Learning about different shipping rules and regulations can help you in numerous ways as an importer and exporter. Shipping depends on a different set of policies, which are called “Incoterms.” There are different kinds of incoterms, and each one has its own obligations, duties, benefits, and flaws for both parties.
So let’s focus on CPT Incoterms and understand how these policies affect buyers and sellers.
- What Is CPT Incoterms?
- Examples of CPT Incoterms
- CPT Responsibilities for Sellers
- CPT Responsibilities for Buyers
- What Sellers Have to Do under CPT
- What Buyers Have to Do under CPT
- Advantages and Disadvantages of CPT Incoterms
- CPT Incoterms Price – Who Pays for the Service?
- When to Use CPT Incoterms?
- Are CPT Incoterms Good for Importing Products from China?
- Comparison – CPT Incoterms vs. Other Incoterms
What is CPT Incoterms?
CPT stands for “Carriage Paid To,” and it is one of the shipping incoterms published by ICC.
CPT terms seem to be much more favorable to the buyer than the seller. To understand this point, suppose a deal is made using a CPT agreement. The exporter (seller) has prepared the order to send it to the buying party (importer/seller).
So, after clearing all the export duties, the exporter will find a carrier service on its behalf so the ready-to-deliver goods reach their final buyer. Furthermore, the carrier service charges will not be paid by the importer, but they will also be the exporter’s responsibility.
So what would the buyer (importer) do to obtain goods from the seller’s chosen carrier service? He will receive his order from the port of destination. Then, he will transfer all the contents in the cargo to his place.
From this point, the buyer must arrange the carrier service from the destination port to transfer goods to their premises (warehouse, factory, or any location).
Example of CPT Incoterms
To understand CPT’s meaning in shipping, let’s pay attention to this example.
Suppose Mr. Josh is a seller from China exporting 25,000 pieces of cotton shirts to Mr. Anderson, a buyer/importer from Canada. And both parties have mutually decided to work on CPT terms.
When the delivery date was near, Mr. Josh contracted his carrier, Mr. Kay, to deliver the consignment from a major Chinese port (port of origin) to the decided port in Canada (the port of destination).
Mr. Josh paid all the shipping, carrier, and export documentation expenses. And when the goods reached the port of destination, Mr. Anderson took charge by clearing out the import duty and arranging his own carrier to pick up the goods from the destination port and deliver them to his warehouse by paying all the expenses.
Both parties decided not to take any insurance policy in this entire transaction, as they were not obligated according to the CPT Incoterms.
So, if something unfavorable happened to the goods when they left the port of origin until they reached the port of destination, Mr. Josh (the seller) was the sole person to bear the cost of the damaged or lost goods.
Likewise, if the goods were broken, missed, or damaged during the pickup process from the port of destination to Mr. Anderson’s warehouse, he (the buyer) was responsible for bearing all the loss without claiming any compensation from Mr. Josh.
CPT Responsibilities for Sellers
Following are the sellers’ responsibilities in CPT Incoterms:
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Your duty is to pack the sold products in a way that meets the standard of export quality packaging of the buyer’s country. By no means you can ignore these standards if you wish to make your import and export deal successful.
All the charges related to loading goods from the seller’s warehouse onto the truck are one of the seller’s prime responsibilities.
Transporting Goods to the Origin Port
While opting for a transportation method is still your choice, you will have to load the goods using your means and then transport the truck, mini-van, or any other carriage from your warehouse to the place (usually a port) where the vessel would be waiting to leave.
Expenses Related to Terminal Handling at the Port of Origin
As a seller (exporter), you need to get yourself prepared to pay for the “Origin Terminal Charges,” also known as “OTHC,” when your cargo ship leaves the terminal of origin.
Carriage Loading Charges
When the goods reach the port of origin (export port), the seller is liable to cover the costs associated with loading goods on the carriage (cargo vessel or cargo airplane).
When moving cargo from the port of origin to stopping at the port of destination, the seller is obliged to pay the entire freight expense without any exception.
Destination Terminal Handling Charges
What’s more? Remember “OTHC” payment? Well, there’s another charge called the “DTHC” or “Destination Terminal Handling Charges.” And these are also paid by the exporter when the cargo is reported at the destination terminal.
CPT Responsibilities for Buyers
Even for buyers/importers, CPT Incoterms states a few responsibilities, like:
Delivery to Final Destination
Upon receiving the goods, the importer must find ways to get imported products loaded on a carrier from the port of destination so they could be taken to his factory, warehouse, or any other suitable place of his choice.
Once the goods reach to the final destination from the destination port, the seller has to pay the unloading charges
Import Taxes, Import Duty, and Customs Clearance
The buyer must pay all the fees related to the import. This includes but is not limited to penalties, customs examinations, holding charges, import duty, import taxes, and customs clearance.
