Incoterms are international rules that define responsibilities in shipping. They decide which party is responsible for the various costs and risks, including International freight, customs clearance, import duties & taxes. The International Chamber of Commerce (ICC) introduced Incoterms in 1936 to create a global shipping standard. Today, there are 11 Incoterms, each setting different rules for buyers and sellers. In this guide, we will focus on Carriage Paid To (CPT) and how it affects shipping costs and risk.
How CPT Incoterm Works in International Shipping
CPT means the seller pays for transport to an agreed place. The buyer takes on risk once the goods are handed to the first carrier. This happens before the shipment reaches the final destination. CPT works for any mode of transport, via road, rail, air or sea. It also covers shipments that use more than one transport mode.
Under CPT, 2 key locations define responsibilities:
- Delivery Point: where risk transfers to the buyer. This typically occurs when the seller hands over the goods to the first carrier, which could be at a warehouse, freight terminal, or port of origin.
- Named Destination: which marks the end of the seller’s cost responsibility. This could be a port, airport, or distribution hub, where the seller pays for transport but no longer holds risk.
Misunderstandings can arise if the contract lacks clarity. The named destination only determines who covers transportation costs, not when risk transfers. Buyers may assume they are protected until the goods arrive, but risk actually shifts at the delivery point. Without clear terms, disputes over damaged or lost goods can occur.
Responsibilities
Here is a table outlining the Buyer and Seller Responsibilities Under CPT
| Responsibility | Buyer | Seller |
|---|---|---|
| Risk Transfer | Takes on risk when goods are handed to the first carrier. | No longer responsible for the goods after handing them to the carrier. |
| Customs Clearance | Handles import clearance, duties, and taxes at the destination. | Handles export clearance, including all required documents. |
| Transport Costs | Pays for final delivery from the named destination to their warehouse. | Pays for transport to the named destination (port, airport, or hub). |
| Insurance | Not included in CPT. Buyer should arrange coverage to protect against loss or damage. | Not required, but must provide documentation if needed for buyer’s insurance. |
| Terminal Handling Charges (THC) | May or may not be included in the transport cost. Buyer should confirm upfront. | May or may not include THC in transport costs, depending on agreement. |
| Transport Documents | Receives bill of lading, airway bill, or other shipping documents from the seller. | Provides transport documents to confirm goods have been handed to the carrier. |
| Delivery Point Selection | Risk transfers at the delivery point (first carrier handover). The buyer does not control this unless specified in the contract. | Chooses the delivery point (first carrier handover location) unless specified in the contract. |
| Named Destination | Only determines where the seller pays for transport to. Buyer is responsible for the final leg of transport. | Seller pays for transport to the named destination, but risk has already transferred at the delivery point. |
Advantages & Disadvantages for Buyers
Advantages:
- Reduced administrative burden – The seller manages export clearance and arranges the main transport, simplifying logistics for the buyer.
- Efficient for regional shipments – Works well when the buyer has a local logistics network to handle final delivery.
- Potential cost savings – The seller may have better shipping rates, reducing overall transportation costs for the buyer.
Disadvantages:
- Early risk transfer – The buyer assumes risk as soon as the seller hands the goods to the first carrier, even if damage or loss occurs in transit.
- Limited control over carrier selection – The seller chooses the carrier, which may result in longer transit times, unreliable service, or higher costs for final delivery.
- Tracking & visibility challenges – The seller is not required to provide shipment updates after handing over the goods, making it harder for the buyer to track progress.
How Does CPT Influence the Landed Cost?
CPT affects the total cost of goods for both buyers and sellers. While the seller pays for transport to the named place, the buyer must cover all costs after that point. These extra costs can add up, so buyers should accurately understand the additional costs to understand final landed costs of imported products.
TIP: Use the IncoDocs Landed Cost Calculator to work out your landed costs, sell pricing and profit amounts for each shipment.
Product Price and Freight Costs
The landed cost includes the product price plus all of the additional freight costs, customs clearance, import duties & taxes and local handling. The seller pays for transport to the named destination, but the buyer takes on risk much earlier when the goods are handed to the first carrier. If delays, damage, or loss occur after this point, the buyer is responsible.
Terminal Handling Charges (THC)
THC may or may not be included in the seller’s transport cost. These charges cover unloading, storage, and handling at the terminal. If THC is not included, the buyer must pay these fees separately when the goods arrive. Buyers should confirm this in advance to avoid unexpected costs.
Import Duties and Taxes
Once the goods arrive at the destination, the buyer handles customs clearance costs and processes, including paying the applicable import duties and taxes in the country of import. These charges vary by country and must be factored into the total cost. Any delays in customs clearance can lead to extra storage fees, adding to the expense.
Final Delivery and Local Handling
CPT only covers shipping to the named place. The buyer must arrange and pay for transport from that location to their final warehouse. This includes any additional local trucking and unloading costs. If the final destination is far from the named place, these expenses can be significant.
