What are CPT conditions and the obligations of buyers and sellers?

I. WHAT ARE CPT CONDITIONS?

 

CPT (abbreviation for Carriage Paid To) is a term in international trade that specifies the respective obligations, costs, and risks related to the transfer of goods from the seller to the buyer under Incoterms standards published by the International Chamber of Commerce (ICC).

 

According to the CPT terms, the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed upon) and the seller must contract for and pay the costs of carriage necessary to bring the goods to the named destination. This term can be used for any mode of transportation and is applicable when multiple modes of transportation are involved^[1].

 

 

 

CPT [designated destination] Incoterm^® 2020

 

For example, if the buyer designates the delivery location at Tien Sa Port, Da Nang, with the address at 01 Yết Kiêu, Thọ Quang, Sơn Trà, Đà Nẵng, the CPT (Carriage Paid To) term in this international trade contract would be expressed as follows: CPT 01 Yet Kieu, Tho Quang, Son Tra, Da Nang, Vietnam, Incoterms 2020.

 

II. USAGE GUIDELINES

 

1. Transportation methods:

 

This condition shall be used for all transportation methods and may be used when several transportation methods are involved.

 

2. Goods and Risks transfer (CPT – Carriage Paid To):

 

“Carriage Paid To” means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if such a place has been agreed upon), and the seller must contract for and pay the costs of the necessary transportation to bring the goods to the designated destination.

 

When using CPT (Carriage Paid To) conditions, the seller fulfills the delivery obligation by handing the goods over to the carrier rather than delivering them to the destination.

 

It is necessary to clarify that in the CPT condition, there are two distinct delivery places because risk and costs are transferred at two different locations. The delivery place  where the risk is transferred to the buyer and the designated destination where the seller is responsible for contracting transportation to bring the goods should be specified as precisely as possible in the contract.

 

If multiple carriers are involved in transporting the goods to the designated destination, and the parties haven't agreed on a specific delivery place, the risk is transferred when the goods are handed over to the first carrier at a location entirely of the seller's choosing, beyond which the buyer has no control. The parties must explicitly specify the later point in time (e.g., at the seaport or airport)  in the sales contract if they want to transfer risk at that place.

 

It is necessary for the parties involved to clearly specify the destination point, as the costs up to that point are borne by the seller. The seller must enter into a suitable transport contract for this specific destination. If the seller incurs additional charges according to the transport contract related to unloading at the specified destination, the seller is not entitled to demand reimbursement of these costs from the buyer unless there's a different agreement between the two parties.

 

3. Destination Delivery Charge:

 

If the unloading costs at the destination are included in the transport contract signed by the seller, the seller will have to bear these costs, unless the two parties have agreed in advance that the buyer will reimburse these costs to the seller.

 

4. Obligation of customs clearance for export/import:

 

It is required in CPT conditions that the seller to perform the clearance of goods for export, if necessary. However, the seller is not obligated to perform the clearance of goods for import or go through customs procedures in a third country that the goods must transit, nor pay import duties or customs clearance fees.

 

III. OBLIGATIONS OF SELLER AND BUYER IN CPT CONDITIONS

 

A. OBLIGATIONS OF SELLER:

 

A1. General obligations

 

Under the sales contract, the goods and a commercial invoice, along with any other relevant documents mentioned must be provided by the seller.

 

Any documents provided by the seller can be in traditional paper form or in electronic form if agreed upon or customary.

 

A2. Delivery

 

The seller must deliver the goods by the manner of delivering them to the carrier who signed the contract as per Section A4 on the day or within the period agreed upon. In both cases, the seller must deliver the goods on the date or within the agreed-upon period^[2].

 

Nghĩa vụ giao hàng của người bán trong CPT và CIP hoàn toàn giống nhau là giao hàng cho người chuyên chở mà người bán chỉ định tại nơi xuất phát hoặc mua hàng đã được giao cho người chuyên chở tại nơi xuất phát trong thời hạn thỏa thuận^[3].

 

The delivery obligation of the seller in CPT is similar to the one in CIP, which is delivering the goods to the carrier designated by the seller at the departure or having the goods delivered to the carrier at the departure within the agreed-upon period.

 

A3. Risk transfer

 

The seller bears all risks of loss or damage to the goods until the goods are delivered as per A2, except for cases of loss or damage mentioned in B3.

 

A4. Transportation

 

The seller must bear the cost of contracting for the carriage of the goods to the designated destination or agreed place, if any, at the destination. If the specific place is not agreed upon or determined by practice, the seller may choose a location at the designated destination that is most suitable for their purpose.

