Lesson 6 - CPT and CIP part 1 - where does delivery occur and risk transfer?

Summary

In this lesson on Incoterms 2020, Bob Ronnie explores the complex rules of CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To), focusing on key elements such as delivery, transfer of risk, transport documents, and cost allocations. He clarifies common misconceptions, especially regarding delivery points and the timing of risk transfer. The lesson delves into the seller’s and buyer’s responsibilities, highlighting the importance of clear contract terms and effective risk management in international trade. Ronnie's decades of experience provide valuable insights beyond standard textbook explanations.

Takeaways

• 😀 The lesson focuses on understanding Incoterms 2020, particularly CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To), with an emphasis on key delivery and cost allocation concepts.
• 😀 Bob Ronnie, an expert with over five decades of experience, is providing insights into these rules, and the content is not intended as legal advice.
• 😀 Delivery under CPT and CIP does not mean shipment or arrival at the destination, but rather the moment the seller hands goods over to the carrier.
• 😀 In CPT and CIP, risk transfers to the buyer at the moment of delivery to the carrier, not when the goods reach the destination.
• 😀 The buyer is responsible for receiving the goods from the carrier at the agreed destination place, but they are often unaware of who the carrier is and when the delivery occurs.
• 😀 Under CPT and CIP, the seller must provide a transport document that confirms the delivery and allows the buyer to claim the goods, enabling possible resale in transit.
• 😀 The transport document provided by the seller does not have to include the time and place of delivery but must enable the buyer to collect goods from the carrier.
• 😀 In terms of cost allocation, the seller covers all expenses up until the point of delivery to the carrier, including transport and loading costs, but the buyer assumes responsibility after delivery.
• 😀 The buyer must cover the costs related to unloading the goods, terminal handling charges, storage, and any delays caused by failure to clear goods for import.
• 😀 The contract should clearly state that terminal handling charges and storage costs after arrival at the destination terminal are the buyer's responsibility, especially if delays occur.
• 😀 Future lessons will address the insurance aspects of CIP, notices, and issues related to letters of credit in the context of CPT and CIP.

Q & A

What is the focus of lesson number six in the 'Understanding Incoterms 2020' course?

Lesson number six focuses on two Incoterms: CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To). It delves into their complexities, especially related to delivery, taking delivery, and transport documents.

What does the instructor clarify about the definition of 'delivery' under Incoterms 2020?

The instructor clarifies that delivery does not mean shipment or arrival at the destination. It occurs when the seller hands over the goods to the carrier, which shifts the risk of loss or damage to the buyer at that moment, not upon arrival at the destination.

What are the two options for the seller's delivery location under CPT?

The two options for the seller’s delivery location under CPT are: (a) at the seller’s premises, where goods are loaded onto the collecting vehicle, and (b) at the carrier’s premises, where the goods are not unloaded from the seller's vehicle.

How does the transfer of risk work between the seller and the buyer in CPT and CIP?

In both CPT and CIP, the risk transfers from the seller to the buyer at the moment of delivery when the goods are handed over to the carrier. This means that the buyer assumes responsibility for any loss or damage once the goods are with the carrier, not upon arrival at the destination.

What does 'taking delivery' mean for the buyer under CPT and CIP?

Under CPT and CIP, the buyer must take delivery of the goods when they have been delivered by the seller to the carrier and received from the carrier at the agreed destination place. The buyer must also be prepared to receive the goods even if they have no direct contract with the carrier.

What is the significance of transport documents in CPT and CIP?

In CPT and CIP, the seller must provide the buyer with the necessary transport documents, like bills of lading, at the seller’s cost. These documents enable the buyer to claim the goods from the carrier and, if necessary, sell the goods in transit.

How do transport documents affect the buyer's ability to sell the goods in transit?

Transport documents, particularly negotiable bills of lading, allow the buyer to sell the goods while they are still in transit. The buyer can transfer these documents to a subsequent buyer, which facilitates the sale of goods during the transportation process.

What are the seller’s obligations regarding costs under CPT and CIP?

The seller is responsible for all costs related to the goods until delivery is made, including transportation costs, unloading costs (if stipulated in the contract), and any necessary transport documents. The seller is also responsible for export clearance costs.

What costs are the buyer responsible for under CPT and CIP?

The buyer is responsible for all costs from the moment the goods are delivered to the carrier, including transit and unloading costs (unless specified as the seller's responsibility). The buyer must also cover import clearance costs, duties, taxes, and any additional charges arising from delays or failure to comply with the agreed timelines.

How does the course explain the relationship between Incoterms 2020 and letters of credit?

The course points out that there are issues with CPT and CIP in relation to letters of credit, particularly regarding the requirements for transport documents and the timing of the delivery. The instructor hints at these challenges without going into specifics until the next lesson.