Insurance Costs
The seller is not required to provide insurance under CPT. If the buyer wants protection they must arrange the appopriate insurance cover. Without transport insurance the buyer bears the full risk of loss or damage after the goods leave the seller’s control.
Key Takeaway
CPT can be a suitable and cost effective Incoterm for some buyers, however, as with all Incoterms, it does come with financial risks. Since cost and risk are handled separately, buyers must carefully review the contract to determine which expenses the seller covers and which they are responsible for. Proper planning is essential to avoid unexpected costs when calculating the total landed cost.
Examples of CPT Shipments
- Regional Shipments – Works well for short-haul shipments (e.g., Europe to Europe, US to Canada) where risk exposure is lower, and buyers can easily arrange local transport.
- When the Seller Has Better Freight Rates – Some sellers have strong relationships with carriers, securing lower shipping rates. If the seller’s cost is cheaper than what the buyer could negotiate, CPT may reduce total expenses.
- For Buyers Who Want to Avoid Export Logistics – The seller handles export clearance, which can be complex in certain countries. This makes CPT convenient for buyers unfamiliar with export procedures. However, the buyer must still manage import clearance at the destination.
CPT vs DAP vs DDP – What’s the Difference?
CPT (Carriage Paid To), DAP (Delivered at Place), and DDP (Delivered Duty Paid) all involve the seller handling transport, but they differ in risk transfer, customs responsibilities, and final delivery.
CPT – Risk Transfers Early, Buyer Manages Final Delivery
Best for buyers who can handle customs and final delivery but want the seller to arrange main transport.
- The seller pays for transport to the named destination (port, airport, or logistics hub).
- Risk transfers to the buyer much earlier – when the seller hands the goods to the first carrier.
- The buyer is responsible for import clearance and final transport from the named place to their warehouse.
DAP – Seller Handles Transport, Buyer Handles Customs
Best for buyers who want the seller to handle transport but prefer to manage customs themselves.
- The seller arranges shipping and delivers the goods to the buyer’s location (or another agreed place).
- Risk stays with the seller until the goods arrive at the agreed location.
- The buyer is responsible for import clearance, duties, and taxes before receiving the goods.
DDP (Delivered Duty Paid) – The Most Convenient but Costly Option
DDP is the most expensive option, as the seller includes all import costs in the price. Some sellers may also face customs clearance challenges in the buyer’s country, causing delays. Best for buyers who want a hassle-free shipping process with no customs involvement.
- The seller covers everything, including shipping, customs clearance, duties, and taxes.
- The buyer has no customs obligations – the goods arrive ready for use.
- Risk remains with the seller until delivery at the buyer’s location.
Why CPT is not a Good Choice for Importing from China
CPT works for short distance shipping but is risky for China imports due to early risk transfer, hidden fees, and lack of control. FOB or EXW are better options for cost-effective and reliable shipping.
Early Risk Transfer
Under CPT, risk transfers to the buyer as soon as the seller hands goods to the first carrier. This means if damage, loss, or delays happen even before the goods leave China, the buyer is responsible.
No Control Over Shipping
The seller chooses the carrier and route, which can lead to delays, higher costs, and poor tracking. Buyers have no say in the shipping process.
Hidden Costs
CPT may not include Terminal Handling Charges (THC) and other port fees, leading to unexpected costs upon arrival.
Uncertain Shipping Timelines
Sellers are only required to hand over goods to a carrier, not ship by a specific date, causing potential delays.
Alternatives to CPT are FOB (Free on Board) or EXW (Ex Works). With FOB, the seller handles export clearance and loading, but the buyer controls freight, shipping schedules, and carrier selection, ensuring better pricing and reliability. For even more control, EXW allows the buyer to manage everything, including export formalities, providing full oversight of costs and logistics.
When Is CPT a Good Choice?
CPT is most suitable for regional shipments where buyers can handle local transport with minimal risk. It works well when the seller secures better freight rates or when buyers prefer to avoid export logistics. Since risk transfers early, CPT is best for buyers who are comfortable managing customs and final delivery.
Example 1: Shipping Within Europe (Germany to France)
A French electronics distributor purchases from a German manufacturer. The seller arranges transport to a logistics hub in Paris, but risk transfers in Germany once the goods are handed to the truck carrier. The buyer then clears customs and arranges final delivery.
This setup is ideal because the buyer only handles local transport, avoiding international shipping complexities. With strong trade agreements between France and Germany, customs clearance is straightforward.
Example 2: Cross-Border Trade in Asia (Thailand to Malaysia)
A Malaysian importer orders auto parts from a Thai supplier, who pays for transport to Kuala Lumpur. However, risk transfers in Bangkok, before crossing the border into Malaysia.
Since Thailand and Malaysia share a border, CPT is a cost-effective, low-risk option. Customs clearance is typically fast, and the buyer only manages import duties and local delivery within Malaysia.
