CPT Incoterms: Meaning, responsibilities and advantages

CPT Incoterms rule places significant logistics obligations on the suppliers (exporters) until transfer to the main carrier. The buyers (importers) then take over for the final transportation and import.

Unlike CIP (Carriage and Insurance Paid To), where the supplier is also responsible for arranging insurance for the goods during transit, CPT leaves the insurance arrangement to the buyer's discretion. This flexibility can be advantageous for importers who prefer to handle protection themselves or have existing policies that can cover the shipment.

In this guide, you’ll learn:

• Meaning of CPT Incoterms
• Buyer’s and supplier’s responsibilities
• An example of CPT Incoterms
• Advantages and disadvantages
• Frequently asked questions about CPT

What are CPT Incoterms?

CPT Incoterms (Carriage Paid To) rule is one of the 11 Incoterms defined by the International Chamber of Commerce (ICC). Under CPT, the supplier fulfills their obligation by delivering the goods to the carrier and paying for transportation to the specified place of destination. 

Once the supplier delivers the products to the main carrier, the risk transfers to the buyer, who then takes on any additional costs and risks for the subsequent transportation to the final destination.

CPT Incoterms agreement is ideal for scenarios where the buyer prefers the supplier to manage the primary transport logistics and associated costs, while they (importers) manage the risks from the point of handover to the carrier.

Key features of CPT Incoterms explained:

• Point of delivery: The delivery destination under CPT can be any agreed-upon location, such as a specific address, port, terminal, or another designated place within the buyer's country.
• Modes of transport: Carriage Paid To Incoterms rule is applicable to all modes of transport (sea, air, rail, or road), including multimodal.
• Insurance coverage: Negotiable. The supplier doesn’t need to provide insurance.

💡 The International Chamber of Commerce updates the Incoterms rules every decade. The latest versions are Incoterms 2010 and Incoterms 2020. When you use CPT or any other Incoterm in a contract, specify the edition to avoid misunderstandings or ambiguities.

Read more: What are the types and rules of Incoterms?

Supplier’s and buyer’s responsibilities under CPT Incoterms

To fully grasp the implications of CPT Incoterms, it's important to understand the specific responsibilities and obligations they entail for both the supplier and the buyer.

Supplier’s responsibilities

• Export packaging: Ensuring the goods are properly packed for international shipping.
• Loading charges: Covering the expenses of loading the products onto the initial carrier at the pickup location.
• Delivery to port/place: Delivering the items to the carrier or designated party at the specified port or place as outlined in the contract.
• Export formalities: Handling export duties, taxes, and customs clearance.
• Origin terminal charges: Bearing the costs at the origin terminal, including handling charges.
• Loading onto carriage: Supervising the loading of cargo onto the primary mode of transportation.
• Main freight charges: Managing the expenses for the main transportation to the designated location.
• Destination terminal charges: Paying for costs at the destination terminal, such as unloading and handling, up to the agreed delivery point.

Buyer’s responsibilities

• Delivery to the final destination: Taking responsibility for the goods upon their arrival at the specified place, port, or terminal, and arranging further transportation to the final destination (buyer’s premises or designated place).
• Unloading at destination: Covering the costs and taking charge for unloading the goods, unless otherwise agreed.
• Import formalities: Managing all import requirements and associated costs, including customs duties, taxes, and clearance in the destination country.

An example of CPT Incoterms

Let's illustrate the application of CPT Incoterms with an hypothetical example. Imagine EuroTech Ltd., a British technology retailer, orders 500 premium smartphones from GalaxyManufacturing, a South Korean producer. They agree to use Carriage Paid To Incoterms, with the main carriage specified to EuroTech’s distribution center in London.

Supplier’s responsibilities (GalaxyManufacturing)

GalaxyManufacturing is responsible for packaging the smartphones, arranging all necessary export documentation, and handling export customs clearance in South Korea. They arrange and pay for the transportation from South Korea to the main carrier designated by EuroTech, which includes air freight to Heathrow Airport. 

