Incoterms® 2020: CPT or CIP?

In this article, Miguel Angel Bustamante Morales discusses the key differences between the Incoterms® rules, CPT and CIP.

Miguel is an ICC certified trainer on the Incoterms® 2020 Rules and an active participant in the last three revisions of the Incoterms® Rules: 2000, 2010, and 2020.

The views and opinions expressed in this article are those of our authors and do not necessarily reflect the official policy or position of the ICC Academy or ICC. 

When goods cross borders, clear responsibilities between sellers and buyers become essential. That’s where the Incoterms® rules come in – a set of international trade terms created by the International Chamber of Commerce (ICC), first introduced in 1936 and most recently updated in Incoterms® 2020.

These rules help define who does what in a contract for the sale of goods, with respect to a specific set of issues, including: when delivery happens, who arranges transport and – in the case of two of the 11 Incoterms® rules —  insurance, who handles customs, and whether seller or buyer bears the risk of loss of or damage to the goods if something goes wrong.  

Each of the eleven Incoterms® rules outline:

• The point at which risk for loss of or damage to the goods transfers
• Cost allocation between the seller and buyer
• Who arranges transportation and meets security obligations for it
• In the case of 2 of the 11 Incoterms® rules, responsibility for insurance coverage
• Who manages export/import formalities
• Packaging, labelling, and checking 

In this guide, we take a closer look at two of these rules: CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To), including when to use them and how they differ.

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CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To)

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 good 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).

So, when should you use CPT or CIP?

Given how much CPT and CIP have in common, when is it appropriate to choose one over the other?

To answer this, we’ll take a closer look at each term individually, exploring their unique features, obligations, and use cases.  This will also help clarify how they fit within the broader group of “C” terms under the Incoterms® rules.

It is also useful to understand how the rules have changed from 2010 to 2020.

Understanding CPT (Carriage Paid To)

Under CPT (Carriage Paid To), the seller delivers the goods and transfers the risk of loss or damage to the buyer when the goods are handed over to the carrier selected and contracted by the seller at the agreed place and point of delivery.  As set out in the guidance notes for all the “C” terms, seller and buyer are encouraged to agree on the place of delivery – as distinct from the ‘named place of destination’ – as precisely as possible.

The seller must arrange and pay for transportation to the named place of destination, but it’s crucial to understand that “place of delivery” and “place of destination” are not the same under the “C” terms of Incoterms® 2020 rules.

• The place and point of delivery is where the seller hands goods over to the carrier. This could be the seller’s warehouse, a port of shipment, a departure airport, or a rail terminal – typically located in the seller’s country or the exporting country. Seller and buyer don’t always identify and agree on this specific place or point, though they are strongly encouraged to.

• The place and point of destination is where the goods goods are ultimately transported to, such as the port, airport, or terminal in the buyer’s country.  When parties incorporate the “C” terms into the contract of sale, they are expected to include this ‘named place of destination’.

Risk transfers at the point of delivery, not at the place of destination. This distinction is often misunderstood.  

For example, if sales contract states:

English cashmere, CPT International Airport of Dubai, Cargo Mega Terminal, UAE, Incoterms® 2020

This means the seller transfers risks once the goods are handed over to the carrier before the goods have been transported to the ‘named destination’ of Dubai: for example, at Emirates SkyCargo at London Heathrow Airport (LHR). The seller pays to transport the goods to Dubai, but any damage or loss after Heathrow is the buyer’s responsibility.

Parties frequently misunderstand the “C” terms and mistakenly believe that risk transfers at the named place of destination rather than at the much earlier delivery point.  This is a common but critical mistake to avoid.  

Like all the “C” terms in Incoterms® 2020, CPT places the burden of risk on the buyer from the moment the goods are delivered to the carrier, even though the seller pays for the main carriage. Plus:

• The buyer is responsible for import formalities, including any customs clearance required in transit countries.

• The seller handles export formalities.

Basic obligations of the buyer and seller under CPT

1. The seller must deliver the goods by handing them over to the carrier – contracted by the seller – at the identified place and point of delivery (on which seller and buyer are strongly encouraged to agree), and on the specified date or within the agreed period.
   
2. The seller’s delivery obligation is fulfilled once the goods are handed over to the carrier (e.g., at the carrier’s terminal or warehouse). Delivery does not occur when the goods are loaded onto the aircraft, train, or vessel.
   
3. If the shipment involves multiple modes of transport (e.g., truck, vessel, and train), delivery occurs when the goods are handed over to the first carrier. Regardless of how many modes are involved, the transportation costs up to the agreed destination are the seller’s responsibility.
   
4. The sales contract should clearly specify both the place and point of delivery (where risk transfers) and the place and point of destination (the place to which seller must arrange and pay for transport). If these are not defined in the contract or by trade practice, the seller may choose the most suitable locations for both.
   
