Here, we will be talking about the difference between carriage paid to (CPT) and carriage and insurance paid (CIP). These are the two most widely used trade terms for sea transport.
It is common that shipments of goods across national borders or over long distances are transported by sea carriers. Goods are always carried on board a ship in containers. From here, it depends on how the carrier ships the cargo if CPT or CIP is applied.
When shipping from country A to country B, there are many factors which must be considered when determining what type of shipping should be used as well as what type of tariff calculation is made for each shipment based on country, weight, height, etc.
Today, we’d like to explain the difference between CPT and CIP and provide a simple explanation of each term. In addition, we will also discuss how China Shipping gives customers an additional discount on prices when both are applied. Please feel free to refer back to this article whenever necessary as it is important that all our customers are fully aware of their tariff status too.
Cargo is carried from country A, which we call the port of loading (POL) i.e., where goods are shipped from, to country B which we call the port of discharge (POL), or destination port i.e., where the goods are being shipped to. In most cases, goods are carried onboard ships in containers and the carrier calculates shipping charges based on container size (height and width), the quantity of cargo, weight, and destination port i.e., what is called a tariff calculation.
Before we explain CPT and CIP, it is important to know that each country has its own regulations when it comes to charging tariffs, as well as different sea carriers, may have their own policies when calculating tariffs.
You may wish to read about ExWorks
Carriage Paid To (CPT)
A Carriage Paid To means that the seller pays for transportation but does not cover any loss or damage of goods, or simply put, insurance.
Carriage Paid To is used by carriage companies where they charge fees for transporting your cargo from port of loading to destination port but do not cover costs relating to customs processing or taxes incurred during carriage e.g., value-added tax (VAT), import duties, tax, etc.. Therefore, it is the responsibility of the shipper to arrange for import clearance documentation and any additional costs incurred at customs.
The cost of CPT can be calculated by multiplying the container weight by a tariff factor which is specific to each carrier.
If freight rates are quoted in US dollars i.e., Freight on Board (FOB), Cost and Freight (CFR) basis, then as long as you have already paid fees for the shipping portion only, your goods will be shipped once your balance amount has been settled with the shipping company.
Carriage and Insurance Paid To (CIP)
This is applied when it includes all costs relating to clearing customs. But not all companies provide insurance services. So this option may vary depending on the carrier you choose.
It is a trade term that usually includes fees for customs clearance, port dues, and taxes incurred as well as insurance costs to cover damage or loss of goods during the carriage.
Many shipping companies also provide an option to insure shipments at extra cost.
CIP can be calculated by multiplying container weight (or volume) by a tariff factor which is specific to each carrier plus additional costs for customs processing, port charges, and insurance premiums for sea transport.
If freight rates are quoted in US dollars i.e., Freight on Board (FOB), Cost and Freight (CFR) or Cost Insurance & Freight (CIF) basis, then all costs relating to tariffs and customs have been included in your initial quotation so that you will only need to pay when the shipment has reached its destination port.
Customs and tariffs are normally calculated based on the percentage of value or number of units. For example, a 0% tariff rate is applied to products with a customs value of less than $1,000, and for goods valued at over $1,000 up to $2,500 then it is 2%. Anything estimated above this would be subject to the full 24% tariff rate.
It is important to remember that each country’s rules are different when it comes to taxes so as much information as possible should be sought before making any purchasing decisions.
The Clear Difference between CPT and CIP
The difference between the two is the availability of cost of damages or insurance in CIP as against CPT.
In a nutshell, Carriage Paid To (CPT) is different from a carriage and insurance paid (CIP) in that the primary carrier only pays for delivery, not insurance (or damages).
Carriage and insurance paid (CIP) on the other hand, includes all segments, excluding taxes. That said, CIP is more expensive than CPT because it covers various aspects such as transport costs and risk coverage.
Where will the cost of additional insurance be charged?
This usually depends on the shipping company’s policy.
When CIP is applied, most shippers will require you to pay for insurance in addition to the amount that you have already reached out to them before delivery takes place.
Some will not charge extra fees as long as they are included in your shipping cost or quoted upfront. Hardware manufacturers and distributors especially should ask about additional charges before deciding which method of transport they would like to take.
In an event where goods were damaged during carriage (CPT), it is important for the shipper to file a claim with shipping companies responsible for delivering the package within 24 hours of receiving the merchandise. After this short period of time, claims cannot be refunded by any means so make sure this is done immediately.
If the shipper is covered by insurance, the claim can be filed during delivery using a special form provided to them by the delivering shipping company.
Meanwhile, if it is not covered by insurance (CIP), then they will need to do this when goods are received – normally from an officer of customs or other government officials.
They can also press for a chargeback from their bank if there is any dispute with shipping companies, unlike CIP where all payments have already been settled prior to clearing customs and delivery. The disputing process differs greatly based on specific circumstances but generally speaking there should be valid reasons for doing so before any disputes or chargebacks are made.
How do we calculate additional insurance premium?
To put it simply, the premium is the amount that you pay for insuring a certain quantity of goods. This is usually calculated based on specific rates per unit or by the percentage of value.
For example, you have purchased 2 pallets of furniture worth $10,000 each from China and there are no shipping insurance charges included in the quotes you have received so far. You would need to calculate this fee yourself before deciding on which shipper to choose for your goods.
Standard non-stackable pallets can be easily estimated with these simple calculations:
$10,000 x 12% = $1,200 which means you will need to pay $1,200 as additional fees (shipping insurance) when choosing CIP.
