Created by the International Chamber of Commerce, Incoterms are a series of three-letter designations that define responsibilities between buyers and sellers around the sale of goods, specifically related to transportation costs and liability. If you’re looking for more information on Incoterms, check out our other articles on this topic:
The Complete Guide to All 11 of the 2010 Incoterms Rules
Incoterms 2020 Rules: Everything You Need to Know
Protect Your Bottom Line by Understanding These 5 Common Incoterms
When you’re buying or selling goods, you’ll encounter a fair amount of industry jargon. International commerce terms, or Incoterms®, fall squarely into that category.
However, once you understand these handy three-letter designations, you’ll find that they act as a simple shortcut to specify who pays for what when moving goods from seller to buyer. In this article, we’ll explain everything you need to know about the CPT Incoterm.
What Does CPT Mean?
CPT stands for Carriage Paid To. It applies to all forms of transportation, and it essentially means that the seller is responsible for all the costs associated with delivering goods to a destination or a named place of the buyer’s choosing.
However, there are a few costs the seller isn’t responsible for. Import duties, taxes, and customs clearance procedures must be paid for by the buyer. Additionally, the seller is not obligated to purchase insurance coverage under the CPT Incoterm.
Finally, if the buyer needs to move the goods further than the destination specified in the contract, the responsibility for the arrangements and their cost lie with the buyer.
All modes of transportation
Once the first carrier accepts the shipment
What Is the Seller Responsible for Under the CPT Incoterm?
When agreeing to a contract using the CPT Incoterm, the seller agrees to pay all the transportation costs associated with moving the specified goods to the destination named in the contract.
For example, if the goods originate in Vietnam and the contract states “CPT Approved Freight Forwarders / 14777 Don Julian Rd. / City of Industry, CA 91746,” the seller is responsible for the costs to transport the goods to this destination. If the shipment is well-suited for air freight, the seller would foot the bill to move the goods to the nearest air cargo terminal, then pay for the air freight to LAX. Any export procedures from Vietnam would be handled by the seller. At the other end, the seller would also enlist a carrier to pick up the package at the air cargo terminal at LAX, then deliver it to the Approved Warehouse.
What Is the Buyer Responsible for Under the CPT Incoterm?
Once the shipment arrives at the agreed-upon destination, the buyer is responsible for any costs to move the package further. For example, if the buyer wants goods moved to a number of distribution centers in California, they would pay for a carrier to pick them up from the Approved warehouse and move them to the appropriate distribution center.
Additionally, they buyer also pays for any import costs, including duties, taxes, or customs clearance fees.
Overall, CPT can be a useful term for a buyer negotiating with a seller in a foreign country. After all, it saves the buyer the trouble of arranging most, if not all, of the transportation in a location they might not be as familiar with.
Incoterms Insights: CPT
This Incoterm may seem quite similar to DAP (Delivered at Place). However, there’s a big difference between the two. Under the CPT Incoterm, the ownership of the shipment (and the associated risk) transfers to the buyer once it’s in the hands of a carrier. In contrast, under the DAP Incoterm, the seller maintains the ownership and risk until the shipment is delivered to the named place. While this might feel like a legal nuance, it can become an important one if the shipment gets damaged in transit.
If you’re the buyer, consider insurance. Once the carrier picks up the goods from the seller, there’s a considerable window in which the goods are your responsibility, but they’re in the hands of the carrier. Think about buying insurance to cover you for any damage or losses while the goods are in transit.
Alternatively, buyers may also consider the CIP Incoterm, which offers very similar terms to CPT, but includes insurance.
Finally, if you’re the buyer, choose your designated place carefully. Make sure that the destination you select is clear to both parties, so you won’t have any trouble locating your goods. Additionally, make sure it’s one that makes sense for your business. After all, any further shipping costs will be on you, as the buyer.
If you’re considering a contract with the CPT Incoterm, talk to one of our experts. We can answer any questions you might have and help you select a designated place that makes sense—especially if you need to distribute these goods to multiple locations.
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