 

The seller must comply with any security requirements related to transportation to the destination.

 

Despite Incoterms 2010 stipulating that the seller "contracts" for carriage, the seller can still arrange transportation using their own means. This is clarified further in Incoterms® 2020, where the term is changed from "contracts" to "contracts or arrangements" for carriage. Therefore, under the rules of Group D, the seller can use their own transportation without necessarily hiring a carrier as a third party. This provision is advantageous for sellers in the Group D who have their own means of transportation for shipping.

 

If in Group F, the seller is only required to meet the security conditions related to transportation until goods are delivered from the departure, in Group C and D, the seller must meet all the security conditions related to transportation that the seller intends to use to carry the goods to the destination or the named port of arrival^[4].

 

A5. Insurance

 

The seller is not obligated to the buyer for signing the insurance contract. However, as per the requirements of the buyer, as the risks and costs (if any) are borne by the buyer, the seller must provide the buyer with the information necessary for the buyer to buy insurance.

 

The seller, under the rules of Group F and CPT, CFR, may buy insurance for goods from its premiere to the delivery place to avoid the damages for the goods before transferring the risks to the buyer. The fact that the seller buys insurance is for protecting its interests, which is not mandatory. Hence, it is not the obligation of the seller to the buyer.

 

If the buyer requires necessary information to purchase insurance, and is willing to bear the risk and expenses, the seller must provide the buyer with the relevant information that the seller possesses. This information may include packaging details, labeling, actual quantity of goods delivered, name of the transporting vehicle, time and place of commencement of the transport, loading location, transport conditions, etc^[5].

 

A6. Bill of lading and delivery document

 

In case of customary or requested by the buyer, the seller must bear the cost of providing the buyer with the usual bills of lading, as stipulated in the contract of carriage in A4.

 

These bills of lading must clearly specify the goods covered by the contract and indicate the date of delivery within the agreed-upon timeframe. In case of customary or agreement, these bills of lading must also allow the buyer to make complaints to the carrier about the goods at the designated destination and enable the buyer to sell the goods during transit by transferring the documents to the next buyer or by notifying the carrier.

 

When bills of lading are issued in a transferable form and there are multiple original copies, a complete set of original copies must be presented to the buyer.

 

Group C of Incoterms requires the seller to bear the cost of providing normal bills of lading to the buyer at the destination or the port of destination. This cost is typically already included in the transportation contract signed with the carrier.

 

Since CPT and CIP apply to all modes of transport while CFR and CIF are specific to sea transport, the term "place of destination" is used in CPT and CIP, and "port of destination" is used in CFR and CIF.

 

A7. Export/import customs clearance

 

a) Export customs clearance

 

If necessary, the seller must declare and pay all the costs related to the customs procedures for exporting, which is provided by the export country, such as:

• Export license;
• Security inspection of goods before export;
• Inspection of goods before export; and
• Any legal regulations.

 

b) Supporting import customs clearance

 

If necessary, the seller must support the buyer as requested by him/her with the risks and costs borne by him/her for obtaining the documents/information significant for customs transit/import procedures, including security information and pre-export inspection of goods, as required in the country of transit or the importing country.

 

A8. Inspection – Packaging, Labeling – Marking

 

The seller must pay the costs for inspection (such as qualification check, weighing, measuring, counting) necessary for delivering the goods as per the provisions in A2.

 

The seller must package the goods and bear the costs associated with it unless industry practices specifically stipulate that the goods sent do not require packaging. The seller must pack and label the goods with markings suitable for the chosen method of transportation, unless both parties have explicitly agreed on specific packaging and marking methods at the time of contract signing.

 

A9. Sharing of Costs

 

The costs borne by the seller:

 

a) All costs related to the goods until they are delivered to the buyer as per A2, except those borne by the buyer under B9;

 

b) Transport costs and any other costs arising from A4, including loading fees and security-related costs associated with transportation;

 

c) Any agreed unloading costs at the place of destination, but only if these costs are to be borne by the seller under the transport contract; and

 

d) Transit costs that the seller must bear under the transport contract;

 

e) Costs of providing usual proof that the goods have been delivered to the buyer according to A6;

 

f) If necessary, customs clearance, export duties, and any other related costs for export as per A7(a); and

 

g) Reimburse the buyer for all costs and fees related to assisting the seller in obtaining documents and information under B7(a).

