What it means
CPT is one of the Incoterms, the standard set of delivery terms used in international sales contracts. Its defining feature is that the point where cost transfers and the point where risk transfers are deliberately different.
The seller's cost obligation runs all the way to the named destination, while the seller's risk ends at the first carrier, often at a warehouse door in the exporting country. That split is exactly what trips businesses up.
If a container is damaged in mid ocean on CPT terms, the buyer still owes the full invoice even though the seller booked and paid for the shipping. Anyone agreeing CPT should therefore arrange cargo insurance from the moment the goods leave the seller's premises.
In practice CPT is chosen when the seller has better freight rates or better knowledge of the route, and the buyer is comfortable carrying risk. It is common in container and multimodal shipments where a single through movement is easier for one party to organise.
The named place must be stated precisely in the contract, because a vague destination creates arguments about who pays for the last stretch. The variant to know is CIP, Carriage and Insurance Paid To, which is identical except that the seller must also buy insurance for the buyer's benefit.
Choosing between CPT and CIP is essentially a question of who buys the policy, and CIP requires a fairly high level of cover unless the parties agree otherwise.
In practice
Real-world examples.
Example
A machine tool importer buys on CPT to the destination port terminal. The seller books the ocean freight, but the importer insures the cargo from the day it leaves the factory in Asia because risk has already passed at that point.
Example
An electronics distributor switches from Ex Works to CPT after realising it was paying more for freight than its supplier would. The invoice price rises by $4 a unit, total landed cost falls by $7 a unit, and the purchasing team reports the saving on a landed cost basis rather than a unit price basis.
Example
A contract manufacturer sells components CPT to an inland customer distribution centre. A trailer is damaged on the final motorway leg, and because risk passed at the first carrier the buyer claims on its own insurance rather than against the supplier.
Formula
Calculation
Buyer's landed cost = CPT price + insurance + import duty and taxes + any onward costs beyond the named place. The CPT price itself is goods value + the seller's carriage to the named destination.
A buyer agrees CPT terms for a container of components. The goods are priced at $80,000 and the seller's carriage to the named destination costs $6,500, so the CPT invoice = $80,000 + $6,500 = $86,500. Because CPT does not oblige the seller to insure the cargo, the buyer arranges its own policy for $900. Import duty at 5% of the $86,500 customs value = $4,325, and final delivery from the named place to the buyer's factory costs $1,200. Landed cost = $86,500 + $900 + $4,325 + $1,200 = $92,925, which is $92,925 / $80,000 = 1.16 times the bare goods price.Case study
Seen in the real world.
Vellamont Fixtures is an illustrative and entirely fictional importer of bathroom fittings. Its buyers negotiated CPT terms across most suppliers because the invoice covered freight to the national distribution centre, which made cost comparison easy and kept freight administration off their desk.
The fictional weakness appeared when a shipment worth $140,000 was water damaged in transit. Vellamont had assumed that because the supplier had arranged and paid for the transport, the supplier also carried the risk, so no cargo policy was in place. The claim failed, the loss was absorbed in full, and the finance director discovered the difference between cost transfer and risk transfer the hard way.
Vellamont's illustrative fix was a one page Incoterms policy: every CPT or Ex Works purchase now triggers an automatic marine cargo declaration, and every quotation is compared on landed cost with insurance included rather than on invoice price.
Watch out
Common mistakes.
- Assuming that because the seller pays the freight, the seller also carries the risk during the journey.
- Writing only a country or a city as the named place, which leaves the final leg of cost undefined and open to dispute.
- Confusing CPT with CIP and therefore skipping cargo insurance the seller was never obliged to buy.
Questions
People also ask.
When exactly does risk pass under CPT?
Risk passes when the goods are handed over to the first carrier the seller has contracted with, not when they reach the named destination.
Who clears the goods for import?
The buyer handles import clearance, duties and taxes, while the seller handles export clearance and the main carriage.
Can CPT be used for air freight or road transport?
Yes, CPT works with any mode and with multimodal movements, unlike sea specific terms such as Free on Board.
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