(1) Correctly understand the issues of risk and insurance
In a contract concluded under the CIP terms, the seller is responsible for arranging freight insurance and paying the insurance premium, but the risk of the goods being transported from the place of delivery to the destination is borne by the buyer. Therefore, the seller’s insurance is still an agency. According to the interpretation of the “2010 General Rules”, under normal circumstances, the seller shall insure according to the risk type agreed upon by both parties. If the parties do not stipulate the risk type to be insured in the contract, the seller shall insure the lowest risk type according to convention. The insurance amount is generally based on the contract price plus 10% (i.e. 110%), and the currency agreed in the contract shall be used.
(2) Reasonable determination of price
Compared with FCA, the seller under CIP terms has more responsibilities and expenses. He is responsible for arranging the transportation from the place of delivery to the destination and bearing the relevant freight; arranging freight insurance and paying the insurance premium. All of these should be reflected in the price of the goods. Therefore, when the seller quotes to the outside, it should carefully calculate the cost and price. When calculating, the transportation distance, insurance type, various modes of transportation and the charges of various types of insurance should be considered, and the trend of changes in freight rates and insurance premiums should be predicted. From the buyer’s perspective, the seller’s quotation should also be carefully analyzed and price comparison should be done to avoid accepting unreasonable quotations.
(3) The difference between CIP and CIF
According to the interpretation of the “2010 Incoterms”, the similarities between CIP and CIF are: under both terms, the seller handles the freight formalities and pays the usual freight required to transport the goods to the agreed place in accordance with the usual routes and customary methods; arranges insurance and pays the insurance premium.
The differences between CIP and CIF mainly lie in the following three points:
① The applicable modes of transportation are different: CIF terms apply to water transportation, and the place of delivery is at the port of shipment; while CIP terms apply to various modes of transportation, and the place of delivery is to be agreed upon by both parties according to the different modes of transportation.
②Different critical points of risk transfer: Under CIF terms, the risk is transferred to the buyer after the goods are loaded on board the ship at the port of shipment; under CIP terms, the risk is transferred to the buyer when the carrier controls the goods.
③Different cost burden: Under CIF terms, the seller is responsible for chartering a ship and booking a space, paying the freight from the port of shipment to the port of destination, and is responsible for handling water cargo transportation insurance and paying the insurance premium; under CIP terms, the seller is responsible for handling transportation formalities, paying the full freight from the place of delivery to the designated destination, handling freight insurance under various related modes of transportation involved, and paying the insurance premium.