CPT vs CIP: Carriage Paid Terms and the Insurance Gap

A crate of machined parts is quoted "CPT Pune ICD", the seller books the ocean and rail legs, and the buyer assumes that whoever pays the freight also carries the risk. Then a forklift tine punctures two crates at the transshipment yard. The seller points to the contract, the buyer points to the freight invoice, and nobody holds a policy that names the cargo. The carrier offers a few thousand dollars against a loss worth eighty.

That is the insurance gap in CPT, and it is the only real difference between CPT and CIP under Incoterms 2020. Read correctly, the two rules give the same delivery point and the same freight split; CIP adds one obligation, a cargo policy at Institute Cargo Clauses (A) for at least 110% of the contract price. Knowing where that obligation starts and stops tells you which term to quote and what to check before dispatch.

• What this guide covers: the shared risk point, the CIP insurance article line by line, carrier liability ceilings in the US and India, customs value effects at both ends, contract wording and the order-entry checks that stop an uninsured CPT shipment leaving the dock.
• What it adds: a worked shipment each way in dollars and rupees, a break-even formula for deciding whether the seller or the buyer should buy the cover, and a quoting checklist.

One handover point, two very different insurance promises

Under both CPT and CIP, risk passes to the buyer when the seller hands the goods to the carrier it contracted, not when they reach the named destination. The seller still pays carriage to that destination. CIP differs only because article A5 makes the seller buy cargo insurance for the buyer's benefit; under CPT, nobody is obliged to insure.

ICC's own guidance on choosing between CPT and CIP calls the risk point "often misunderstood". Freight paid to Chicago or Pune feels like responsibility to Chicago or Pune, but the rule text in A2 and A3 is plain: delivery happens by handing the goods to the carrier, and the seller bears risk only until delivery. Everything that goes wrong on the main voyage is the buyer's loss to absorb or insure.

Our EXW versus FCA comparison deals with the other end of the scale, where the buyer arranges the main carriage. With CPT and CIP the seller controls the booking, so the seller also controls the evidence a claim depends on: the carrier's receipt, the packing list and the transport document.

Where risk leaves the seller when several carriers share the route

When the route uses more than one carrier, risk passes at handover to the first one, unless the contract names a later point. A US exporter quoting "CPT Pune ICD" from a plant in Ohio therefore transfers risk when the trucker collects the crates at the plant gate, not at the US port, the Indian port or the inland container depot.

The ICC rule text lets the seller choose the delivery point that best suits its purpose if the parties never agreed one. Buyers rarely notice that this puts the inland truck leg, the US terminal and the full ocean voyage on their side of the line. Sellers rarely notice that it puts them on the hook for a carriage contract to Pune that they must perform, even after risk has passed.

Fix the handover point in the contract text. "CPT Pune ICD, delivery to first carrier at seller's dock, Mason, Ohio" leaves no room for argument; "CIP Pune ICD, risk to pass on loading on board at Port Newark" moves the point later, if both parties want that. A later risk point needs matching insurance on the seller's side for the inland leg, because the CIP policy is written for the buyer from delivery onward.

Reading CIP article A5 clause by clause before buying the policy

CIP A5 sets five testable conditions: the clause set, the amount, the currency, the duration and the person entitled to claim. A certificate that misses any one of them leaves the seller in breach of the sale contract, even if a policy exists and the premium was paid.

• Clause set: Institute Cargo Clauses (A) of the LMA and IUA, or similar clauses appropriate to the means of transport. Incoterms 2010 accepted the narrower Clauses (C) for CIP; Incoterms 2020 raised CIP to (A) while CIF stayed at (C).
• Minimum amount: the contract price plus 10%, so 110%, in the currency of the contract. A dollar contract insured in rupees fails the test even if the converted sum looks adequate.
• Duration: from the point of delivery in A2 to at least the named place of destination. Cover that ends at the discharge port fails a contract naming an inland depot.
• Who can claim: the buyer, or anyone with an insurable interest, must be able to claim directly from the insurer, and the seller must hand over the policy, certificate or other evidence of cover.
• Extra cover: war and strikes cover, if procurable, at the buyer's request and cost, which B9 charges to the buyer.

Under Incoterms 2020 CIP article A5, the seller's cargo policy must follow Institute Cargo Clauses (A) or similar clauses, insure at least 110% of the contract price in the contract currency, and run from first-carrier delivery to the named destination; a certificate covering 100%, or ending at the discharge port, fails the clause.

