Incoterms Explained: Carriage Paid To (CPT)

Carriage Paid To (CPT) is one of the 11 Incoterms (International Commercial Terms) used in global trade. It clarifies when responsibility for goods passes from the seller to the buyer.

In this article, we’ll explain what CPT means, how it works, the benefits and challenges to buyers and sellers, and how it compares to other Incoterms.

What does Carriage Paid To mean?

Carriage Paid To (CPT) is an Incoterm that requires the seller to cover the costs of delivering goods to a designated destination.

The seller is responsible for arranging the transport, paying transport fees and delivering goods to the carrier.

These responsibilities remain until the seller hands over the goods to the carrier. From then on, the buyer is responsible for insuring goods during transport.

CPT is an incredibly versatile Incoterm that covers every mode of transport, including air, sea, rail, and road.

An example of CPT

Let’s illustrate how CPT works with an example. Imagine a furniture manufacturer in China selling bulk orders to a Manchester retailer. The agreement specifies CPT the port of Felixstowe:

1. The Chinese seller arranges for transportation from their factory to Shanghai.
2. The seller pays the freight charges to deliver the goods from Shanghai to the port of entry at Felixstowe.
3. The risk is transferred to the UK buyer once the goods are on board the carrier in Shanghai. If any damage occurs during transit from the port to Manchester, the buyer is responsible for resolving the issue.

This example highlights the dual nature of CPT, where the seller handles costs until a designated point, but the buyer assumes risks early in the transportation process.

What are the advantages of CPT?

CPT presents advantages to both buyers and sellers. Here are the most important:

1. Simplicity for buyers

Sellers handle much of the transportation process, which makes everything much more manageable for buyers. This is particularly beneficial to companies with limited experience in clearing foreign customs.

2. Predictable costs

The seller covers all the freight costs, presenting a single figure to the buyer. The importer does not need to negotiate with carriers or handle logistics.

3. Flexible application

Unlike some Incoterms, you can use CPT for any mode of transportation. It’s also ideal for domestic or international shipping,

What are the drawbacks of CPT?

While CPT certainly has advantages, businesses must be aware of some issues.

1. Responsibility can be passed on early

The buyer assumes risk when the seller hands over goods to the first carrier. This happens earlier than usual under CPT, leaving buyers vulnerable to loss and damage.

2. A lack of control

The seller is usually in charge of shipping goods to a port of destination under CPT. The buyer has no control over the process, which can lead to delays and unnecessary expenses (most of which the seller will pass on). The seller is also incentivised to find the cheapest freight possible.

3. Possible insurance gaps

CPT does not require the seller to insure the goods. Buyers must arrange for insurance if they want protection against potential losses.

What are my CPT responsibilities as a buyer?

Under CPT, buyers have the following responsibilities:

1. Unloading: Buyers assume the risk of loss or damage once the goods are delivered to the first carrier. They should secure insurance to mitigate potential risks during transit.
2. Import formalities: Buyers must handle import clearance, including paying duties and taxes and complying with local regulations.
3. Final delivery: If the goods need to be transported beyond the agreed-upon destination, buyers are responsible for arranging and covering those costs.

When to Use CPT

You should ship under CPT rather than other Incoterms in several circumstances. These include when:

• The seller has strong relationships with carriers and can arrange transportation more efficiently than the buyer.

• The buyer has less experience managing international logistics and prefers to delegate transportation responsibilities.

• Both parties agree on a clearly defined delivery point where the risk will transfer.

What is the difference between CIF and CPT?

CIF (Cost, Insurance, and Freight) and CPT share similarities but have several distinct differences:

• CPT: The seller arranges and pays for transportation to the agreed destination, but the risk transfers to the buyer upon delivery to the first carrier. Insurance is not included.

• CIF: The seller covers transportation costs and provides insurance until the goods are loaded onto the shipping vessel at the port of origin. CIF is limited to maritime transport.

What other Incoterms are there?

The International Chamber of Commerce (ICC) defines 11 Incoterms with specific rules for allocating costs, risks, and responsibilities between buyers and sellers. Some of the most popular Incoterms include:

1. EXW (Ex Works): The seller makes goods available at their premises, and the buyer assumes all risks and costs from that point onward.
2. FCA (Free Carrier): The seller delivers the goods to a carrier or location specified by the buyer, covering transportation costs up to that point.
3. CIF (Cost, Insurance, and Freight): The seller pays for transportation and insurance to the destination port.
4. FOB (Free On Board): The seller delivers goods onto the vessel at the port of origin, transferring risks and costs to the buyer.
5. DAP (Delivered At Place): The seller covers transportation costs and risks up to the buyer's location but excludes import duties and taxes.

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