sea is the CIF rule. Among them: More simple language, with less legal content; More detailed explanatory content. In that case, the seller might prefer a better carrier because they are paying the insurance on the product.Â. I'm interested in So, what is the main difference between CIF and CIP? A Letter of Credit, also known as a documentary credit, is a method of payment that makes international sales more secure for both the buyer and the seller. 2. © 2021 Customodal | Fueled by Digital Dispatch | Privacy Policy. The CIF rule seller agrees to purchase marine insurance to cover the insurance on the and! 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