Stackable pallets, however, can be a bit trickier to calculate because they have lower volume than non-stackable pallets. Their prices depend on the number of units included in the stack. For this example, let’s use a simple 1m x1m solution used frequently by hardware distributors:
Stacked into 4 layers and including 3 layers of goods per layer (or 6 goods)
Number of Goods = 6 x $10,000 / ($120 + $0 ) = 400
$400 x 12% = $48 which means that you will only need to pay an additional $48 if choosing CIP for your shipment when compared with CPT.
How do I know if it is my responsibility to pay for shipping insurance?
It is necessary to get this covered by cargo owners or distributors when using CIP. Otherwise, shippers will not insure the goods due to owners’ failure in paying for additional fees resulting from their own decisions and actions.
You must make sure that you can afford the cost of insurance and whether it will be included in your shipping quote before choosing a method of transport. Otherwise, all payments have already been settled prior to delivery leaving no room for any disputes regarding additional fees after receiving goods at customs premises.
It is recommended that you ask your supplier about this before making an order because some of them do not offer shipping insurance which means that you need to add it manually into your quote – if required by law.
What are the conditions for additional insured value limitations?
Limitations are usually necessary in case someone is trying to claim more money for goods that were damaged or lost during shipping.
For example, let’s say you have ordered 2 pallets of furniture worth $10,000 each and paid for CIP where insurance premium was set at 12% on the additional insured value.
However, your supplier has failed to deliver the order and it never made its way to your designated location so you contact them about this problem. They can’t give a reasonable explanation after a long investigation period so now all they can do is file a claim with the delivery shipping company responsible for your order which totals $20,000 ($10,000 x 2 pallets) because there was no proof to show that the goods were never received and no proof that they arrived at their destination.
What happens if you send a shipment via this method that gets lost or stolen?
The shipping company that is responsible for delivering your order will most likely take action to avoid additional fees and will search for a way to prove with authorities that the goods you have sent were delivered.
This could result in an unjustified claim of loss or theft against them which would make them provide additional information about the case. If there is proof of delivery, freight forwarding companies do not contribute to any disputes and they may even face criminal charges if their actions are found to be unreasonable.
How do I feel assured that my shipment was lost or stolen?
It’s simple, make sure that your customs agent has all necessary documents before making a final decision on whether they agree with your claims regarding insurance policies. It is important that everyone in the process of delivering your goods has signed off on their documents and you can prove with them that everyone in the delivery chain is aware of situations that might result in additional fees.
A common way to prevent this is by providing detailed proof of delivery protocol. All parties involved have to sign off on each step of the shipping process after they make sure that all necessary procedures are followed at each checkpoint – from pickup to drop-off. All information must be accurate and up-to-date or it could become useless if needed during disputes regarding additional insured value.
If not, you will probably end up paying more for your order because there was no proof provided that everyone took proper actions which made your shipment reach its destination safely and without any damage. It is also very important that you ask all your suppliers to take responsibility for additional insured value because if they are not willing to do so then you will need to pay for this insurance yourself.
What happens if I don’t request my shipment via CIP?
You can opt-out of CIP by choosing a different method of shipping but there could be significant consequences such as delays in transit, higher fees that have yet to be discussed, or many others depending on each individual case. Certain governments require that shipments sent across their borders are handled with a specific level of urgency and customs agents reserve the right to hold packages according to these requirements. However, you may still take advantage of some customs benefits when shipping without paying an extra premium
What Shipments Are Best Shipped Via ‘Carriage Paid To’ (CPT)?
Along with CIP, Carriage Paid To is the most commonly used method of shipping. It can be a good option for smaller shipments because you have to pay only for having your goods delivered instead of paying for their loss or theft along the way.
You’ll also save money on many other charges such as brokerage fees when making customs declarations.
However, if your shipment exceeds $500 in value then it will probably cost more to ship with CPT than with another type of shipping because you may have to go through additional paperwork and provide extra documents which could increase its overall value.
Can my package be lost or stolen if I choose this method?
In many cases, yes but it happens rarely compared to shipments that are sent via CIP. The reason is that they are usually considered less valuable by carriers and this may result in them losing track of your package or holding onto it so you won’t have to pay additional fees if something goes wrong.
What happens after I ship with CPT?
From the moment you make a customs declaration regarding Carriage Paid To, you are not responsible for any losses or theft unless you take action to prevent such situations from occurring. However, there are still some duties that need to be fulfilled before declaring goods as lost or stolen because otherwise there would be no way for shippers and freight companies to prove with authorities that their goods were actually delivered properly. One common approach is based on using insurance policies that determine compensation rates in case of loss or theft. Another way to handle such situations is by providing proof that you did everything in your power to prevent things from going wrong and the package being lost or stolen along with all official documents, signed by all parties involved, which will verify each step of the shipping process.
If something does happen after you declare a shipment as lost or stolen then there could be additional fees for pick-up and delivery if they weren’t already included in your original quote. Some carriers also charge extra money for managing such deliveries but this situation depends on their specific business model.
Using CPT is a great way to save money on shipments and it may be beneficial for any business. But keep in mind that its popularity has attracted many fraudsters into the shipping industry so you should be as careful as possible while dealing with carriers who offer this type of service.
If you are looking for professional assistance in making your shipping process much easier then give us a call at +2348147068472 or use our convenient web form. We have customer support agents available 24 hours 7 days a week, ready to help you every step of the way!