What Are CPT Incoterms? Learn About CPT Shipping Guidelines

CPT Incoterms refer to “Carriage Paid To” international commercial terms, which delineates buyer and seller responsibilities during the shipping process.

You can buy a handbag made in Milan online from your home in Dallas and have it waiting on your doorstep in just a few days—a process that, even five or 10 years ago, might have taken weeks, if not months. But as capabilities evolve, so do customer expectations. Shoppers not only want access to global markets, but also the same efficiency and customer service they would get from a merchant a few miles up the road.

To meet globalizing customer tastes, more ecommerce entrepreneurs are expanding their sourcing overseas. This poses many challenges—dealing with international ports, figuring out whether you or your supplier is responsible for various carriage charges and customs taxes, and tracking orders across multiple jurisdictions. The international trade community has stepped in to resolve at least part of that puzzle with guidelines known as CPT Incoterms.

What are CPT Incoterms rules?

The term CPT, meaning “Carriage Paid To,” is fairly literal in its meaning: The seller is responsible for arranging carriage (an old-fashioned way to say “transport”) to a mutually agreed destination, or “named place.” The named place can be almost anywhere—a port, a buyer’s warehouse, or the buyer’s retail storefront. However, the seller’s risk ends, and the buyer’s risk begins when the first carrier receives the goods from the seller. The buyer is also responsible for handling import duties. Carriage is performed by a contracted carrier, such as a commercial shipper, airline, trucking company, railway, or local delivery service. “Incoterms,” meanwhile, is simply a contraction of “international commercial terms.”

These templated shipping rules were developed by the International Chamber of Commerce (ICC). They set out respective buyer and seller responsibilities for costs and risks involved in international shipping and any related logistics process. Aside from CPT, there are 10 Incoterm sets, which buyers and sellers negotiate in advance to use, depending on their specific needs:

• Cost and Freight (CFR)

• Cost, Insurance, and Freight (CIF)

• Carriage and Insurance Paid To (CIP)

• Delivered at Place (DAP)

• Delivered Duty Paid (DDP)

• Delivered at Place Unloaded (DPU)

• Ex Works (EXW)

• Free Alongside Ship (FAS)

• Free Carrier (FCA)

• Free on Board (FOB)

CPT in practice

To understand how CPT Incoterms play out, let’s look at an example:

Say a Danish manufacturer is shipping furniture to an online home décor retailer in Pennsylvania. The manufacturer and the retailer agree on a sales contract specifying CPT Port of New York and New Jersey. The manufacturer builds the furniture and arranges both trucking transport to Denmark’s main Port of Aarhus, and sea freight across the Atlantic. The manufacturer pays all transportation costs to New York and covers all export clearance charges in Denmark, such as export duties, customs declaration fees, the costs of any required pre-shipment security inspections, and loading costs. 

However, when the goods are handed to the first carrier in Denmark—say a trucker—risk transfers to the US retailer. If the furniture is damaged while crossing the Atlantic, it’s the retailer’s responsibility to pay for repairs or cover the losses, even though the manufacturer paid for shipping. Upon arrival in New York Harbor, the US retailer handles all customs clearance, pays import duties, and arranges for transportation to its final destination at a Pennsylvania warehouse.

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CPT and sellers

The specific obligations that fall to a seller under CPT Incoterms include:

• Export packaging. The seller is required to properly package goods. Inadequate packaging that results in foreseeable damage to goods in transit may shift some liability back to the seller.

• Loading. The seller covers charges incurred to load goods onto a truck or train for carriage to a port. This includes costs for loading equipment or extra workers.

• Delivery to port. The seller is responsible for costs relating to transporting goods, usually by truck or rail, to the port or other place of export.

• Origin terminal handling charges. Also known as OTHC, the seller is required to cover fees charged by what’s known as a terminal operator at the port of origin. Terminal operators are private companies that lease space from port authorities, and their employees handle the cargo before it’s loaded onto a ship.

• Loading charges. Costs incurred for loading goods onto a ship or other carrier are paid by the seller.

• Freight charges. The seller also covers fees charged by a shipping line to carry the goods to the delivery point.

• Destination terminal handling charges. Also known as DTHC, the seller covers handling costs charged by the terminal operator at the port of destination.

