Incoterms C Group: CPT, CIP, CFR, and CIF Rules Explained
C Incoterms: Main Information
The ‘C’ group of Incoterms (CPT, CIP, CFR, and CIF) signifies that the seller pays for the main carriage. However, a crucial characteristic of this group is that the transfer of cost and the transfer of risk occur at different locations.
CPT and CIP Incoterms
CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To) are Incoterms designed for any mode of transportation (multimodal), including air, rail, road, and sea. They are often used for planes, trains, and trucks.
Key Characteristics of CPT and CIP
The seller’s and buyer’s obligations regarding cost and risk transfer are similar to those in CFR and CIF, but CPT and CIP are multimodal.
- Cost Transfer: The seller pays for carriage to the named place of destination.
- Risk Transfer: Risk passes from the seller to the buyer when the goods are delivered to the carrier hired by the seller at the agreed point of shipment.
The only difference between CPT and CIP is that in CIP, the seller pays for insurance to the named destination. CPT is often considered the best Incoterm for international road transport because the seller assumes the cost of transportation, but the buyer bears the risk during transit and must pay the seller even if the goods are damaged.
Seller’s Obligations (CPT and CIP)
The seller must deliver the goods to the carrier hired at the agreed point. It is important to be as precise as possible with the location. The seller pays for carriage (including main transport) to the place of destination.
Seller Costs Comparison: CPT vs. CIP
| CPT | CIP |
National Transport Export Clearance Bill/Air/Rail/Truck of Lading Air/Rail/Truck Freight Loading of Goods | National Transport Export Clearance Bill/Air/Rail/Truck of Lading Sea/Air/Rail Freight Loading of Goods Insurance (110%) |
Other Seller Obligations
The seller must provide notice to the buyer regarding the delivery.
Buyer’s Obligations (CPT and CIP)
The buyer’s obligations start when the seller’s obligations are over in terms of cost (e.g., internal transportation at destination, customs clearance for import, etc.). The buyer will have to pay everything after the seller’s delivery is completed.
Loading and Unloading Responsibilities
Important for exercises:
- The seller pays for loading the goods onto the carrier.
- The buyer pays for unloading the goods at the destination.
Insurance Requirements for C Incoterms
CPT Insurance
The seller has no obligation to provide insurance.
CIP Insurance Obligation
The seller has an obligation to provide insurance. The insurance requirement is minimum cover (Clause C). The buyer may pay for additional coverage (Clause B or A) if desired.
It is important that the insurance must be international, allowing the buyer to claim from their country (e.g., for wet products). The insurance will cover the price specified in the contract plus a ten percent (110% in total) in the currency of the contract.
Institute Cargo Clauses (ICC)
The insurance coverage is defined by the Institute Cargo Clauses:
Clause C (Minimum Cover)
Covers loss or damage due to:
- Fire and Explosion
- Stranding (running aground)
- Sinking
- Capsizing
- Overturning of a lorry or train
- Collision
- Total loss of vehicle
- General average sacrifice (general damage)
- Jettison (throwing cargo overboard)
Clause B (Intermediate Cover)
Covers the same as Clause C plus:
- Washing overboard
- Sea, Lake, River water damage
- Total loss of package during loading/unloading
Clause A (All Risks Cover)
Covers the same as Clause B plus:
- Rainwater damage
- Malicious damage (intentional damage)
- Breakage (rupture)
- Partial loss
- Shortage
- Pilferage and Theft (robbery)
Insurance Calculation Formulas
The following formulas are used in certain insurance calculations:
I = 1 – ( i x S)
I = 1 – ( i x 1.1)
Increase % = (I2 – I1) / I1
CFR and CIF Incoterms (Sea and Inland Waterway)
CFR (Cost and Freight) and CIF (Cost, Insurance, and Freight) are used strictly for sea and inland waterway transport. The seller’s and buyer’s obligations regarding cost and risk transfer are similar to CPT and CIP.
Key Characteristics of CFR and CIF
The seller must contract and pay the costs of main transport (vessel) and pay the freight, including all port duties involved. The seller must deliver the goods on board the vessel at the port of shipment at the date or period agreed.
- Risk Transfer: The risk of loss or damage to the goods passes when the goods are on board the vessel.
- Cost Transfer: The seller pays for the main transportation, but bears no risks during this time. Once the goods arrive at the port of destination, the buyer bears the costs.
The only difference between CFR and CIF is that in CIF, the seller must add insurance to the final selling price.
Main Costs for the Seller: CFR vs. CIF
| CFR | CIF |
National Transport Export Clearance THC ISPS T-3 Rate Security Seal Loading of the Goods Bill of Lading Sea Freight BAF (Fuel Surcharges) CAF (Currency Adjustment Factor) | Total Costs (CFR) National Transport Export Clearance THC ISPS T-3 Rate Security Seal Loading of the Goods Bill of Lading Sea Freight BAF CAF Insurance (110%) |
Cost Components Defined
The costs listed above often include:
- THC: Terminal Handling Charges
- ISPS: International Ship and Port Facility Security Code charges
- T-3 Rate: Port specific tariff/rate
- BAF: Bunker Adjustment Factor (fuel surcharges)
- CAF: Currency Adjustment Factor