Arranging freight transportation in ecommerce is a little bit like planning a big event, like a wedding or a reunion, in that there are a lot of details to hammer out before the day-of.
And, as with most big events, most stakeholders focus on two details in particular: who is going to pay, and who will take responsibility if something goes wrong?
Carriage Paid To is one of several incoterms (or “international commercial terms”) recognized by the International Chamber of Commerce (or “ICC”) that are designed to describe different types of international trade arrangements, and answer these questions clearly and consistently for buyers and sellers alike.
Specifically, Carriage Paid To (or CPT) describes the trade relationship in which both parties agree that:
- The seller will cover the cost of delivering goods to the carrier, and
- The seller will assume all risk until the carrier takes over the goods.
In this article, we’ll dive deeper into CPT rules, the risks and obligations for both sellers and buyers under a CPT agreement, and how ShipBob can help you manage shipping logistics and fulfillment processes within CPT arrangements.
What does Carriage Paid To mean?
Carriage Paid To refers to a freight agreement made between a buyer and and a seller in which both agree that the seller takes on the responsibility and cost of delivering the parcel to the carrier (or other recipient, as mutually agreed on by the parties).
This means that the seller will pay any costs involved in transporting the goods to the first carrier, whether it be an ocean, rail, ground, air, or even multimodal carrier.
All liability for loss or damage of goods lie with the seller until the goods reach the first carrier at an agreed-upon location; after that, the buyer is liable for any loss or damage.
Under a Carriage Paid To agreement, the seller is responsible for:
- Clearing goods for export
- Contracting the carrier
- Arranging delivery to the carrier
- Paying any costs that arise or result from transporting the goods to the carrier
- Assuming liability for any loss or damage to the goods, but only before the goods are in the hands of the carrier or at the agreed-upon location
Example of Carriage Paid To incoterms
Let’s say there are two companies: a Buyer (located in New York) and a Seller (located in California). The Buyer wishes to purchase 10 large crates of soda from the Seller while avoiding the costs of transport. The Seller wishes to close another sale while minimizing the risk they assume in shipping the order.
The two parties agree on Salt Lake City as the handoff location. The 10 crates will need to be driven to Salt Lake City in a freight truck (costing $5,000), where an air freight carrier will pick it up and fly it from Salt Lake City to New York City (costing $15,000).
Under a CPT agreement, the Seller must pay the $5,000 to transport the crates to Salt Lake City, and is liable for any loss or damage that occurs before or during that trip. As soon as all 10 crates have been delivered to the designated location and are in the hands of the air freight carriers, the Buyer is responsible for any loss or damage — as well as for paying the $15,000 to fly the crates to New York City.
Note: Often, the term CPT is used along with the name of the destination agreed upon in the contract. So, in this example, both parties would use the term “CPT Salt Lake City” to show that the Seller will pay for the goods to be transported to Salt Lake City.
“When we heard about FreightBob, it came at a really good time for us, because we were just about to put in a PO, and it was the first time we ever procured anything outside of the US. ShipBob and Flexport really made the whole experience a lot easier for us — the way the platform handles communication, especially with the supplier, was really good.
Some of our biggest worries about shipping in bulk from China to the US was the delivery time and dealing with customs — but through FreightBob, it exceeded our projections for delivery time. Once we got a timeline quote, we did not even dig very deeply into other providers.
FreightBob was about 30-40% faster than anything else we’ve heard. From a pricing standpoint, I was looking at the total price that we were going to pay per unit, including shipping — rolled altogether, it was still substantially cheaper than any of the quotes that we had received.”
Jerry Sever, COO of Complement
Carriage Paid To: risks, obligations, and cost allocation
Once the sales contract is signed, the seller and buyer are bound to certain shipping logistics obligations. Here are their responsibilities under a Carriage Paid To agreement:
|Category||Seller’s Obligations||Buyer’s Obligations|
|Prior to Transit||Manages shipping operations; packaging and marking.||Pays to purchase the order, as per the sales contract.|
|Transit Costs||Assumes the cost of transporting the goods to the named place of destination.||Assumes the cost of transporting the goods from the agreed place to the final destination.|
|Multiple Carriers||When there are multiple carriers involved, the seller assumes the risk of loss or damage until the goods reach the first carrier. |
Otherwise, the Seller assumes risk until the order reaches the named place of destination.
|Assumes risk from the first carrier/pre-agreed destination until the end destination.|
|Documentation||Offers goods and commercial invoices and manages export formalities. |
Bears the costs of export clearance and securing documents for import clearance.
|Assumes costs of securing documents for import clearance formalities.|
|Shipping Insurance||Not responsible for shipping insurance.||Not responsible for shipping insurance.|
|Liability for Damage or Loss||Assumes responsibility for arranging the shipment of the goods to the pre-agreed destination, as outlined in the contract of carriage or sale.||Assumes responsibility for arranging the shipment of the goods from the pre-agreed destination to the end-destination.|
Advantages and disadvantages of Carriage Paid To shipping terms
Who does the Carriage Paid To agreement favor more: the buyer, or the seller? Here’s a breakdown of the advantages — and disadvantages — that both parties face in CPT agreements.
