Carriage Paid To & Carriage and Insurance Paid To

This article is part of our weekly blog series on the Incoterms® Rules — we will be looking at a new term every Tuesday

These two Incoterms® are almost identical. When Carriage Paid To (CPT) and Carriage and Insurance Paid To (CIP) are used as the terms of sale, the seller will deliver the goods to a carrier or another named place that is agreed upon by the buyer and the seller. The seller must arrange for and pay the costs of transport or “carriage” necessary to deliver the goods to that named destination. The one difference is that CIP dictates that the seller also contract for insurance to cover the goods in the event of loss or damage.

Note: According to the International Chamber of Commerce (ICC) Academy, “In Incoterms® 2020…CIP has increased the level of insurance required to be obtained by the seller” compared to Incoterms® 2010.

Example

The buyer is an electrical equipment manufacturer located in Fort Wayne, Indiana. The buyer purchases 5000 printed circuit boards valued at $50,000 to ship by air from Paris, France.

If the terms are CPT Chicago, the seller must arrange for and pay the cost to deliver the circuit boards to Chicago. Once the shipment arrives in Chicago, the buyer is responsible for making arrangements for delivery by truck to the buyer’s facility in Fort Wayne.

If the terms are CIP Chicago, the only difference is that the seller will also be responsible for loss or damage to the merchandise until it arrives in Chicago. Under CPT, risk of loss or damage transfers to the buyer when the freight is delivered to the carrier in Paris.

The difference is subtle, but crucial. The risk of loss or damage is always present when transporting merchandise, and understanding when the risk transfers from the buyer to the seller becomes critical when there is a loss during transit.

➤ Knowing where the damage occurred and where the risk transfers under the terms of sale determines if the seller’s insurance must pay the claim or if the buyer’s insurance must pay.

The ICC has provided a very helpful illustration of Incoterms® that you can download here for free. It shows how in working down the list of incoterms, risk progressively changes from the buyer’s responsibility to the seller’s responsibility.

Incoterms® consists of a total of 11 trade terms, which are divided into two groups.

Group 1 consists of terms that can be used for any mode of transportation:

• EXW Ex Works
• FCA Free Carrier
• CPT Carriage Paid To – today’s topic!
• CIP Carriage and Insurance Paid To – today’s topic!

• DPU Delivered at Place Unloaded
• DAP Delivered at Place
• DDP Delivered Duty Paid

Group 2 consists of terms that apply to sea and inland waterway transport only:

• FAS Free Alongside Ship
• FOB Free on Board
• CFR Cost and Freight
• CIF Cost, Insurance, and Freight


This blog series is intended to be a helpful introduction to international trade terms, not a comprehensive resource. C J International recognizes that the ICC is the only official source of definitions and explanations surrounding the Incoterms® Rules, and advises our clients and the shipping community to consult iccwbo.org and their educational materials for further details. 


Incoterms® and the Incoterms® 2020 logo are trademarks of ICC.  Use of these trademarks does not imply association with, approval of or sponsorship by ICC unless specifically stated above.  The Incoterms® Rules are protected by copyright owned by ICC.  Further information on the Incoterms® Rules may be obtained from the ICC website iccwbo.org.

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