The difference between CIP & DAP incoterms?

CIP :   Carriage and Insurance Paid To (CIP) is when a seller pays freight and insurance to deliver goods to a seller-appointed party at an agreed-upon location

DAP:  Delivered-at-place (DAP) is an international trade term used to describe a deal in which a seller agrees to pay all costs and suffer any potential losses of moving goods sold to a specific location.

1. Risk of loss or damage.

   CIPrisk passes to the buyer in the seller’s country once the goods have been handed to the first carrier or loaded onto the first means of transport.

   DAPloss or damage risk remains with the seller until the goods have arrived at the named place of destination.

2. Insurance.

   Despite risk resting with the buyer under CIP, the seller must take out insurance in the name of the buyer either from door to door or air/port to air/port as agreed with the buyer. The insurance can be a minimum cover, though the buyer will likely request it to be the equivalent of “all risks”. The insurance must cover 110% of the CIF (cost insurance and freight) price of the sale in the same currency as the contract. An added complication is in determining where the risk of loss or damage is passed to the buyer; there are two possible locations — at the seller’s premises at loading or at the place of departure. This must be agreed in advance and clearly expressed in the definition of the Incoterm rule within the contract. Even so, you could have a situation where you buy insurance in the name of the buyer but, on the investigation, the risk would still be the seller’s responsibility as there is no clear evidence where the damage, etc took place. Then you have a disputed claim with the insurance company. Also, if you have a high excess written into your insurance policy and don’t change it you may find that the insurance certificate you raise is worthless to your buyer. The insurance policy or certificate raised on the back of your policy should be sent by the seller to the buyer prior to goods movement so they can make a claim, without need to contact the seller in the event of an incident.

   Two extra points to consider.

   1. Will the buyer want to pay you to insure the goods when they may have a blanket transit insurance policy of their own? If the insurance you take out in their name is not adequate then they may have grounds to claim the money directly from you as under CIP you are obligated to ensure the cargo is adequately insured.

   2. If you have a corporate group insurance policy will your insurance company charge you additional premiums to raise certificates against the existing policy on behalf of your overseas customers? Also, if you currently have a high excess on your insurance policy will you have to amend this to enable buyers to claim for shipment when the price is lower than your current excess level? This could also increase your premiums.

   Under DAP the risk of loss or damage remains the seller’s until the goods arrive at the named place. The seller normally covers transit risk under a blanket insurance policy with annual premiums, so the individual shipment is not specifically covered. Within the terms of the insurance policy the excess level will be stated as will excluded countries, etc. The odd thing about DAP is that the seller does not have to insure the goods — but they do have the risk if anything goes wrong.

However, only by understanding the business reason for considering changing terms will it be possible to thoroughly assess if this is a good commercial decision for the business as a whole.