 

As CIP and CIF differ from CPT and CFR only in the seller's obligation to purchase insurance, sellers in CIP and CIF must additionally bear the cost under A9(f), which is the insurance premium as stipulated in A5 on insurance.

 

A10. Notice to the buyer

 

The seller must notify the buyer of the goods delivered under A2, and, at the same time, inform the buyer of any necessary information to enable the buyer to take delivery.

 

B. OBLIGATIONS OF BUYER:

 

B1. General obligations

 

The buyer must make the payment for the goods as specified in the sales contract.

 

Any documents provided by the buyer can be in traditional paper form or electronic form, depending on the agreement or customary practice agreed upon by the parties.

 

B2. Good receipt

 

The buyer must take delivery of the goods when they have been delivered according to A2, and must accept the goods from the carrier at the agreed place of destination or, if agreed, at the point within that place of destination^[6].

 

B3. Risk transfer

 

The buyer must bear all the risks related to the loss or damages of goods from the point of time when the goods are delivered under A2.

 

If the buyer fails to give notice as per B10, they shall bear all risks of loss or damages to the goods from the agreed date or the expiration of the agreed period for delivery, provided that the goods have been clearly identified as the contract goods.

 

B4. Transportation

 

The buyer is not obligated to the seller on the establishment of a transportation contract.

 

B5. Insurance

 

The buyer is not obligated to the seller on signing an insurance contract.

 

B6. Bill of lading and delivery document

 

The buyer must accept the Bills of lading provided as per A6 if they conform to the contract.

 

B7. Export/import customs clearance

 

a) Support for Export customs clearance

 

If necessary, the buyer must support the seller as requested by him/her, with the with the risks and costs borne by him/her for obtaining the documents/information significant for customs transit/export procedures, including security information and pre-export inspection of goods, as required in the country of transit or the exporting country.

 

b) Import customs clearance

 

If necessary, the seller must declare and pay all the costs related to the customs procedures provided by the transiting/importing country, such as:

 

• Import license or any licenses necessary for transiting;
• Security inspection for transiting and importing;
• Inspection of goods; and
• Any legal regulations.

 

B8. Inspection – Packaging – Marking

 

The buyer has no obligation to the seller.

 

B9. Sharing of Costs

 

The buyer must:

 

a) Pay all costs related to the goods from the time the goods are delivered as per A2, except the costs the seller pays as per A9;

 

b) Costs for customs clearance, unless they are covered by the transport contract signed by the seller;

 

c) Unloading costs, unless covered by the transport contract signed by the seller;

 

d) Reimburse all costs and fees indicated by the seller when assisting the buyer as per A5 or A7(b);

 

e) If specified, pay all taxes, fees, and other charges, as well as customs clearance costs for transit and importation as per B7(b);

 

f) Pay all costs arising from not giving timely notice to the seller as per B10, from the specified date or the expiration date of the specified deadline for sending the goods, provided the goods have been clearly identified as contract goods.

 

B10. Notice to the seller

 

In case the buyer is entitled to make a decision on the time of delivery of the goods and/or place of arrival or place of receiving goods at that destination, the buyer must notify the seller thoroughly.

 

This condition clearly outlines the sale and transportation of goods from the seller to the buyer, but the buyer is obligated for and bears the costs of importing the goods into the destination country. Below are the advantages and disadvantages of the CPT condition:

 

Advantages

Disadvantages

1. The seller is responsible for transporting the goods to the destination, helping the buyer save costs and time in shipping.   2. CPT is a common and easily understood delivery condition, thus minimizing the risk of disputes between parties.   3. The buyer is entitled to decide the appropriate transportation route and time based on their needs.

1. The buyer is responsible for both the liability and costs associated with importing goods into the destination country, including taxes and relevant import fees.   2. If the buyer lacks experience in importing goods from abroad to their country, they may encounter difficulties in dealing with import-related procedures.   3. The decision-making on transportation and delivery times may expose the buyer to the risk of loss and legal responsibilities in the event of loss or damage to the goods during transportation.

 

Therefore, when using CPT conditions, the parties should pay attention to the costs and obligations during the delivery of goods, so that the transactions are fluently and efficiently carried out.

 

The information summarized above may help people better understand the CPT in Incoterms® 2020. Generally, each condition in a business transaction specifies exactly what the buyer and seller are responsible for. Thus, with any questions or concerns about the import and export of commodities that need the most thorough advising service, please contact FDVN Law Firm.

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