This is what you should know about Incoterms CPT and CIP in foreign trade

In 1935 International Chamber of Commerce (ICC) published for the first time a set of international rules for the interpretation of commercial terms.

Over the years, they have undergone changes and additions (1953, 1967, 1976, 1980, 1990, 2000 and the latest 2020).

  • Incoterms are expressions used in International trade define the obligations and responsibilities assumed by the buyer and the seller of the product.

And, within international negotiations, each country has different commercial interpretationswhich may lead to misunderstanding during foreign trade operation.

Incoterms were created with the aim of avoiding these confusions, since they establish rules at an international level and allow us to determine:

  • Price range
  • At what time and where does the risk of the goods transfer from the seller to the buyer?
  • Place of delivery of goods
  • The person in charge of hiring and paying for transportation
  • The person in charge of contracting and paying insurance
  • Documents processed by each party and their cost

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Differences between Incoterms CPT and CIP

Within the framework of these conditions of purchase and sale in foreign trade, There are several types of Incoterms:

  • CPT: Carriage paid to. That is, the seller will be responsible for delivering the goods to the agreed destination and paying for transportation.
  • CIP: Carriage and insurance paid to. Namely, on this occasion the seller will be responsible for the delivery of the goods to the agreed place, as well as for the costs of international transport and insurance.

However, they are not used the most for import. The most commonly used types are CIF and FOB. It should be noted that their scope has not changed in the 2020 version, except in relation to the CIF insurance policy. Here is a brief description of both:

  • FOB Incoterm (Free on board) – Free on board, named port of loading: Under this rule, the seller’s liability ends when the goods are loaded onto the ship at the named port of shipment. From this moment on, the buyer bears all costs and possible risks of loss and damage to the goods.
  • CIF Incoterm (Cost, Insurance and Freight) – Cost, insurance and freight, named port of destination: This Incoterm implies that the seller delivers the goods when they pass the ship’s rail at the agreed port of shipment. In this case, the seller must pay the costs and freight required to transport the goods to the specified port of destination.

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