What are Incoterms?
Incoterms are a set of rules developed and published by the International Chamber of Commerce (ICC) which define the moment of delivery of goods. Incoterms do not govern the transfer of property or title of goods. The latest version of Incoterms were released for use January this year – Incoterms 2020
CIF and CIP
Most people familiar with Incoterms will already be aware of the insurance inclusive Incoterms CIF (cost insurance freight) and CIP (carriage and insurance paid to) but many will not be aware of the changes that occurred in the new version of the Incoterms 2020.
Before I look at the specific changes to CIF and CIP lets just clarify the terms themselves. Being ‘C’ type Incoterms the carriage obligation is down to the seller – each party (buyer and seller) must agree the final destination to be specified against the Incoterms e.g. CIF Port of Dover UK. Be aware the point of ‘delivery’ and the final destination are not necessarily the same place.
- CIF is a Sea freight & Inland Waterways Term Only
- CIP can be used with ANY mode of transport.
As with all ‘C’ type Incoterms the named place of destination within the agreed Incoterms is the place where the seller must organise the carriage of the goods. It is not the place of delivery , which will have happened earlier.
So what are the changes?
The main changes in Incoterms 2020 with CIF and CIP is the obligated level of insurance specified.
In CIF (being a sea freight and Inland waterways only term) the seller delivers the goods on board the vessel (point of delivery). The seller must pay the freight and the insurance – the insurance will be minimal cover (cargo clauses ‘c’ or equivalent). Both parties can negotiate a higher insurance if they wish.
In CIP the seller delivers the goods to the specified carrier (point of delivery). The seller must pay for the carriage to the named place. The seller must also pay for insurance at the highest cover (cargo clauses ‘a’ or equivalent). Again both parties can negotiate a lower insurance if they wish.
So be aware if you are using CIF or CIP in an older version of the Incoterms, such as in a contract or an agreement, ensure you specify which version you require. If you do not specifically state the version (year) it will default to the newest version – Incoterms 2020 – and you will be bound by the terms above.
What are the Marine Cargo Clauses?
There are many variations – please see an example to show the risks involved and which are covered by clauses a,b,c and which are not.
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