What Sellers Have to Do under CPT
You must obey these CPT obligations if you are exporting goods under these Incoterms. Here they are:
- Provide the commercial invoice of the goods along with the sale agreement
- Acquire special export permissions if exporting restricted items
- Fulfill formalities associated with export customs
- Pay duties and costs required to clear export customs
- Provide transport documents to the buyer, including a bill of lading, or a non-negotiable sea freight bill, airfreight bill, or any multimodal transportation document
- Pay all charges related to the checking process, like counting, weighing, measuring, and quality assurance of the goods
- Properly pack goods with correct markings
What Buyers Have to Do under CPT
CPT Incoterms bounds buyers to obey obligations, such as:
- Pay all the costs related to the sales contract
- Attain any special import license and authorities permission if importing restricted goods
- Meet all import customs formalities
- Bear any risks of damaged or lost goods once they are delivered to the carrier at the destination port
- Bear all charges when the goods are under the carrier’s custody
- Make payments to clear import duties, taxes, or any other charges related to the import process along with the transportation of goods inside the destination country
- Must notify the seller about the dispatching time for the goods
- Accept transport documents from the seller and pay for the costs to obtain documents
- Pay the pre-shipment inspection cost
Advantages and Disadvantages of CPT Incoterms
Advantages of CPT Incoterms for Sellers
Sellers enjoy a few benefits in the CPT Incoterms, like:
- No need to insured goods through an insurance policy
- Risks transfer upon delivering the goods at the destination terminal
- Can use any transportation/carrier of their choice without being answerable to anybody
Advantages of CPT Incoterms for Buyers
- Minimum risks for new buyers with a fewer experience
- No need to arrange a carrier to import goods from the origin country to the destination country
- Buying an insurance plan for the cargo is not mandatory
Disadvantages of CPT Incoterms for Sellers
- There’s no way out when it is about getting products delivered through a transportation service from the origin country to the country where the buyer needs goods, as well as paying for the entire transaction
- Make all the calculations and quote them to the buyer.
- In case of errors in calculating the cost, sellers have to pay from personal means without demanding the buyer for the compensation
Disadvantages of CPT Incoterms for Buyers
- The buyer has to take early responsibility for the goods once the terminal operator receives them at the destination country
- Terminal Handling Charges are not always included in the freight rates, and they often surprise the buyer later
CPT Incoterms Price – Who Pays for the Services?
In CPT incoterms, the seller is liable to pay the following CPT cost:
- Loading goods from the seller’s warehouse on the truck to be taken at the export port
- Pre-carriage charges
- Customs clearance for export
- Departure handling charges
- Main transportation charges, including CPT by air or seaways
On the other hand, the buyer is responsible for bearing the following CPT fee:
- Insurance (if taken any insurance policy)
- Arrival handling charges
- Customs clearance for import
- Post-carriage charges
- Unloading goods into the buyer’s
When to Use CPT Incoterms?
CPT Incoterms are ideal for transporting goods from one place to another using the overland shipping method. These terms also work well in cross-border trade. In such circumstances, the sellers arrange shipment for their goods when they want to transport them into multiple countries.
Are CPT Incoterms Good for Importing Products from China?
If you are willing to import goods from China to Europe, Australia, or North America, then CPT Incoterms won’t serve you well. Instead, Free On Board (FOB) is the best shipping incoterm to rely on, as most sellers work on FOB agreements in CPT in China.
On the contrary, exporters buying products from China and transporting their goods to any neighboring country can choose CPT incoterms if they desire, and the seller agrees. However, these incoterms are uncommon to be used in South East and Central Asia.
Nevertheless, the best way to get beneficial suggestions is to consult a sourcing or shipping company in China. For instance, Jingsourcing is one of the top-notch organizations, providing sourcing and on-demand shipping services from China to the rest of the world.
Comparison - CPT Incoterms vs. Other Incoterms
|Mode of Transportation||All Modes||Inland and sea freight||All Modes||All Modes|
|Loading Goods from Warehouse||Seller||Seller||Seller||Seller|
|Insurance||No obligation||No Obligation||Seller||Seller|
|Unloading Goods to Warehouse||Buyer||Buyer||Buyer||Buyer|
CPT vs CFR
The Cost and Freight or the “CFR” is almost similar to CPT Incoterms.
However, the only vital difference is CFR agreements only use inland waterway and sea freight shipping modes. In comparison, CPT terms can be applied to all modes of transportation (air, sea, or land).
CPT vs CIP
The complete form of CIP is “Carriage and Insurance Paid.”
As the name sounds, CIP Incoterms are focused on making insurance mandatory. Therefore, under this incoterm, only the seller is obligated to purchase an insurance policy.
CPT vs. DAP
The “Delivered at Place,” also known as “DAP,” are incoterms where the seller pays the insurance charges. Plus, the risk is only transferred when the goods are transported to the final place of the buyer.
CPT Incoterms comes with different obligations and responsibilities, which make sellers more accountable for freight charges and other aspects of shipping than the buyers.
While CPT agreements can be used for multimodal shipping, importers and exporters still do not widely apply these incoterms.
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