5. Risk transfers to the buyer once the seller has fulfilled the delivery obligations described in points 1-3.
   
6. The seller must notify the buyer in a timely manner that delivery has occurred and provide any information necessary for the buyer to receive the goods at the destination.
   
7. The seller is responsible for complying with all the transport security requirements, at its own risk and cost. This obligation applies under all ‘C’ and ‘D’ Incoterms® rules.
   
8. The seller must complete export formalities.
   
9. The buyer is responsible for import formalities and any customs procedures required in countries the goods transit through.

10. Once the goods arrive at the agreed destination, the buyer must arrange and pay for any further transportation beyond that point, if needed.

When do you use CPT?

CPT is appropriate in the following situations:

• When the seller is prepared to contract the carrier, pay for transportation up to the agreed destination, and handle export formalities.
• When the seller understands and accepts responsibility for complying with all the transport-related security at its own risk and cost.
• When the buyer is aware that delivery occurs when the goods are handed over to the carrier at the start of the transport chain – not upon arrival at the destination.
• If multimodal transport is involved, when the buyer accepts that delivery is deemed complete once the goods are handed over to the first carrier.
• When the seller know it must complete export formalities.
• When the buyer is responsibility for import formalities, and if applicable, customs procedures in transit countries.

Understanding CIP (Carriage and Insurance Paid To)

Under CIP (Carriage and Insurance Paid To), the seller delivers the goods to the carrier they have contracted at the agreed place and point of delivery. At this point, the buyer assumes the risk of loss or damage to the goods. If the seller and buyer have not agreed on the specific place and point of delivery, the seller may select the place and point that best suits its purpose.

In addition to contracting and paying for transportation to the named place of destination, the seller must also provide insurance coverage for the goods:  

• The insurance must meet Institute Cargo Clauses “A” (maximum coverage).
• Coverage must be at least 110% of the contract price.
• The insurance policy or certificate must be issued in favour of the buyer or another party expressly designated by the buyer.
• If additional coverage is needed, the parties must specify this in the sales contract so the seller can arrange for it.

Delivery vs destination under CIP

It’s essential to distinguish between the place of delivery and the ‘named place of destination’, called for in the citation to the CIP rule:  

• The place of delivery is where the seller hands the goods over to the carrier – this could be the seller’s warehouse, port of shipment, airport, or rail terminal, typically located in the exporting country. Seller and buyer don’t always identify and agree on this specific place or point, though they are strongly encouraged to.

• The place of destination is the final location to which the goods are transported – usually in the buyer’s country. When parties incorporate the ‘C’ terms into the contract of sale, they are expected to include this ‘named place of destination’.

Even though the seller pays for both freight and insurance to the named destination, risk for loss of or damage to the goods transfers to the buyer at the place and point of delivery, not upon arrival at the named destination.

For example, if the sales contract states:

Cellulose Pulp, CIP Tianjin Xingang, Beijiang Area, China, Incoterms® 2020

It means the seller delivers and transfers risk when the goods are handed over to the carrier before the goods have been transported to the ‘named destination’ of Tianjin, China: for example, at MSC at the seller’s premises in Fray Bentos, Uruguay. The seller covers transportation and insurance costs all the way to Tianjin, China, but the buyer assumes risk from the moment the goods are handed to the carrier in Uruguay.   

This point is often misunderstood. Because the destination is named in the CIP term, and because the seller pays for transportation and insurance to that location, parties may incorrectly assume that risk remains with the seller until the goods arrive.

Like all ‘C’ terms, CIP places the risk with the buyer once the seller has delivered the goods to the first carrier. The seller is not responsible for loss or damage to the goods beyond that point.

Additionally:

• The seller must handle export formalities.

• The buyer is responsible for import formalities, as well as any customs procedures required in countries of transit.

Basic obligations of the buyer and seller under CIP

1. The seller must deliver the goods by handing them over to the carrier – contracted by the seller at the identified place and point of delivery (on which seller and buyer are strongly encouraged to agree), on the specified date or within the agreed timeframe.
   
2. The seller’s delivery obligation is fulfilled once the goods are handed over to the carrier (e.g., at the carrier’s terminal or warehouse). Delivery does not occur when the goods are loaded onto a truck, aircraft, train, or vessel.
   
3. If the case of multimodal or combined transport – such as truck, vessel, and rail, especially for containerised cargo – delivery occurs when the goods are handed to the first carrier. Regardless of the transport method, the seller pays the transportation costs up to the named place of destination.
   
4. The sales contract should clearly define both the place and point of delivery (where risk transfers) and place and point of destination (the place to which seller must arrange and pay for transport). If not specified in the contract or established by trade practice, the seller may choose the most suitable locations for both delivery and destination.  
   