The risk of loss or damage transfers to EuroTech once GalaxyManufacturing delivers the smartphones to the main carrier at Heathrow.

Buyer’s responsibilities (EuroTech Ltd.)

EuroTech handles and pays for import customs clearance, duties, and taxes upon the smartphones' arrival in the UK. They also arrange and pay for the subsequent road transport from Heathrow to their distribution center in London. 

Additionally, EuroTech is responsible for unloading the smartphones at their London distribution center and conducting a quality check to confirm the items align with their order requirements.

Advantages and disadvantages of CPT Incoterms

Like any trade term, Carriage Paid To Incoterms rule comes with its own set of advantages and disadvantages. Understanding these is key to determining its suitability for your specific needs.

Advantages

• Reduced transportation risk: The buyer's risk of loss or damage to the goods during transportation is significantly reduced, as the supplier bears the responsibility until the products are handed over to the main carrier.
• No export clearance requirements: The buyer doesn’t have to handle any export clearance formalities or fees associated with exporting from the supplier’s country, which can be beneficial when the importer is unfamiliar with the local export requirements.
• Increased sales opportunities: By taking on more transportation risks and obligations, suppliers may be able to secure sales from buyers who would otherwise be hesitant due to the risks involved in long-distance shipping.

Disadvantages

• Transit clearance responsibility: If the products need to pass through any intermediate countries en route, the buyer is responsible for organizing and handling transit clearance, despite potentially not knowing the carrier or having an existing relationship with them.
• Buyer still faces risks: Although transportation risk is initially reduced, the risk transfers from the exporter to the importer as soon as the goods are handed over to the main carrier, which could occur before the goods leave the supplier’s country.

💡 It's essential for both buyers and suppliers to carefully evaluate these advantages and disadvantages within the context of their specific business needs, risk tolerance and logistics capabilities.

Learn more: What is export finance and how can it help SMEs?

CPT Incoterms: Frequently Asked Questions (FAQs)

CPT Incoterms: Who pays the freight?

In a CPT transaction, the seller (supplier) takes on the responsibility of clearing the goods for export and delivering them to a carrier or another party specified by the buyer at a mutually agreed-upon location.

Who pays the duty in CPT Incoterms?

Under CPT Incoterms, the buyer is responsible for paying import duties and taxes. The supplier’s obligation ends once they deliver the goods to the carrier or another party that the exporter specifies at the named destination.

CIP vs. CPT Incoterms

CIP and CPT are two similar Incoterms with one key difference – insurance. Under CPT, the buyer assumes responsibility and bears the risk of loss or damage once the supplier hands the goods to the carrier. In contrast, CIP requires the supplier to arrange and pay for insurance coverage.

What is the difference between DDP and CPT?

The key difference between DDP (Delivered Duty Paid) and CPT lies in the extent of the supplier’s responsibility. With DDP, the exporter covers all expenses and risks until the goods reach the buyer's final location. Under CPT, the supplier’s obligations end when the products are handed over to the main carrier.

When to use CPT Incoterms

CPT Incoterms can be a suitable choice for international transactions where the supplier takes responsibility for the initial transportation and delivery to the main carrier, while the buyer manages the subsequent transportation and import formalities.

However, factors such as the mode of transportation, transit clearance requirements and the potential need for intermediate stops should be taken into account. 

A thorough understanding of the responsibilities and risk allocation under the Carriage Paid To Incoterms rule is essential for making an informed decision that aligns with the specific needs of the international trade transaction.

Learn more about other Incoterms:

• EXW (Ex Works)
• FCA (Free Carrier)
• FAS (Free Alongside Ship)
• FOB (Free On Board)
• CFR (Cost and Freight)
• CIF (Cost, Insurance, and Freight)
• CIP (Carriage and Insurance Paid To)
• DAP (Delivered at Place)
• DPU (Delivered at Place Unloaded)
• DDP (Delivered Duty Paid)

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