CPT A5 is short by comparison. The seller has no duty to insure, but must give the buyer, on request and at the buyer's risk and cost, information the buyer needs to buy cover. In practice that means the A10 dispatch notice with the container number, transport document number, sailing and value, sent early enough for the buyer's insurer to attach cover before the truck leaves.

How much a carrier pays when cargo is lost on the main leg

Without a cargo policy, recovery depends on the carrier's liability, which is capped well below invoice value for most manufactured goods. The gap between that cap and the invoice is the real exposure under CPT, and it falls on the buyer from the moment of handover.

For sea carriage to or from US ports, the US Carriage of Goods by Sea Act limits the carrier to $500 per package, or per customary freight unit, unless the shipper declared the nature and value before shipment and the declaration appears on the bill of lading. For carriage from ports in India, Article IV rule 5 of the Schedule to the Carriage of Goods by Sea Act, 2025 sets 666.67 Special Drawing Rights per package or 2 SDR per kilogram of gross weight, whichever is higher.

Package counting matters as much as the rate. India's Schedule counts the packages enumerated on the bill of lading as packed in a container; a bill that says only "1 x 40HC said to contain machinery" invites the argument that the container is the package. List crates and pallets on the transport document whichever term you use. The claim mechanics, from notice of loss to subrogation, are in our guide to the marine cargo insurance claim process.

Customs value at destination changes with the term you choose

The same goods carry a different duty base depending on where they land, and CPT versus CIP decides whether the insurance figure customs needs actually exists. The US strips international freight and insurance out of the price; India adds them in, and estimates insurance when the importer cannot show it.

Under 19 U.S.C. 1401a(b)(4)(A), the price actually paid or payable excludes costs for transportation, insurance and related services incident to the international shipment. A CIP Chicago invoice therefore needs its carriage and premium shown separately so the broker can deduct them. India's Customs Valuation Rules, 2007, rule 10(2), as substituted by Notification 91/2017-Customs (N.T.), include transport and insurance to the place of importation, and set insurance at 1.125% of FOB value when the actual cost is not ascertainable.

The last row is the quiet cost of CPT into India. An importer whose own open cover declaration is not attached to the bill of entry pays duty on a notional premium more than five times the real one. The fix is administrative: send the insurer's declaration number and premium with the clearance documents, or buy on CIP so the premium appears on the seller's invoice.

Indian import valuation under Customs Valuation Rules 2007 rule 10(2) adds insurance at 1.125% of FOB value when the importer cannot show the actual premium; on a CPT purchase with a $78,234 FOB value, that notional figure is $880 against an illustrative real premium of $166, so the declaration belongs with the bill of entry.

On the export side, the value reported in US Electronic Export Information is the value at the US port of export under 15 CFR 30.6(a)(17), so freight and insurance beyond the port are subtracted from a CIP or CPT price. Our note on shipping terms and revenue recognition covers the separate accounting question of when the seller books the sale.

A crushed pair of crates on a CPT shipment, minute by minute

The trace below follows an illustrative CPT shipment where the buyer intended to insure but its insurer never received the declaration. The failure is not the forklift; it is the four-day silence between dispatch and the buyer's first look at the documents.

1. Mon 06:40, Mason, Ohio: trucker signs straight bill BOL-55102 for 12 crates, 9,600 kg. Risk passes to the buyer under CPT A3. The seller's ERP posts goods issue on sales order SO-48817 but generates no A10 notice because the notice template is tied to CIP orders only.
2. Wed 14:15, Port Newark terminal: container MSKU 731004-2 loaded; ocean bill of lading NWK-0912 lists "1 x 40HC said to contain 12 crates". The buyer's insurer has no declaration, so no certificate exists.
3. Day 31, 09:30, Nhava Sheva: container transshipped to rail for Pune ICD; reach stacker damage noted on the equipment interchange receipt as "dent, left side panel".
4. Day 33, 11:05, Pune ICD: destuffing tally records two crates crushed, contents beyond repair, value $14,000. The buyer files notice with the carrier the same hour.
5. Day 34, 16:20, buyer's finance: the insurer declines because cover was never declared; the carrier offers $1,000 at $500 per crate. The buyer absorbs $13,000 and debits the seller, who refuses under the CPT risk clause.

Two controls would have changed the outcome: an automatic A10 delivery notice for every C-term order, carrying the BOL and container numbers, and a buyer-side rule that refuses to release payment against a CPT invoice until the insurance declaration reference is logged against the purchase order.

