Every successful international shipment begins with clear terms. CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To) are two essential Incoterms® that define when risks transfer and who pays for what in global transactions. Let’s break them down in practical terms.
Introduction to CPT and CIP in International Trade
Choosing between CPT and CIP in a trade transaction depends on several factors. Before looking at their differences, let’s explore what they have in common:
- Both CPT and CIP require the seller to deliver the goods to a carrier – contracted by the seller – at the place and point of delivery, which seller and buyer are encouraged to agree on. (Note: When traders incorporate a C-rule in a contract of sale, the citation for the chosen Incoterms® rules includes the named place of destination, not the place of delivery, which takes place quite a bit earlier than the arrival of the goods at the named place of destination. Nonetheless, sellers and buyers are encouraged to also agree on the specific place of delivery as well as the place of destination.)
- In both cases, risk transfers from the seller to the buyer once the goods are handed over to the carrier at the designated point.
- The seller must arrange and pay for transportation to the agreed destination under both rules.
- Both rules require the seller to comply with transport security requirements at its own cost and risk.
- The seller is responsible for completing export formalities.
- The buyer is responsible for import formalities and for complying with customs regulations in any of the countries the goods transit through.
- Under both rules, the buyer assumes the risk of loss or damage to the goods once they are delivered to the carrier, even though the seller covers the freight costs to the named place of destination.
- CPT and CIP both apply to any mode of transport – including sea, road, rail, air, or a combination (i.e., multimodal or combined transport).
Understanding CPT: Carriage Paid To
CPT is similar to CIP but without insurance coverage provided by the seller. It’s commonly used in Ro-Ro and airfreight shipments.
Under CPT:
- The seller pays for transportation to the agreed destination.
- The buyer assumes risk at the point the goods are handed over to the first carrier.
- The seller has no obligation to insure the goods.
- CPT applies to any transport method, especially when multimodal transport is involved.
Key CPT Responsibilities
- Seller arranges transportation and pays for delivery to the destination.
- Delivery occurs at origin—not the destination.
- Risk transfers at the moment of delivery to the first carrier.
Real-World Example: CPT Electronics Shipment
Scenario: Computer monitors shipped from China to Indonesia.
The seller, a reputable electronics company, sells monitors under CPT terms to a buyer in Jakarta. The goods are transported by ocean freight.
- The seller pays for freight from origin to the buyer’s warehouse in Jakarta and also unloads the goods.
- Even if the buyer could manage inland transportation from the port to the warehouse, the seller is responsible for that part of the transport.
- The buyer insures the goods from origin to Jakarta and is responsible for customs clearance, duties, and taxes.
This example highlights how CPT still places the risk on the buyer from the point of handover to the first carrier, while transportation costs remain with the seller until the final destination.
Detailed Obligations Under CPT
Seller’s Obligations
1. General
Deliver goods with commercial invoice and proof of conformity.
2. Delivery
Provide goods to the carrier on the agreed date or within the agreed period.
3. Risk
Responsible for any damage/loss until the goods are handed over to the carrier.
4. Carriage
Arrange and pay for transport to the named place of destination.
5. Insurance
No obligation to insure the goods.
6. Transport Document
Provide standard transport documents (e.g., full set of negotiable originals if required).
7. Export/Import Clearance
Complete all export requirements and assist with import formalities.
8. Checking
Responsible for counting, marking, packaging, and weighing goods.
9. Cost Allocation
Cover all costs up to delivery, including freight, transit, loading, and export duties. Provide documents and assistance as neede
10. Notices
Notify the buyer when goods have been delivered to the carrier.
Buyer’s Obligations
1. General
Pay for the goods as agreed.
2. Taking Delivery
Receive the goods at the place of destination from the carrier.
3. Risk
Assume risk from the time the goods are handed over to the carrier.
4. Carriage
No obligation to arrange transportation.
5. Insurance
No obligation to insure the goods.
6. Transport Document
Accept standard proof of delivery.
7. Export/Import Clearance
Pay for import clearance, duties, taxes, and assist with export clearance if needed.
8. Checking
No obligation.
9. Cost Allocation
Cover costs from the time of delivery onward. Pay for import taxes, document handling, and any extra costs if the shipment date/location isn’t properly communicated.
10- Notices
Inform the seller of the time for dispatch and point of receipt.
Understanding CIP: Carriage and Insurance Paid To
CIP requires the seller to do everything they must under CPT plus provide insurance coverage for the goods.
Under CIP:
- The seller delivers the goods to the first carrier and pays for transportation to the named destination.
- The buyer assumes risk at the point of delivery to the carrier, just like CPT.
- The seller must provide insurance that covers the goods during transit.
Insurance Requirements Under CIP
- Minimum coverage: Institute Cargo Clauses “A” (maximum coverage).
- Minimum value: 110% of the contract price.
- Insurance must benefit the buyer or a party designated by the buyer.
- If extra insurance is required, it must be agreed in the sales contract.
Example: CIP Delivery from Uruguay to China
Scenario: Cellulose pulp, CIP Tianjin Xingang, Beijiang Area, China, Incoterms® 2020.
- The seller hands the goods to the carrier in Uruguay.
- Risk transfers at that point, even though transport and insurance are arranged to Tianjin, China.
- The seller handles export clearance and transport insurance.
- The buyer is responsible for import procedures in China and any transit countries.
This example shows that while the seller covers both freight and insurance, the buyer assumes risk at the point of handover to the first carrier—not at the named destination.
Detailed Obligations Under CIP
Seller’s Obligations
1. Delivery
Provide goods to the first carrier at the agreed place and time.
2. Carriage
Pay for transport to the named destination.
3. Risk
Risk transfers once goods are delivered to the first carrier.
4. Insurance
Arrange insurance per Institute Cargo Clauses “A”, at 110% of contract value.
5. Notification
Notify the buyer that delivery has occurred.
6. Transport Security
Comply with all transport-related security measures.
7. Export Clearance
Complete all necessary export formalities.
Buyer’s Obligations
1. Import Clearance
Handle import procedures and pay all applicable duties and taxes.
2. Transit Formalities
Responsible for customs clearance in countries the goods pass through.
3. Post-Arrival Transport
Arrange any further transportation after goods reach the named destination.
When to Use CPT or CIP
Choose CPT When:
• Seller is responsible only for freight, not insurance.
• Buyer prefers to handle insurance directly.
• Buyer understands that risk passes early at origin.
Choose CIP When:
• Buyer wants seller-provided insurance.
• Maximum cargo protection is required (Clause “A”, 110%).
• Seller is prepared to take on both freight and insurance responsibilities.
