What does Carriage Paid To mean?
Carriage Paid To (CPT) is an Incoterm that defines the responsibilities of both the buyer and the seller in an international trade transaction. Under CPT terms, the seller is responsible for arranging and paying for the transportation of goods to a named destination agreed upon by both parties.
However, a key distinction under CPT is the transfer of risk: the seller bears the cost of freight, but the risk of loss or damage transfers to the buyer once the goods are handed over to the first carrier. This means that even while the seller continues to pay for transportation to the agreed destination, the buyer assumes all risk from the moment the goods are delivered to the carrier.
The seller’s obligation under CPT is considered fulfilled when the goods are delivered to the carrier for transportation and receipt. From that point onward, the buyer is responsible for any additional transportation costs beyond the named destination, as well as unloading costs, import customs clearance and any risks associated with the final leg of the journey.
Advantages and Disadvantages of CPT
For the Seller (Exporter)
Advantages:
- Increased Sales Appeal: By covering the main carriage costs, the seller makes the transaction more attractive, especially to buyers with limited international logistics experience. This can help expand market reach and increase sales.
- Control Over Main Carriage: The seller chooses the carrier and route, allowing them to negotiate favorable freight rates and use preferred shipping partners, potentially improving efficiency and cost control.
- Defined Risk Transfer Point: The seller’s risk ends once the goods are handed over to the first carrier at the agreed place of shipment. This provides a transparent and manageable cutoff for liability.
- Handles Export Formalities: The seller is responsible for export customs clearance and related costs, streamlining the process for the buyer and reducing complications related to local export laws.
Disadvantages:
- Higher Cost Responsibility: The seller must pay for transportation to the named destination, resulting in increased financial exposure compared to terms such as EXW or FCA. These costs must be reflected in the selling price.
- Logistical Burden: The seller assumes responsibility for arranging international transport, which may involve complex coordination, particularly across multiple modes or routes.
- Carrier Risk: Although risk transfers early, poor carrier performance (e.g., delays or damage) can damage the seller’s reputation or strain buyer relationships.
- No Insurance Obligation: The seller isn’t required to insure the goods. While this lowers their cost, buyers might prefer CIP (Carriage and Insurance Paid To) if they expect the seller to provide coverage.
For the Buyer (Importer)
Advantages:
- Simplified Shipping Process: The seller handles central logistics and transportation up to the named destination, reducing the buyer’s burden, especially in cross-border transactions.
- Predictable Freight Costs: Since the seller pays for transport to the named destination, the buyer gains more accurate visibility into their landed costs up to that point.
- No Export Responsibilities: The seller manages export formalities, which can be especially helpful if the buyer is unfamiliar with local export regulations in the seller’s country.
Disadvantages:
- Early Transfer of Risk: The biggest drawback for the buyer is that risk transfers as soon as the goods are handed to the first carrier. Although the seller pays for the freight, the buyer bears the risk for most of the journey.
- No Insurance Coverage: Since insurance isn’t included under CPT, the buyer must arrange their own coverage. Failure to do so could expose them to significant financial losses if goods are damaged or lost in transit.
- No Control Over Carrier or Route: The seller chooses the carrier and transportation method. The buyer has little influence, which may result in less favorable transit times or services.
- Customs and Transit Responsibilities: While the seller handles export clearance, the buyer is responsible for managing transit customs (if applicable) and import clearance at the final destination, including duties and taxes.
- Possible Hidden Costs: Although the seller covers the main transport, the buyer remains responsible for unloading, terminal handling fees (unless otherwise agreed upon), and final inland transport. These should be clearly outlined to avoid surprise charges.
CIF vs CPT
In a CIF (Cost, Insurance, and Freight) agreement, the seller is responsible for delivering the goods to a specified port of destination. This includes paying for both freight and insurance during transit. However, once the goods are loaded onboard the vessel at the port of shipment, the risk transfers to the buyer.
In contrast, under a CPT (Carriage Paid To) arrangement, the seller also arranges and pays for transportation to a named destination agreed upon with the buyer. However, risk transfers to the buyer as soon as the goods are handed over to the first carrier, even though the seller continues to pay for the main carriage.
Key Differences:
- Insurance: CIF includes insurance coverage arranged by the seller; CPT does not. Under CPT, the buyer is responsible for arranging their insurance.
- Point of Risk Transfer:
- In CIF, risk transfers when the goods are on board the vessel.
- In CPT, risk transfers when the goods are handed over to the carrier.
- Delivery Responsibility:
- Under CIF, the seller’s obligation ends once the goods are loaded on the ship.
- Under CPT, the seller’s responsibility continues until the goods reach the named place of destination, but without bearing the risk beyond handover.
Choosing Between CIF and CPT:
The right choice depends on your priorities regarding cost control, risk management, and logistics coordination. CIF is often preferred when the buyer wants the seller to manage insurance and freight. At the same time, CPT may be better suited for buyers who wish to handle insurance themselves or who are importing via inland or multimodal transport.
