What Is CPT (Carriage Paid To)?

Definition of CPT (Carriage Paid To) Incoterm

The CPT incoterm rule is a logistics arrangement where the seller clears the goods for export and pays for the main carriage to a named location in the destination country. This rule applies to any mode of transport, such as sea, inland waterway, air, or land freight.

Per CPT rules, the buyer’s risk begins when the seller delivers the goods to the first carrier. Unlike CIF (Cost, Insurance, and Freight) and CIP (Carriage and Insurance Paid to), CPT does not require the seller to insure the goods during the main carriage.    

Key Features of CPT

Here are the primary features of CPT rules:

Seller’s Obligations Under CPT

Under CPT rules, the seller must prepare and mark the goods for export, provide a commercial invoice, and submit proof of delivery to the buyer. They must cover all export formalities, including taxes, duties, documentation, and obtaining an export license.

The seller has to deal with pre-carriage movement and cover all associated costs. They must also arrange and pay for the main carriage to a named location in the destination country, covering any pre-shipment inspection costs.

Under CPT, the seller’s liability ends once the goods are delivered to the very first carrier. Even though they cover the main carriage expenses, they are not responsible for any loss or damage after the initial delivery point.

Buyer’s Responsibilities

The buyer’s responsibilities are minimal compared to the seller’s under CPT. They must pay for the goods as per the sales agreement. They also handle all the formalities involved with importing, including raising the documentation, paying duties and taxes, and covering pre-shipment inspection costs to clear the goods for import. In case the named destination is not the final delivery point, the buyer must arrange and pay for onward carriage.

CPT transfers all risk to the buyer once the goods are handed over to the first carrier. Any subsequent loss or damage is the buyer’s responsibility. As such, the buyer must arrange for insurance during the main carriage if required.  

Transportation Costs and Their Implications Under CPT

CPT rules dictate that the seller covers the cost of moving the goods from their facility to the named location in the destination country. In multimodal transport, this includes pre-carriage charges, such as trucking or rail transport, and the cost of the main carriage to the named location.

This can result in increased risk on behalf of the buyer. As the seller is not responsible for the goods after delivery to the first carrier, they might prioritize low-priced carriers to cut costs and increase profit margins. The concern is that these carriers may not have the same protections in place as their more expensive competitors. 

Advantages of CPT

Here are the advantages CPT has to offer to buyers and sellers:

For the Seller

• Precise control over shipping arrangements up to the designated point

• Limited liability and risk after goods are handed over to the first carrier

• Increased sales, as many new buyers prefer that sellers handle most of the logistics

• Easy access to distant markets as buyers benefit from a hassle-free purchasing process

• Potential for increased revenue by adding a markup to the overall transport costs

For the Buyer

• Assurance of shipping costs being covered up to a certain point

• Clarity on when the responsibility and risk passes from the seller to them

• Increased global sourcing opportunities, with little to no logistics knowledge required

• Upfront visibility of total expenses, as sellers quote the transport and goods costs in advance

• Reduced administrative burden as buyers do not have to arrange carriers

Disadvantages of CPT

Here are the possible disadvantages of using CPT:

Challenges for the Seller

• Bearing upfront transportation costs without immediate reimbursement

• Enduring all risks until the goods are handed over to the first carrier

• Handling all export customs clearance formalities, including documentation and costs

• Difficulty in ensuring quality control during transit

• Complexities in coordinating with multiple carriers in multimodal deliveries

Challenges for the Buyer

• Taking on significant risk and responsibility once goods are with the first carrier

• Potential for additional costs beyond the delivery point

• No control over logistics, potentially having to deal with inefficient carriers

• Paying inflated prices as the seller might adjust the overall quote for uncertainties or profit

• Handling import customs clearance, duties, taxes, and documentation

• Disputes over risks or loss during the main transit, especially if the carrier is not up to the buyer’s standards

When to Use CPT

CPT can be used for any mode of transporting goods. It is often preferred in cross-border trade, such as containerized ocean freight, that require multiple modes of transport. CPT terms simplify this process for the seller by allowing them to control the entire logistics chain. 

Sellers are recommended to use a letter of credit as the payment method when using this incoterm as it assures payment under specific conditions.

Buyers often prefer to use CPT when they have agents in both origin and destination countries to oversee every detail of the logistics and ensure smooth shipping on their end.

FAQ

How does CPT differ from CIF and CIP?

CIF and CIP require the seller to cover insurance of the goods during the main carriage while CPT does not.

Who is responsible for insurance under CPT?

CPT does not require either the seller or buyer to pay for insurance. However, since the risk transfers to the buyer when the goods are on the seller’s carrier, it is recommended that they insure the cargo against loss or damage.

What happens if goods are damaged after being handed over to the carrier in CPT?

Since the delivery point is the first carrier, any loss or damage incurred is the responsibility of the buyer.

How are transportation costs calculated and accounted for in CPT?

The seller chooses and pays for the pre-carriage and main transport to the named destination in advance. These charges are included in the total invoice to the buyer along with the cost of the goods. The buyer is responsible for paying for the onward carriage to the final delivery point if needed.

Can CPT be used for all modes of transportation?

Yes, CPT is suitable for all modes of transport, including land, sea, and air freight.

How does CPT affect reimbursement?

Reimbursement to the seller is typically handled as specified in the sales contract that details how and when the seller will be reimbursed. The buyer can verify the transport costs covered by the seller via documentation and settle the payment based on the agreed-upon terms.