5. Risk transfers to the buyer once the seller has completed the delivery obligations described in points 1-3.
   
6. The seller must notify the buyer in a timely manner that delivery has occurred, and provide any relevant information needed to enable the buyer to receive the goods at destination.
   
7. The seller is for meeting all transport-security requirements at its own risk and cost. This obligation applies to all Incoterms® in the “C” and “D” groups.
   
8. The seller must arrange cargo insurance under Institute Cargo Clauses “A” (maximum coverage) for at least 110% of contract value, unless otherwise agreed. The coverage must extend to the agreed destination, and the insurance certificate or policy must be issued in favour of the buyer or another named party having an insurable interest in the goods.
   
9. The seller must complete all export formalities.
   
10. The buyer is responsible for import formalities, including any customs procedures required in countries of transit, if applicable.

11. After the goods arrive at the named place of destination, the buyer must arrange and pay for any additional transportation needed to move the goods to their final place of destination.

When do you use CIP?

CIP is suitable in the following situations:

• When the seller is prepared to contract the carrier, cover the transportation costs to the agreed destination and handle all export formalities.

• When the seller agrees to provide cargo insurance in line with the requirements of Article A5 of Incoterms® 2020 – covering at least 110% of the contract value, using Clause “A” of the Institute Cargo Clauses.

• When the seller understands their responsibility to comply with all transport-related security requirements at its own risk and cost.

• When the buyer is aware that delivery occurs at the point the goods are handed to the carrier – typically at the start of the transport chain. If multiple carriers are involved, delivery takes place when the goods are handed to the first carrier.

• When the buyer clearly understands that risk for loss of or damage to the goods transfers at the point of delivery and not upon arrival at the named destination.

• When the seller is responsible for export clearance, and the buyer is responsible for import clearance.

• When the buyer accepts responsibility for any customs procedures required in countries the goods pass through in transit. 

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Comparative analysis of CPT and CIP

Based on the discussion above, the key difference between CPT and CIP lies in one essential element: insurance.

The role of insurance

Under CPT, the seller is not obligated to provide insurance for the goods once they have been handed over to the carrier. From that point forward, it is the buyer’s responsibility, and at its own risk and cost, to arrange insurance coverage for the goods through to their final destination. The timely delivery notice from the seller (as required by Article A10 of CPT, Incoterms® 2020) allows the buyer to be aware that it has assumed risk for the goods and organise insurance accordingly.

By contrast, under CIP, the seller must contract and pay for insurance covering the goods during carriage to the agreed destination. Specifically, the seller is required to:

• Obtain insurance under Clause “A” of the Institute Cargo Clauses (or equivalent), which provides maximum coverage.
• Ensure the insurance covers at least 110% of the contract price.
• Use a reputable insurer and issue the insurance policy in favour of the buyer or any party with an insurable interest in the goods.
• Provide the buyer with the insurance certificate or document, enabling the buyer to claim compensation directly from the insurer in case of loss or damage.
• Ensure coverage extends from the point of delivery to at least the named destination.

In summary, while both CPT and CIP follow similar delivery, risk transfer, and transport cost rules, only CIP includes the seller’s obligation to insure the goods, making this a decisive factor when choosing between the two. 

Use cases

CPT in practice

Two merchants entered into a trade agreement: the seller is based in the UK, and the buyer located in the UAE. The product was English cashmere, and the parties agreed on the following sales term in their contract:

English cashmere, CPT International Airport of Dubai, Cargo Mega Terminal, UAE, Incoterms® 2020.

The shipment was scheduled between January 10 and January 20, 2025, to be transported from London Heathrow Airport to Dubai International Airport in two containers measuring 125 in length x 60.4 in (width) x and 64 in (height), shipped as a single consignment.  

For payment, the parties agreed to use a documentary credit in favour of the seller, confirmed by the seller’s bank in the UK. The credit was available at sight against the presentation of the following documents:

• Commercial invoice

• Air Waybill consigned to the buyer

• Certificate of origin issued by the UK Ministry of Economy

• Certificate of quality issued by Bureau Veritas

• A packing list

(All required in original plus two copies)

After manufacturing the goods, the seller transported them to Heathrow Airport at their own risk and expense, cleared them for export, and on the 18 January 2025, delivered them to Emirates SkyCargo (the designated carrier) at the carrier’s warehouse in Heathrow as agreed in the sales contract.

As per CPT Incoterms® 2020:

• The seller arranged and paid for the main carriage up to Cargo Mega Terminal at International Airport of Dubai, which means that the contract of carriage includes unloading charges at the destination.

• The Air Waybill, issued on January 18, included all necessary shipment details: names of the carrier, shipper (seller), and consignee (buyer); departure and destination airports; flight departure date (January 2025); goods description; “Freight Prepaid” notation; carrier’s signature and date.

