Carriage Paid To (CPT)

  

With goods being shipped all over the world every day, it’s important to define at what point a buyer takes ownership of the goods along the journey. This is in case there's loss or damage...so a whole new vocabulary was invented called "Incoterms," which is followed internationally.

There are 11 different ways to ship products that define who pays for the freight costs and assumes liability at any point on the journey, and Carriage Paid To (CIP) is one of them.

There are generally three parties involved in moving goods from one point to another: the buyer, the seller, and one or more carriers. Sometimes the seller pays for the freight and assumes liability...sometimes the buyer does it...and sometimes they split the cost. They might take ownership of the goods at the shipping dock, when the goods are on the truck, when the truck delivers to an airport, when the goods arrive at the destination, or when they are unloaded and in the buyer’s warehouse.

With Carriage Paid To, the seller has agreed to pay for the cost of shipping up to a certain destination, when the seller’s carrier will take over. As soon as the seller delivers the goods to the first carrier (truck, plane, train, etc.), ownership and all risks transfer to the buyer.

Roses for Love Inc. in Nigeria is ready to ship 50 boxes of roses to arrive at Vince’s Flower Shop in New York City the day before Valentine’s Day. The shipping terms are CPT Abuja airport, meaning Roses for Love will ship the cargo by truck at their expense to the airport at the capital city of Abuja.

Once the roses are loaded on the truck going to the airport, Vince will take possession, as Roses for Love is only paying the trucking cost. However, the truck breaks down on the way to the airport and all the roses die due to lack of refrigeration.

Roses for Love was not required to pay for insurance, only freight, so hopefully Vince had insurance...and he will be the one to file a claim against the trucker. Next time, Vince may want to negotiate Carriage and Insurance Paid To terms so that Roses will also pay for insurance.

Related or Semi-related Video

Finance: What is Directors & Officers In...100 Views

00:00

finance a la shmoop what is directors and officers insurance coverage? well if

00:08

you ever sit on the board of a public company you'll want this or at least a [People sat at a table in a meeting]

00:12

feeling you'll sleep better at night if you have it. D&O insurance is just

00:16

insurance like any other kind of insurance only it insurers for board

00:20

stupidity or rather legal definitions of dumb things companies do that costs

00:25

shareholders money and for which the Board of Directors then gets blamed and

00:29

sued in theory if company ever lost a large lawsuit well at worst they would [Man and woman in a court]

00:35

just hand over the keys to the company itself to whoever won the lawsuit

00:38

famously warren buffett founder and CEO Berkshire Hathaway and the largest

00:43

seller of insurance in the world through Geico and other subsidiaries does not

00:47

allow his Board of Directors to carry any D&O insurance because he feels that

00:52

if the company stumbles so stupidly because of poor governance that he along [Warren Buffet appears]

00:57

with all of his boards should suffer the resulting personal bankruptcies that

01:01

would follow with all the lawsuits that would be piled on and yes sometimes

01:05

companies are so corrupt or stupid or unlucky that the damages in a lost

01:10

lawsuit exceed the value of the entire company itself and then the insurance

01:15

company has to be called to cover whatever is left in legal bills after

01:18

the company has been handed over in practice it's not quite that dramatic

01:22

companies carry D&O insurance for smaller things as well like a company

01:27

stock goes from $22 to $14 after a bad quarter and some ambulance-chasing [Company stock graph appears]

01:32

lawyer from New York is able to convince a judge that proper disclosure wasn't

01:37

made about the lack of sales in the Uzbekistan office and to make the

01:41

lawsuit go away the company held hostage pays seventeen million dollars in

01:45

damages to shareholders making a claim the key thing is the shareholders here

01:49

get like pennies a share and the lawyers get millions a typical D&O policy for a

01:54

smaller public company might carry a ten million dollar deductible so in this

01:58

case the first ten million of that seventeen comes out of the company

02:01

coffers and then the money beyond that comes from the insurance company that

02:05

wrote the coverage policy well historically the business of writing D&O

02:09

policies has been a great business for the insurance industry as tons of

02:13

premiums get paid by nervous Nelly directors who in fact never lose [Hammer nails sign to the wall]

02:17

lawsuits and well you know the gravy train keeps on graving... [Man riding a gravy train]

Up Next

Finance: What is Life Insurance (Term v. Variable)?
45 Views

What is term life insurance, and variable life insurance? Hit play to find out, and, uh...let's hope you live long enough to figure out the answers.

Find other enlightening terms in Shmoop Finance Genius Bar(f)