Carriage Paid To (CPT): Definition, Process and Practical Examples

Key Takeaways

• CPT means Carriage Paid To: The seller pays for carriage to the named destination.
• Risk transfers earlier: The buyer takes the risk once goods are delivered to the carrier.
• Seller handles export formalities: Export clearance is generally the seller's responsibility.
• Buyer handles import formalities: Import duties, taxes and clearance are generally handled by the buyer.
• CPT works across transport modes: It can be used for air, sea, road, rail and multimodal shipments.

What Is Carriage Paid To (CPT)?

Carriage Paid To (CPT) is an Incoterm that involves the seller arranging and paying for the transportation of goods to a specified destination. However, there is a difference between the seller paying for the transportation costs and the seller bearing the transportation risk. The former handing over of goods to the carrier concludes the seller’s risk. After that, the buyer will bear the risk of loss or damage, even if the seller continues to pay for the carriage to the destination.

For example, a contract might say “CPT Mumbai, India, Incoterms 2020.” The seller pays the carriage to Mumbai, but the risk transfers to the buyer when the goods are delivered to the carrier.

How Carriage Paid To (CPT) Works

CPT is one of the Incoterms developed by the International Chamber of Commerce (ICC). Based on this term, the seller is responsible for clearing the goods for export, delivering them to the carrier, and paying the carriage to the named destination. Simultaneously, the buyer bears the risk of loss or damage to the goods from the time of delivery to the carrier. Additionally, the seller is not obligated to arrange insurance for the goods under this term.

Seller's Responsibilities Under CPT

Generally, the seller is responsible for the following in a CPT contract:

• Preparing and packing the goods
• Completing all applicable export customs formalities
• Delivering the goods to the specified carrier
• Arranging and paying for the carriage of goods to the named destination
• Providing all the necessary transport documents and details

Buyer's Responsibilities Under CPT

The buyer is responsible for the following in a CPT contract:

• Risk of loss or damage to the goods after delivery to the carrier
• Customs clearance for import
• Import duties and taxes
• Insurance, if the buyer decides to buy it
• Costs that are not covered under the seller’s obligation to pay carriage

Carriage Paid To (CPT) Example

Imagine that a manufacturer based in India buys machinery from a supplier in Germany, using the term Carriage Paid To (CPT) Mumbai, India, Incoterms 2020. The seller is responsible for clearing the machinery for export, delivering it to the first carrier in Germany, and paying the freight to Mumbai.

Now imagine that the machinery is damaged during transport to the airport by truck, before the journey is made by another mode of transport. Since the goods have been delivered to the first carrier, the risk will be transferred to the buyer, despite the seller paying the contract freight to Mumbai. This nuance is one of the most notable features of a CPT contract.

Why This Matters

The buyer should not assume that “seller pays the freight” means “seller bears the transit risk.” Under CPT, those two responsibilities can sit with different parties.

Pros and Cons of Carriage Paid To (CPT)

Using a CPT contract can make international trade easier in some ways and more difficult in others, depending on the context and the parties' needs.

Pros

Seller arranges the main carriage: The buyer does not have to arrange the main freight contract to the named destination.

Seller handles export formalities: Export procedures and related responsibilities at origin are generally handled by the seller.

Flexible transport option: CPT can be used across different modes of transport, including sea, air, road and rail.

Useful for sellers: Offering freight to the named destination can make a supplier's offer more convenient for buyers.

Cons

Risk transfers before destination: The buyer bears the risk after the goods are handed to the carrier, even though the seller is paying for the carriage.

Insurance is not provided by the seller: The buyer needs to separately consider cargo insurance because CPT does not require the seller to insure the goods.

Destination costs need to be understood: The parties should clearly identify the destination and understand which charges are included in the seller's carriage contract.

Comparing CPT and CIF: Key Differences

While CPT and CIF have some similarities, the two terms should not be used interchangeably since they have different implications. CIF covers sea or inland waterway transport, while CPT can apply to any mode of transport. In a CIF contract, the seller pays for and arranges insurance, while in a CPT contract, the seller does not organise or pay for insurance.

What Does CIP Mean in Shipping Terms?

CIP stands for Carriage and Insurance Paid To. It is similar to CPT in that the seller delivers the goods to the carrier, and the buyer takes responsibility from that point on. The difference is that, under Incoterms 2020, the seller also arranges insurance.

What Is the Difference Between CPT and CIP?

The difference between these two Incoterms is subtle but important:

CPT = Seller pays carriage

CIP = Seller pays carriage + arranges insurance

Therefore, if the buyer requires the seller to arrange insurance as part of the transaction, then CIP should be used in place of CPT.

What Is the Difference Between DDP and CPT?

Unlike CPT, DDP (Delivered Duty Paid) places much greater responsibility on the seller. The seller is responsible for all costs and risks involved until the goods reach the buyer at the specified destination, including import formalities.

The Bottom Line

Carriage Paid To (CPT) is an Incoterm where the seller pays for carriage to a named destination, but the buyer assumes the risk after delivery to the carrier. The main difference between cost and risk in CPT is the most important detail to note about this Incoterm.

In addition to the risk mentioned above, the buyer will also want to take out insurance against any covered loss or damage occurring during transit. The seller is not obliged to take out cargo insurance under CPT. Therefore, the buyer can purchase Marine Cargo Insurance to ensure that they are protected. It is critical to define the delivery point, named destination, transportation and insurance arrangement clearly before finalising the Incoterm agreement to avoid any confusion.