Upon delivery to their carrier, the seller provided notice to the buyer with full transport details, enabling the buyer to receive the goods in Dubai. Based on this notice, the buyer arranged insurance coverage for the goods effective from January 18, at their own risk and cost, acknowledging that risk transferred on the date of delivery to the carrier.

With all contractual obligations fulfilled, the seller presented the required documents to their bank, which determined a complying presentation and honoured the credit at sight. The confirming bank forwarded the documents to the issuing bank in Dubai and claimed reimbursement, which was honoured.

The issuing bank also found the documents in order, released them to the buyer upon payment (including fees), and the buyer cleared the goods for import.

The transaction was executed without issues. The seller fulfilled all CPT obligations, and the buyer received the goods in good condition, in full compliance with the contract and Incoterms® 2020.

CIP in practice:

A seller of pulp-based cellulose in Fray Bentos, Uruguay, entered into a sales contract with buyer in Beijing, China. The contract was signed on December 12, 2024, with the following trade term:

Cellulose Pulp, CIP Tianjin Xingang Port, Beijiang Area, China, Incoterms® 2020.

Key terms of the contract:

1. Packaging: 5 containers of 53 feet; no partial shipments allowed.

2. Shipment to be made no later than January 30, 2025.

3. Payment method: Irrevocable and confirmed documentary credit, confirmed by ABC Bank or XYZ Bank (both in Montevideo, Uruguay) available by acceptance, payable 90 days after shipment.

Required documents under the credit:

• Commercial invoice

• Full set of multimodal bills of lading plus 3 copies, consigned to the order of the issuing bank, notify the buyer.

• Insurance policy

• Certificate of origin (issued by UK Chamber of Commerce)

• Certificate of quality and a certificate of weight (both issued by SGS)

• All required documents must be presented in original plus two copies, except the Bill of Lading.

Execution of the transaction:

• On December 26, 2024, the seller received the confirmed documentary credit from ABC Bank in Uruguay.
• The seller prepared the cellulose and had the goods ready by January 18, 2025.
• On January 20, 2025, the seller contracted MSC for multimodal transport, and on January 22, 2025, MSC dispatched five trucks to collect containers.
• On January 24, 2025, MSC acknowledged receipt of all five containers in good condition, which was recorded in the multimodal bill of lading.
• Accordingly, risk transferred to the buyer on January 24, when the goods were handed over to MSC at the seller’s premises in Fray Bentos, in accordance with CIP rules.

The cargo was then transported to Montevideo Port, loaded onto an MSC vessel on January 30, and the bill of lading was issued on January 31, 2025. The document included:  

• Carrier: MSC
• Shipper: Seller
• Consignee: Issuing bank
• Notify party: Buyer
• Place of receipt: Fray Bentos
• Port of shipment: Montevideo
• Port of destination: Tianjin Xingang
• Dates of reception (Jan 24), on-board loading (Jan 30), and issuance (Jan 31)
• Marked as “Freight Prepaid”
• Signed by MSC’s agent on behalf of the carrier

Insurance and compliance

• The insurance policy was arranged by the seller on January 20, under Institute Cargo Clauses “A”, covering 110% of the contract value, from Fray Bentos to Beijing.
• Per credit requirements, the policy was issued in the name of the issuing bank – matching the consignee of the bill of lading.

The seller notified the buyer on January 24 with all relevant shipment and transport details.

Document presentation and payment:

• The seller submitted all required documents to ABC Bank on January 31, which verified compliance and accepted the draft, committing to payment on April 24, 2025 (90 days after shipment).
• ABC Bank forwarded the documents to the issuing bank in China and notified it via SWIFT. The issuing bank also confirmed a complying presentation, endorsed the bill of lading to the buyer and released the documents.

The buyer used the documents to clear the goods for import at Tianjin Xingang and arrange inland transport to their final destination in China. On April 24, the buyer reimbursed the issuing bank for the principal amount and associated banking fees.

The transaction was successfully executed from start to finish. The seller fulfilled all obligations under CIP Incoterms® 2020, including arranging transport, providing insurance, and delivering the goods on time. The buyer received the goods in good order and made payment under the documentary credit as agreed. This case illustrates a fully compliant and risk-managed international sale under CIP terms.

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Choosing the right Incoterms® rule

There is no absolute “right or wrong” Incoterms® rule’, only the most appropriate one for a specific transaction.

Whether opting for CPT or CIP, the decision should be based on a thorough understanding of each party’s responsibilities, the structure of the supply chain, and the level of risk and cost each party is prepared to assume.

By reviewing the detailed analysis above and drawing on insights from trusted resources such as ICC Academy courses and certifications based on Incoterms® 2020 (ICC Publication 723), buyers and sellers will be better equipped to make well-informed, contractually sound decisions that reflect their commercial intentions.

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