CPT Incoterms 2020: What Every Exporter and Importer Needs to Know

The world of international trade involves various agreements to ensure the smooth exchange of goods across borders. One of the essential components of these transactions is Incoterms (International Commercial Terms), which clarify the responsibilities, risks, and costs between buyers and sellers. Among the 11 Incoterms outlined in the Incoterms 2020, CPT (Carriage Paid To) is a commonly used term that applies to any mode of transport and is key in defining roles in global trade.

What is CPT (Carriage Paid To)?

CPT stands for Carriage Paid To, a term indicating that the seller covers transportation costs to a designated destination. In this arrangement, while the seller is responsible for the carriage costs up to the agreed destination, they do not take responsibility for the risk associated with the goods during transport. The risk is transferred to the buyer once the goods are handed over to the first carrier or transport company.

This Incoterm is widely applicable and can be used with various transport methods—sea, air, rail, or road.

Responsibilities Under CPT Incoterm

CPT outlines clear responsibilities for both buyers and sellers, from the initial handling of goods to customs procedures, transit costs, and transfer of risks. Here’s a breakdown of each party’s obligations under CPT.

Seller’s Responsibilities

The seller in a CPT agreement has certain primary responsibilities, which include:

Carriage and Delivery:

• The seller is responsible for arranging and paying for the transportation of goods from their warehouse to the agreed destination.
• Delivery under CPT can occur at either the first port (seller’s country) or the second port (buyer’s country), depending on what the parties agree.

Customs and Export Clearance:

• The seller is in charge of the export customs clearance process, including necessary documentation, inspection, and any export duties.
• Essential documents include the Bill of Lading, Commercial Invoice, Packing List, and Insurance Certificate (if required by the buyer).

Freight Costs:

• The seller bears all freight charges up to the destination port.
• This includes transport from the warehouse to the port and freight costs if shipping to the buyer’s country.

Transfer of Risk:

• The seller’s risk ends once the goods are handed over to the carrier.
• After the carrier has taken possession, any damage or loss during transit is the buyer’s responsibility.

Insurance (Optional):

• Under CPT, the seller is not required to arrange insurance for the goods. However, if there are concerns about potential damage, they may opt to secure marine insurance, though this is usually at the buyer’s discretion.

Buyer’s Responsibilities

In a CPT transaction, the buyer also assumes specific duties and costs:

Risk Management:

• As the risk transfers to the buyer after the goods are handed to the carrier, the buyer must manage any potential risks during transit.
• Insurance is optional but recommended, given the responsibility for damage or loss lies with the buyer.

Import Customs and Duties:

• The buyer is responsible for import customs clearance, including paying import duties, taxes, and other import fees.
• All required documents provided by the seller will be necessary for smooth customs processing in the buyer’s country.

Costs at the Destination Port:

• The buyer covers costs such as terminal charges, unloading fees, and inland transport from the destination port to their warehouse or final destination.
• If the destination is the seller’s port, the buyer is also responsible for securing further transportation to their location.

Insurance (Optional):

• Since the risk shifts to the buyer after delivery to the carrier, insurance against any loss or damage during transit is at the buyer’s discretion.

Case Scenarios: First Port vs. Second Port

Depending on the designated delivery point (first or second port), the responsibilities and costs vary slightly between the seller and the buyer.

First Port Scenario:

• The seller transports the goods to the first port within their country.
• The buyer takes responsibility for international shipping, handling all additional costs, risks, and inland transit from the first port onward.
• For example, if a shipment is being sent from a seller’s port in Germany, the buyer will handle the transport to their final destination from the German port.

Second Port Scenario:

• The seller is responsible for transporting goods from their location to the destination country’s port.
• After the goods arrive at the destination port, the buyer assumes responsibility for customs duties, unloading, and transport to the final destination.

Key Differences Between CPT and Similar Incoterms

Incoterms such as CIF (Cost, Insurance, and Freight) and FCA (Free Carrier) share similarities with CPT but also have unique distinctions.

CPT vs. CIF:

• CIF is specific to maritime shipping, while CPT applies to any mode of transport.
• Under CIF, the seller covers both freight and insurance to the destination port, whereas, in CPT, insurance is optional and primarily the buyer’s choice.

CPT vs. FCA:

• In FCA, the buyer designates the delivery location, whereas, under CPT, both parties agree on the delivery point.
• In FCA, the buyer assumes all costs after the seller delivers the goods to the carrier; in CPT, the seller continues to cover freight costs up to the agreed destination.

Pros and Cons of Using CPT Incoterm

Like any Incoterm, CPT has advantages and disadvantages that sellers and buyers should consider based on their business needs and risk tolerance.

Advantages of CPT

• Cost Transparency: The seller assumes shipping costs, making it easier for the buyer to calculate costs from the destination port.
• Reduced Risk for the Seller: The seller’s risk ends once the goods are with the carrier, meaning fewer liabilities if issues arise in transit.
• Flexible Transport: CPT can be used across multiple transportation methods, including road, rail, sea, and air, providing flexibility in logistics.

Disadvantages of CPT

• Increased Buyer’s Risk: Since risk transfers early, the buyer may face unexpected costs if damages occur during transport.
• No Insurance Requirement: The buyer must actively arrange insurance, as the seller is not required to insure goods beyond delivery to the carrier.

Common FAQs About CPT Incoterm

Here are some frequently asked questions to help clarify details about CPT.

Who pays for the freight in CPT?

The seller pays all freight costs until the agreed destination. Once goods reach the designated point, the buyer assumes responsibility for further transit.

Does CPT include insurance?

No, insurance is not mandatory for either party under CPT. However, the buyer may opt to insure the goods due to the transferred risk.

How is CPT pricing calculated?

Sellers often include carriage costs along with other production and logistics expenses in their pricing to provide buyers with a comprehensive quote.

Can CPT be used for air freight?

Yes, CPT applies to any transportation mode, including air, sea, rail, and road.

Also Read: FOB Incoterms

Final Thoughts on CPT Incoterm

CPT is a versatile and widely used Incoterm in international trade that offers clarity on cost allocation between sellers and buyers. While it shifts the financial burden of transportation to the seller up to the destination port, the buyer assumes the risk once goods are with the carrier. This balance provides benefits to both parties, although it’s essential for the buyer to consider insurance as a safeguard. Whether you’re new to global trade or refining your logistics strategy, understanding CPT’s structure can help you make more informed, confident decisions.

Also Read: INCOTERMS or INTERNATIONAL COMMERCIAL TERMS