Contract wording that closes the gap before the cargo moves

Most CPT and CIP disputes trace back to three missing details: the precise delivery point, the policy terms if the buyer wants more than the A5 minimum, and the deadline for the certificate. Write all three into the sale contract and the purchase order acknowledgement, not just the quotation.

• Named place and point: state the destination and the handover point, for example "CIP Pune ICD, Incoterms 2020; delivery to first carrier at seller's dock, Mason, Ohio".
• Insurance clause for CIP: "Seller to insure on Institute Cargo Clauses (A) for 110% of invoice value in USD, from delivery under A2 to buyer's warehouse, Chakan; war and strikes cover at buyer's cost."
• Certificate timing: require the certificate or policy number with the commercial invoice, and before the payment trigger under any letter of credit or open account term.
• Insurance clause for CPT: "Buyer to insure from delivery under A2; seller to send the A10 notice with transport document, container and value data within four business hours of handover."
• Deductible and claims agent: name the claims settling agent at destination and agree who bears any policy excess, which A5 does not address.

Deciding whether the seller or the buyer should buy the cover

Choose CIP when the seller can buy compliant cover more cheaply or more reliably than the buyer, and CPT when the buyer already runs an open cover that attaches automatically. The decision is economic, not legal, and a simple expected-loss test makes it explicit.

The formula below compares the cost of insuring with the expected uninsured loss over a year's shipments on a lane. Inputs are lane-specific, and the loss probability should come from your own claims history or your broker's loss data, not a generic figure.

Insurance decision per shipment (illustrative inputs)

P   = premium = r x 1.10 x V
G   = uninsured gap on total loss = V - L
E   = expected uninsured loss = p x s x G

where
  V = contract price of the shipment
  r = premium rate quoted on the insured amount (e.g. 0.0018)
  L = carrier liability ceiling for the leg (COGSA $500 per package,
      or CoGS Act 2025 higher of 666.67 SDR/package or 2 SDR/kg)
  p = probability of a loss event on the lane (from claims history)
  s = average severity as a share of the gap (0 to 1)

Rule: insure (CIP, or CPT with buyer cover) when E > P.
Example: V = 84,000; r = 0.0018; L = 6,000; p = 0.01; s = 0.35
  P = 166.32 ; G = 78,000 ; E = 273.00  -> insure; E exceeds P by 106.68

The arithmetic usually favours insurance for manufactured goods, because the carrier ceiling covers a small share of value. It can favour self-insurance for dense, low-value cargo where the per-kilogram limit approaches invoice value, such as steel billets under India's 2 SDR per kilogram rule. Even then, write the choice down so the buyer knows nobody is insuring.

CPT versus CIP selection for a lane compares premium, calculated as rate times 110% of contract price, with expected uninsured loss, calculated as loss probability times severity times the gap above the carrier ceiling; with an illustrative $84,000 crate shipment, a 1% loss rate gives $273 expected loss against a $166 premium.

Where carriage-paid terms stop being the right tool

CPT and CIP fit containerised and multimodal shipments where the seller books the main carriage and hands goods over before the port. They fit poorly when the buyer wants the risk to stay with the seller until arrival, or when the cargo moves port to port in bulk.

For a wider view of how the eleven rules hand over freight, customs and audit duties between seller, broker and carrier, see our Incoterms 2020 handover matrix. That page maps responsibilities across all the rules; this one stays on the single question of who insures between first handover and destination under the two carriage-paid terms.

Order-entry checks the ERP enforces and calls the trade desk keeps

A few CPT and CIP checks are binary and belong in the order and dispatch screens; others need a person who can read a policy or a contract. Splitting them explicitly stops software from approving a certificate it cannot really evaluate.

An extraction tool that reads insurance certificates is worth having for volume, because the fields are predictable: insured amount, currency, clause set, voyage from and to, and assured name. It should never mark a certificate compliant on its own. Wording such as "subject to ICC (A) excluding theft" reads as (A) to a parser and as a material exception to a person.

Quoting checklist for carriage-paid shipments in both markets

Use the checklist below before issuing a CPT or CIP quotation, and again at dispatch. Every line names the document that proves the check was done, so an auditor or a claims adjuster can follow it later.

If your team is weighing an order-to-dispatch platform that enforces checks like these across sales, logistics and trade compliance, you can describe your lanes and terms through our request for proposal form. More comparisons of trade terms, transport documents and freight costs sit in the Logistics and Supply Chain library.