Carriage Paid To
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.
Consider the following hypothetical shipment as an example to help explain the difference between CPT and CIP: 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 Carriage and Insurance Paid To Chicago, the only difference from using Carriage Paid To Chicago 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 a subtle one, but also very important. 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.