As a business, you want to ensure that you're always shipping your products in the most cost-effective way possible.
Misunderstandings about who is responsible for shipping costs can lead to disputes and even legal action.
In the world of shipping, there are a variety of terms and abbreviations that can be confusing for those who are new to the industry. One such term is "CPT," which stands for "carriage paid to." Here's what you need to know about this Incoterm.
What is Carriage Paid To (CPT)?
CPT is an international trade term indicating that the seller of goods is responsible for paying the costs of shipping the goods to the buyer until the goods are delivered. The buyer is then responsible for any further costs incurred in taking possession of the goods, such as customs duties and taxes.
CPT is one of several terms that may be used in an international sales contract, and the specific terms will be based on the negotiation between the buyer and seller. However, some responsibilities are clearly defined in the CPT Incoterm.
Obligations Under The CPT Incoterm
- Delivery of the goods to the carrier at an agreed-upon location
- Documentation requirements, such as a commercial invoice and packing list, as agreed upon in the sales contract
- Both origin terminal handling charges (OTHC) and destination terminal handling charges (DTHC)
- Loading costs
- Freight charges
- Bears risk of loss or damage to the goods until delivery to the agreed-upon location
- Paying the price of goods as stated in the contract of sale
- Paying for transportation and insurance costs
- Arranging for customs clearance and paying for import duty and taxes
- Unloading and delivery of the goods to their final destination
- Bears risk of loss or damage to the goods after delivery to the agreed-upon location
Carriage Paid To can be used in any transport mode, and the risk transfers from the seller to the buyer as soon as the goods reach the nominated destination and the carrier takes charge of these.
Let's look at an example to help you understand how CPT works.
Imagine that you own a small business that sells paperweights. You've just received an order from a customer in Australia. You're located in the United States, so you'll need to arrange for shipping.
Based on your negotiations with the importer, you've agreed to use the CPT Incoterm. This means that you, as the exporter, are responsible for packaging the paperweights and delivering them to the port. You'll also be responsible for paying the shipping costs and filling out any necessary paperwork.
Once the paperweights reach Australia, the importer will be responsible for taking possession of them and paying any import duties or taxes. The importer will also be responsible for delivering the paperweights to their final destination.
Benefits and Disadvantages of CPT
For The Exporter
By using CPT, you are responsible for getting your goods to the port of departure. This can be helpful if you're looking to save on shipping costs, as you'll be in charge of packing and transporting your products.
However, it's vital to keep in mind that this also means increased responsibility for ensuring that your products arrive safely at their destination. If you're not confident in your ability to handle all aspects of the shipping process, it might be best to choose a different Incoterm.
For The Importer
Given that CPT states that the seller is responsible for paying the freight charges, this can be a major advantage for the buyer. Along with that, the buyer is also relieved of paperwork and other administrative tasks related to shipping.
However, there are some disadvantages to using CPT terms. By choosing CPT, you're essentially leaving it up to the exporter to get your goods to you safely and on time. This can be a riskier choice, as you'll have less control over the shipping process.
In addition, it's important to remember that CPT does not include insurance, so any damage that occurs during transit will be the responsibility of the buyer. To offset this risk, the buyer may consider a Carriage and Insurance Paid To (CIP) agreement, which would also insure the products during transit.
Overall, CPT is a good option for buyers who want less involvement in the shipping process and are willing to pay a little extra for that convenience.
Is CPT The Right Choice For Your Business?
As an exporter, it's only recommended if you're using a letter of credit as your payment method. This is because the CPT terms place all of the financial responsibility on you until the product reaches its destination.
If you're not using a letter of credit, you may want to consider another Incoterm, such as DAP or DDP. These terms offer more protection and can be more advantageous.
On the other hand, if you're an importer, CPT is often a good choice. This is because you, the buyer, are not responsible for any of the financial risks involved in shipping the product.
As with all Incoterms, it's essential to carefully consider your options and choose the one that's best for your particular situation.