Pro: Reduced transportation risks
In a CPT agreement, buyers have a shorter window of liability for their orders than they might have in other agreements, as CPT sellers are responsible for any loss or damage of goods until they reach the carrier. This significantly reduces the risk of damage — and subsequent costs — that the buyer must bear.
Pro: No responsibility for export fees and requirements
Under a CPT agreement, export fees are not the buyer’s responsibility, nor is the buyer responsible for answering any related requirements. This saves the buyer money and hassle, especially if they don’t have a thorough understanding of export laws in the seller’s geography.
Con: Full transit clearance responsibility
CPT requires the buyer to take full responsibility for the clearance of goods in transit. If you are a buyer looking to avoid clearance fees, consider a Delivered Duty Paid (DDP) agreement, in which the seller is responsible for the costs and efforts of delivering the goods (sans unloading) to the buyer, including import clearance.
Con: Higher risk for long-haul shipping
Because CPT requires the buyer to assume risk from the point of the first carrier, long-haul shipping via plane or ship always comes with a greater risk of damage.
If this doesn’t suit your business, consider an agreement such as Carriage and Insurance Paid (CIP), in which the seller pays the freight and insurance to send a shipment to a mutually agreed-upon location.
Pro: Increase in sales
Buyers often choose local sellers to reduce transportation risks. CPT helps sellers expand their reach, build relationships with buyers, and close sales regardless of their location.
Con: Increased risk
As previously stated, CPT requires the seller to be responsible for goods until they reach the carrier. This increases the seller’s risk and potential costs if the goods were to be damaged in transport.
Sellers may instead propose an EX works (EXW) agreement, wherein the seller delivers goods to their own premises for the buyers to pick up. This places the majority of the shipping risk on the buyer.
ShipBob helps you manage the logistics and fulfillment processes
Freight shipping can be incredibly complicated — so for ecommerce companies looking to streamline their B2B fulfillment, shipping, and supply chain operations, it helps to have an expert partner by your side.
As an omnifulfillment and shipping platform, ShipBob can optimize your shipping operations for efficiency across all your B2B channels, and even help you manage your freight from China to the US.
FreightBob, ShipBob’s end-to-end managed freight and inventory distribution program, is powered by Flexport and combines with ShipBob’s cross-docking, automated inventory distribution, and goods transfers across the ShipBob fulfillment network.
Through FreightBob, current and future ShipBob merchants can achieve faster transit times, lower freight costs, greater visibility, and the ability to distribute inventory more seamlessly across ShipBob’s fulfillment centers.
“We had 900 backorders and needed to get our inventory over from Asia ASAP. We, of course, needed our backorders shipped out to our customers who were waiting, immediately.
With FreightBob, we were able to ship from Shanghai through the LA / Long Beach port. We then were able to send out to our customers in less than 3 weeks. To watch ShipBob ship out 900 orders for us in a day, then complete another fulfillment of 2,000 orders in a single day the next week, it was magical. They made it look so easy.
And with FreightBob, it’s too easy to use to not utilize. Time is money. The more time that I can save spending energy on things like freight and fulfillment, the more time I can spend on other details for my company.
To know that I can trust somebody to complete the tedious stuff and be organized like I would; what a stress reliever. We’ve had a lot of ups and downs with supply chain partners and for the first time, I know I’m in good hands with ShipBob. I’ve learned enough hard lessons, so this was a nice easy lesson to learn.”
Emily Coolbaugh, Logistics Coordinator at Driveline Baseball
To learn more about how ShipBob can support your freight shipping or CPT agreement, click the button below.
Carriage Paid To (CPT) FAQs
Below are answers to the most common questions about the Carriage Paid To incoterm.
Who is responsible for carriage charges?
In a CPT agreement, carriage charges incurred transporting the cargo from the seller to the pre-agreed destination are borne by the seller. The buyer must pay any other charges incurred in transporting the cargo to its final destination.
What is the difference between CIF and CPT?
Cost, Insurance, and Freight (CIF) is similar to CPT, except that it is used only when goods are transported via waterways (ocean freight, inland waterways, etc.).
In addition, CIF holds the seller responsible for all risks and expenses — including insurance — until the goods are loaded onto the freight vessel. In contrast, CPT covers any mode of transport, and the seller assumes all responsibility of expenses and risks of the shipping until the goods are delivered to a carrier.
What is the difference between CPT and DDP?
Under a Delivered Duty Paid (DDP) agreement, the seller is held responsible for all risks and costs incurred in transporting the shipment to its final destination. Conversely, under a CPT agreement, the seller is only responsible for the shipment until it is received by the first carrier.