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CARRIAGE PAID TO (CPT) - Incoterms explained

Carriage Paid To

The business world is shrinking day by day owing to the global reach of the buyers and sellers. Gone are the days when you were solely dependent on the suppliers in your city or country and they used to dictate the norms of the trade. The global platform has brought transparency in transactions, uniformity in quotations and equal responsibility on both the parties in a sales contract.

One common question you will get to hear from the businessmen involved in any transaction is who will pay for the freight?

To ease out the problem, International Chamber of Commercecreated a standard set of terminology known as Incoterms which define key parts of freight forwarding.There are 11 terms included in the list and Carriage Paid To(CPT) is one of these.

Meaning of Carriage Paid To(CPT)

Carriage Paid To is a key term used in International Trade wherein the seller pays the freight charges to the carrier.It includes the risk of loss of goods until the goods are safely handed over to the carrier.

Who are the parties involved?

CPT is used in common parlance in international business transactions wherein the parties are:

  • Exporter: Seller of the goods.
  • Importer: Buyer of the goods.
  • Carrier of goods

What / Who is a Carrier?

In International Trade where the goods travel across the borders, the carrier means a ship, plane, truck or any other vehicle used in transferring the goods from one point to the other.

It can also include any person who has been chosen by the seller and buyer for delivering the goods.

What is the meaning of Risk in CPT?

To put it simply, risk means harm or loss. So, any transaction wherein there is a possibility of contingency is called risk.

Business transactions are exposed to numerous risks like transaction risk, currency valuation risk, insurance risk,country risk,and inflationary risk to name a few. In Carriage Paid To,the risk here means the risk of loss of goods until they reach the carrier.

Example:

Imagine a situation where the goods are at the gate of the exporter and suddenly an unprecedented situation occurs,and the goods are destroyed before reaching the carrier. In this case,the entire risk will be borne by the seller, and he shall be responsible for all the damage incurred.

However,the situation will be completely different once the goods have been transferred to the carrier.The risk lies on the shoulders on the buyer in that case.

What happens in the case of multiple carriers?

When the trade goes beyond boundaries, the risk multiplies and divides depending upon the nature of the transaction and terms of the contract.

In the case of multiple carriers, the risk gets transferred immediately upon the first transfer. So if you have delivered the goods at the port, then it is no longer your head-ache as to how it reaches the final destination.

Responsibilities of the Buyer and Seller:

Any sales contract would be null and void if the parties to the contract are incompetent to act. At the same time, the law can be enforced on any of the parties if they fail to fulfill their obligations.

Responsibilities of the Seller:

  • Ensure delivery within the stipulated time.
  • Secure the necessary documentation and pay for licenses and obtain clearance for transporting the goods.
  • Deliver the goods safely to the carrier.
  • Provide the necessary documents like negotiable bill of lading,road consignment note, railway consignment note, and inland waterway document.
  • All the costs related to quality check and packaging have to be paid.

Responsibilities of the Buyer:

  • Take custody of the goods and make the payment as agreed upon.
  • Bear any damage or loss which has occurred post delivery to the first carrier.
  • Bear all the expenses related to customs clearance and transit.

What all does Carriage Paid To include?

Whenever the buyer imports under CPT, the following charges are included:

  1. Insurance charges after the goods are transferred to the first carrier.
  2. Warehouse storage charges.
  3. Fees regarding unloading the goods.
  4. Terminal Handling Charges and any other transport fees quoted by the seller.

When you accumulate these, importing under CPT becomes expensive for the buyer.Another option to offset such risk and cost is Carriage and Insurance Paid To(CIP)wherein the seller takes the responsibility of insurance during transit.

An agreement reached upon under CPT is beneficial for the seller because of the minimal risk he is exposed because the responsibility is only upto the safe delivery to the carrier.

CPT works well for large transactions involving millions of dollars which are supported by a Letter of Credit.

In the world where uniformity is the code of conduct,agreements under CPT are for the mutual benefits of both the parties involved.

The 11 types of incoterms 2010 are

  1. EXW (Ex Works)
  2. FCA (Free Carrier)
  3. FAS (Free Alongside Ship)
  4. FOB (Free on Board)
  5. CFR (Cost and Freight)
  6. CIF (Cost, Insurance and Freight)
  7. CPT (Carriage Paid to)
  8. CIP (Carriage and Insurance Paid To)
  9. DAT (Delivered at Terminal)
  10. DAP (Delivered at Place)
  11. DDP (Delivered Duty Paid)