Seller advantages

The main advantage a seller enjoys under CPT Incoterms is reduced risk. Although the seller covers most of the transportation costs, the buyer assumes responsibility once the goods are handed off to the seller’s carrier. But because the seller assumes responsibility for shipping costs, they can choose the carriers and routes they want, potentially receiving better freight rates through established business relationships.

Seller disadvantages

The obvious disadvantage for the seller under CPT Incoterms is the burden of paying more transportation costs. The seller must pay for carriage to the named place, and these costs can be significant for international shipping. Although the seller limits their liability after handing the goods off to the first carrier, they also forfeit physical control of the goods. Unexpectedly slow shipping times or logistical snafus can tarnish customer relationships. Finally, there are significant administrative costs to managing complex shipping documentation, like freight contracts, bills of lading (an itemized receipt from a carrier to a shipper that also serves as the carriage contract), carrier insurance, customs forms, and much more.

CPT and buyers

The specific obligations that fall to the buyer under CPT Incoterms are:

• Delivery to destination. If the agreed-upon destination differs from where the buyer intends to warehouse or sell the goods, transportation from the named place to the final destination is the buyer’s responsibility.

• Unloading at destination. The buyer is responsible for any costs for unloading the goods at any destination, including the buyer’s premises if that’s the named place.

• Import duty, taxes, and customs clearance. The buyer pays all import fees in the destination country. These can include fees for customs inspections, additional dunnage materials to pack or protect goods while proceeding through customs, penalties, storage, and preparing any standard or usual transport documents.

Although not a requirement under CPT Incoterms, if the buyer wishes, they can obtain shipping insurance coverage for goods while in transit.

Buyer advantages

You may wonder why a buyer would agree to CPT Incoterms and expose themselves to all that potential risk during an international voyage. The answer is that by shifting that risk to the US buyer, international sellers are incentivized to pay some of the export fees, which can add up. A US buyer may also not be as familiar with the complexities of international shipping as an overseas seller, and under a CPT model, the buyer doesn’t have to involve themselves with setting up the shipment. It’s also worth noting that buyers can hedge against the risk to goods in transit by purchasing insurance directly through the shipping company. If something gets damaged, they can file claims directly through the carrier contracted by the seller.

Buyer disadvantages

The main disadvantage to the buyer under CPT Incoterms is higher risk. It’s the buyer’s responsibility if something is lost or damaged during shipping, even though they don’t physically control or possess their cargo yet. And because sellers pay for shipping, buyers have little to no say in carrier selection or the routes used. Finally, buyers must handle all import clearance procedures, which requires familiarity with complex customs regulations and exacting documentation requirements.

When is a CPT agreement used?

CPT Incoterms are best used in situations where a buyer is well versed in import formalities in their home country but may not have adequate expertise in international shipping or the export requirements of the country of origin. In a CPT transaction, the buyer can defer decisions about carriers to the seller, who may be shipping to multiple retailers, and is therefore more familiar with shipping carriers.

When is a CPT agreement used?

What does CPT stand for in shipping?

CPT stands for Carriage Paid To, meaning a seller of goods is responsible for arranging and paying for shipping those goods to a specific location.

What is the difference between CPT and CIF?

CIF stands for Cost, Insurance, and Freight. Under CIF Incoterms, the seller provides carriage insurance in addition to transportation. Also, under CIF, risk transfers to the buyer when goods are loaded onto a shipping vessel (even if they are first transported by a truck or train). As such, CIF is available only for goods primarily transported by water. CPT is available for almost any other mode of shipment, and risk transfers from seller to buyer at the point of hand-off to the first carrier. A CPT seller is never required to insure the goods in transit.

What is the difference between CPT and FOB?

FOB stands for Free On Board and applies specifically to freight transported by water. The main difference is that under Carriage Paid To (CPT), the seller pays for all transportation costs up to the point the goods are delivered to the named place. Under FOB, the seller pays only for costs until the goods are loaded onto the cargo vessel. At that point, the buyer pays freight costs.

Is CPT a sea or air freight Incoterm?

CPT Incoterms may apply when shipping goods by any transport mode: sea, air, truck, or rail.