Incoterms® 2020: CIF and CIP, and the insurance difference that matters
CIF and CIP look interchangeable and are not. Since 2020 they require different levels of insurance, and for palletised cargo the difference decides whether damage is covered.
CIF and CIP look interchangeable and are not. They differ in transport mode, in where risk passes, and – since the 2020 edition – in the level of insurance the seller must buy. That last difference is the one that decides whether a damaged consignment is fully covered or barely covered, and it is routinely missed.
The single most misunderstood point
Under both CIF and CIP, the seller pays for carriage to the named destination. Risk does not travel with the cost.
So the seller is paying freight for a journey the buyer is already bearing the risk of. If the vessel is lost mid-ocean under CIF, the loss is the buyer's, and the buyer claims on the insurance the seller was obliged to take out in the buyer's favour. This is why the insurance level is not a detail.
The insurance levels
This is the substantive change introduced in Incoterms® 2020:
Clauses (C) cover a restricted list: fire, explosion, vessel stranding or sinking, general average, and similar major events. They do not cover ordinary handling damage, water ingress, or theft and pilferage – which are the losses that actually happen to palletised glove cartons.
For a container of examination gloves, Clauses (C) is close to no useful cover. If the term is CIF, either specify a higher level in the contract, or buy supplementary cover, or use CIP instead.
Both rules require insurance for a minimum of 110 % of the contract value, in the contract currency, covering to the named destination at least.
CIF – Cost, Insurance and Freight
Sea and inland waterway only. The seller clears for export, loads on board, pays freight to the named destination port and insures to Clauses (C) minimum.
The seller's cost obligation ends at the destination port. Unloading at destination is not included unless the contract says otherwise, and neither is import clearance, duty, VAT or onward carriage. A CIF price is not a delivered price.
CIP – Carriage and Insurance Paid To
Any transport mode, including air and multimodal. The seller contracts carriage to the named destination – which can be inland, not just a port – and insures to Clauses (A).
Because risk passes at the first carrier, the named destination in a CIP contract is a cost point, not a risk point. Naming an inland destination extends the seller's payment obligation without changing where the buyer's risk begins.
Which to use
For institutional buyers the practical guidance is short. If the shipment is containerised sea freight and the term is CIF, treat the insurance as inadequate until proven otherwise. If the shipment is air freight, CIF is the wrong rule entirely – use CIP. And if what you actually want is a landed price with no customs exposure, neither rule delivers it; see DAP and DDP.
For the low-obligation end of the range, see EXW and FOB. We quote examination gloves and the rest of the range on whichever rule suits the buyer, and will say when a rule is the wrong one for the shipment.
The eleven Incoterms® 2020 rules
Incoterms® is a registered trademark of the International Chamber of Commerce. The rules in force are Incoterms® 2020, published September 2019 and effective from 1 January 2020. A contract that does not name the edition is ambiguous, because the 2010 rules remain valid if the parties specify them – always write the rule, the named place and the edition: `FOB Port Klang, Incoterms® 2020`.
Related: EXW and FOB · CIF and CIP · DAP and DDP
Key takeaways
Seventeen years sourcing and supplying medical gloves and PPE to governments, UN agencies, NGOs and healthcare systems. Writes on glove standards, quality management and responsible sourcing for institutional buyers, working from the source standards rather than secondary summaries.
View profile on LinkedIn
