The CPT incoterm is an arrangement which is used in international trade by buyers and sellers for commercial proceedings and import/export affairs. The CPT rule is one of the 11 revised incoterms published by the International Chamber of Commerce.
‘Carriage paid to’ (CPT) -- the regulation itself signifies a person’s accountability to bear responsibility for freight during transit. Under this arrangement, the sellers' role ceases to almost nil after paying the carriage duty till the designated port, and the remaining course of the transaction is the buyer’s duty.
The rule is applicable for any mode of transportation. Here the seller is liable for carriage, but he is not responsible for insurance, and the risk of goods is transferred after the delivery point.
Shipping Terms in CPT
- In this scenario, the place of destination is agreed upon by both parties. (Here, the first port is the exporter’s port and the second is the importer’s).
- The carriage responsibility stays with the seller.
- Though the carriage process is carried out by the seller, he is not responsible for insurance.
- Loading and unloading of goods at the target port can be agreed upon jointly by both the parties.
- The risk is transferred from the buyer to the seller at the designated port.
Seller’s Responsibility
Transportation The seller is responsible for transporting the goods to the agreed upon destination which can be either the seller’s port or buyer’s port.
Delivery Terms
The place of destination is a location agreed upon between the buyer and the seller. It can either be the first port (the exporter’s country) or the second port (the importer's country).
Case 1: First Port
The seller delivers the goods till the designated port (to the port of his country), hence he has to bear the responsibility of transit from the warehouse to the port of his country.
Case 2: Second Port
As the place of destination is the second port which is in the importer’s country, the seller arranges transit for transferring the goods from his premises to the first port, along with the carriage duties till the target port.
Loading/Unloading The seller is responsible for loading goods onto a truck at the seller’s warehouse and loading goods onto the carrier. They cover the charges involved in these loading activities.
Documents The seller has to provide the buyer with the following documents for the documentation.
- Bill of Lading
- Commercial Invoice
- Insurance Certificate
- Packing List
- Export License
Costs Borne by Seller
Case 1: First Port
The price for maintaining goods, freight forwarding agents' fees for taking care of logistics, terminal charges at the port, and payment of inland transit from the warehouse to the designated port -- all these charges will be paid by the seller.
Case 2: Second Port
Maintenance of goods, freight forwarding fees, closing charges, inland transit till the first port, custom clearing charges, and payment for shipping -- all these expenses are borne by the seller.
Custom Clearances
CPT includes customs clearance. In both the cases, the seller will carry out export custom proceedings, and all the custom charges will be borne by him. He’ll have to deliver all the necessary documents (Bill of Lading, Commercial Invoice, Insurance Certificate, Packing List, etc.) to the buyer at the designated port.
Also Read :- What Is A Bill Of Lading & What Are Its Types
Freight Charges
Freight terms are agreed upon between the buyer and seller. It totally depends on the following situations:
Case 1: First Port
The seller has carriage responsibilities till the first port, so he will be responsible for carriage only till the destination, i.e., only inland transportation from the warehouse to the port. This can be either road transport or rail transport.
Case 2: Second Port
Here the seller's responsibility rests till the importing country’s port. He will not only be responsible for inland transit till the first port but will also carry out the freight proceedings till the importer’s port.
Insurance
In CPT the risk passes on to the buyer past the delivery point, hence the seller is not obligated to pay for insurance. But if anything happens to the goods during the shipment process, the buyer might not pay, hence it would be wise for the seller to arrange for marine insurance. Its upto the buyer whether he wants to bear the cost of insurance or not.
Transfer of Risk
The risk lies with the seller till the designated port, after which the risk will be transferred to the buyer. Also, after the carriage proceedings, the loading and unloading of goods is again as agreed upon between the buyer and seller.
Buyer’s Responsibility
Transportation The buyer is responsible for transportation of goods from the agreed upon destination to the buyer’s warehouse.
Delivery terms
Case 1: First Port
The seller bears the responsibility of delivery of goods till the first port, so there is responsibility of carriage upon the seller for shipping the goods from the exporter's port to the port of his own country, customs charges for the importing process, and inland transit from the port to the warehouse.
