What it means
Under this rule the seller contracts and pays for carriage to the agreed place, clears the goods for export, and hands them to the first carrier. Risk transfers at that handover, so everything that happens to the goods on the journey the seller is paying for is the buyer's exposure.
The absence of an insurance obligation is the whole point of the term. Buyers with their own annual cargo policy usually prefer it, because they get cover they already pay for at a better rate than a seller would obtain on a single shipment.
Like the insured version, the rule suits any mode of transport, including road, rail, air and container movements involving several carriers. That makes it a better fit than vessel-based terms for most modern door-to-door freight.
The named place does the heavy lifting in the contract. It fixes where the seller's cost obligation stops, and where unloading at that place is charged by the carrier under the contract the seller made, that cost normally sits with the seller rather than with the buyer.
The risk that travels with the term is uninsured goods in transit. A buyer that assumes the seller has insured the shipment, as it would under the insured version of the rule, can discover after a loss that there is no policy at all and no claim against the seller either.
For a finance team, quotes on these terms should be compared on a landed cost basis including the buyer's own insurance premium. A price that looks cheaper than an insured quote may turn out to be identical once the premium the buyer has to add is included.
In practice
Real-world examples.
Example
A car parts importer with an annual open cargo policy asks all its suppliers to quote CPT to its regional warehouse. Its own policy costs less than the per-shipment premiums suppliers had been adding, so the switch trims landed cost on every consignment.
Example
A furniture exporter quotes CPT to a named rail terminal rather than to the port, so the price includes the inland rail leg. The buyer takes over at the terminal and arranges both the final delivery and its own insurance for the whole journey.
Example
A first-time importer accepts a CPT quote believing freight cover is included, then suffers a $25,000 loss when a crate is dropped during transhipment. There is no seller policy to claim on and no claim against the seller, so the loss falls on the importer, which arranges annual cargo cover the same week.
Formula
Calculation
CPT price = cost of the goods + export packing and clearance + carriage to the named destination
Buyer's cost before duty = CPT price + the buyer's own cargo insurance premium
A supplier sells components with a contract value of $150,000, spends $3,000 on export packing and clearance and $11,000 on carriage to the named destination, giving a CPT price of 150,000 + 3,000 + 11,000 = $164,000. The buyer insures the shipment itself for 110% of that figure, which is $180,400, and at a rate of 0.30% the premium is 180,400 x 0.0030 = $541.20. The buyer's cost before duty and local charges is therefore 164,000 + 541.20 = $164,541.20.Case study
Seen in the real world.
Calder Hydraulics is an illustrative, fictional distributor buying pumps from four overseas suppliers, two on CPT terms and two on the insured equivalent.
Its finance manager noticed that the insured quotes carried a freight and insurance element about 0.45% of value higher than the uninsured ones, while Calder's own broker quoted an annual open cargo policy at an effective 0.18% of declared shipments. On annual purchases of $9,000,000 the difference was 9,000,000 x (0.0045 - 0.0018) = $24,300 a year.
Calder moved all four suppliers to CPT with named inland destinations and put the open policy in place from the same date. The illustrative point is that the term chosen is a pricing decision as much as a legal one, and that a buyer should only drop the seller's insurance obligation once it has cover of its own in force.
Watch out
Common mistakes.
- Agreeing CPT terms and assuming cargo insurance is included, when the rule places no insurance obligation on either party.
- Comparing a CPT quote directly with an insured quote without adding the buyer's own premium to the CPT figure.
- Naming a country or a region instead of a specific place, which leaves terminal handling and unloading costs open to argument.
Questions
People also ask.
When does risk pass under this rule?
At the point the goods are handed to the first carrier engaged by the seller, which is often long before they reach the named destination.
Why would a buyer prefer it to the insured version?
Because an annual open cargo policy usually costs less than per-shipment cover bought by a seller, so the buyer lowers its total landed cost.
Who pays unloading costs at the named place?
Normally the seller, where those costs are charged under the carriage contract the seller arranged, which is why the named place should be stated precisely.
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