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Unit 2: Methods of Payment and Incoterms

4. CIP – Carriage and Insurance Paid to (named place of destination): The shipping term Notes
CIP is much similar to the CPT. The only difference is that insurance of cargo is also
responsibility of exporter as in case of CIF. CIP is also used for multimodal transportation
of goods.

Incoterms such as CFR and CIF are mono-modal terms and these can only be used when the
main carriage is by either inland water or seaways transport. Such Incoterms cannot be used for
landlocked countries such as Nepal or Afghanistan because under these terms the journey has to
be by sea/waterways only.

There are two shipping terms under Group C whereby the exporter is under legal obligation to
arrange the insurance of cargo. These are CIF and CIP. Under other Incoterms such as CFR and
CPT; the arrangement of insurance is an optional responsibility of the exporter and the cost of
such insurance has to be borne by the importer of cargo.
Group C incoterms are quite unique from other incoterms because under these terms the point
of transfer costs, responsibilities, obligations and risks are precisely segregated between he
exporter and importer. In sum, it can be said that under Group C incoterms, the exporter is under
responsibility to bear all costs and risks until the goods arrive at the named port or place of
destination. Under this Group of incoterms the risks shift from the exporter to the importer at
the port of loading at the time of delivery of goods to the carrier for transportation for shipment
of cargo to importer‘s country.

Group ‘D’ – Arrival

1. DAF – Delivered At Frontier (...named place): Incoterm DAF is a mono-modal and can be
used for land transportation of goods through road and railways. It simply means that
such terms cannot be used for the countries that are surrounded by water or sea and have
no inland border with any other countries, such as Australia, New Zealand, Japan and the
Maldives.
2. DES – Delivered Ex Ship (...named port of destination): The shipping term DES is much
similar to CFR in terms of costs and responsibilities involved in transportations of cargo.
Under DES shipping terms, the exporter is responsible for all the risks till the goods reach
the named port of destination. Under this incoterm, the risk is on the exporter as compared
to CFR.

3. DEQ – Delivered Ex Quay (named port of destination): Under shipping term DEQ, the
exporter is responsible not only for the delivery of the cargo to the named port of
destination, but is also under obligation and responsibility to bear the expenses for the
unloading of the cargo and placing it on the wharf in the importer country.
4. DDU – Delivered Duty Unpaid (...named place of destination): Under DDU shipping term,
all the costs and responsibilities involved are much similar to the CPT. The exporter also
has to bear all risks until the goods arrive at the named place of destination.
5. DDP – Delivered Duty Paid (...named place of destination): Under this incoterm, the
exporter has the highest obligations and responsibilities, as he has to bear all the costs and
risks involved in delivering the cargo to a named place of destination. Expenditure such as
customs clearance, duties and other payments have to be made by exporter in importer’s
country.

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