Case 2: Second Port
As the place of destination is the second port, which is the importer's country’s port, the buyer only has responsibility for inland transit from the designated port to the warehouse.
Loading/Unloading Depending on the agreed upon delivery port, the loading and unloading of cargo can be decided by the buyer and seller. The buyer usually covers the charges for unloading cargo at the destination port.
Documents The buyer receives the Bill of Lading, Commercial Invoice, and other shipping documents from the seller. Along with these documents, they need to furnish the import license, GATT/DGFT declaration, and other documents to clear import customs procedures.
Costs Borne by Buyer
Costs to be borne by the buyer are as follows:
- Import customs clearance charges
- Freight charges (in context to case 2)
- Terminal charges
- Inland transit expenses
- Warehouse charges (for maintaining goods)
Customs Clearance
In both situations, the import duty is to be borne by the buyer. He will bear the responsibility of every business transaction after the goods have been delivered at the nominated port. The seller has to provide the buyer with all the necessary documents for carrying out import proceedings.
Freight Charges
Case 1: First Port
As the buyer recognizes freight duties after the designated port, the whole shipping process will be carried out by the buyer at their own cost. After that the import practices at the second port will be carried out by him, along with the inland transit till the warehouse.
Case 2: Second Port
Here the buyer’s responsibilities begin after the goods have been brought to the port of their own country, hence they take care of the import measures and inland transit till their own warehouse.
Insurance
The buyer bears responsibility for damage of goods from the delivery point, but he is not obligated to insure the goods. At his own cost and decision he can choose to insure goods; again, the full risk rests with the buyer, and the seller bears no liability here.
Transfer of Risk
The risk transfers from the seller to the buyer after the goods have been delivered at the nominated place in both the cases. Once the delivery has been made the risk of damage to goods has to be borne by the buyer.
When to Use CPT Incoterms?
CPT Incoterms works well when transporting goods where the seller has to organize shipment to transport the goods across multiple countries. CPT is useful when the buyer is negotiating with a seller in a foreign country. CPT Incoterms saves the buyer from the trouble of arranging transportation in a country they are not familiar with.
Example of CPT Incoterms
Company A in the US buys furniture from Vietnam. Under CPT Carriage Paid to Company A Address, California, the seller in Vietnam is responsible for the costs to transport goods to the mentioned destination which is California. The transfer of risk occurs when the seller has delivered the cargo at the port of Los Angeles. Company A pays for import customs clearance charges and other taxes and duties once the goods reach the destination port and arranges for transportation to their warehouse.
Difference between CIF & CPT
Also read: FAS Incoterms | Free Alongside Ship | Meaning in Shipping & Exports
FAQs
What is CPT pricing?
While arriving at price to be charged by a seller under CPT - apart from the raw material, labour, packaging-labelling, warehouse and mantainance charges incurred during the processing of goods, the seller should also consider the carriage and other costs which will be incurred till the goods are delivered at the nominated port. On the basis of these costs the seller should give his quote to the buyer.
Does CPT include duty?
Under CPT, the duty for customs clearance is to be borne by both the parties for their respective countries or geographies.
What is CPT payment terms?
CPT payment terms are the costs associated with the carriage and shipping process, where the seller is liable for all charges till the destination port and the buyer thereafter.
What is the difference between FCA and CPT?
A major difference between the two is that the decision of the place of destination in FCA rests with the buyer, whereas in CPT the place of destination is a mutually agreed decision by both the parties.
Is CPT incoterms for air freight?
CPT incoterms are available for any mode of transportation, including the air freight.
Who is responsible for insurance under CPT?
As such there is no liability for both parties in terms of insurance of goods. But as per the CPT rules, the responsibility of insuring goods rests with the buyer. If the proceedings are carried by the seller, he takes no responsibility for the damage of goods.
Who pays freight in CPT incoterms?
The seller is responsible for the freight and shipping payments under CPT, as he remains liable for the delivery of goods till the nominated place of port.
What are the terms and conditions under CPT contract?
Under CPT contract, the decisions regarding destination port and the loading and unloading of goods at the port are to be agreed upon by the participation of both parties. The carriage proceeding is to be carried out by the seller as per the agreed upon destination and the risk transfers to the buyer when the goods are delivered at the agreed place.
