FCA, CPT, CIP: transitional delivery terms
The delivery terms FCA, CPT and CIP are Incoterms 2020 bases in which the seller hands the cargo to the carrier and is no longer responsible for its safety, even if the seller paid for the delivery itself.
The key difference between them is one thing: FCA leaves the main carriage to the buyer, CPT has it paid by the seller, and CIP adds mandatory insurance to that. In all three cases the risk passes early — at the moment of handing over to the carrier, not at the buyer's warehouse.
FCA: handing over to the carrier
FCA — Free Carrier. The seller hands the cargo to the carrier hired by the buyer at the named place. If that is the seller's premises, the seller also loads the metal into the transport provided. If the place is different — a terminal, the carrier's warehouse, a yard — the seller brings the cargo and hands it over ready for unloading, but does not unload it itself.
The risk passes at the moment of handover. After that the buyer is responsible for the batch, even if the carrier was accidentally chosen by the seller at the counterparty's request. That is why in the order and the contract it is important to specify not only the city but the exact point: "FCA Kazan" and "FCA terminal in Kazan" are different costs for delivery to the terminal and loading.
FCA is convenient when the buyer has its own carrier and its own delivery schemes, and the seller does not want to get involved in logistics. Compared with EXW, FCA has one important advantage: the seller handles the export formalities itself, and the buyer does not have to deal with this issue in a foreign country.
CPT: the seller pays for the carriage
CPT — Carriage Paid To. The seller concludes the contract of carriage and pays for delivery to the named place, but the risk passes at the moment the cargo is handed to the first carrier. This is the main trap of the basis: the costs rest on the seller until the end of the route, while responsibility for damage is already on the buyer almost from the very start.
If the cargo is lost in transit, the buyer files a claim against the carrier or the insurer, not the seller. The seller is obliged to hand the transport documents to the buyer so that the latter can collect the cargo and make claims.
CPT applies to any mode of transport and to multimodal carriage, including container shipments. For steel products this is often the most practical option: the seller ships the batch to the terminal and pays the freight to the required city, while the buyer unloads and stores the metal itself.
CIP: CPT plus insurance
CIP — Carriage and Insurance Paid to. The scope of obligations coincides with CPT, but the seller additionally buys cargo insurance for the duration of carriage. The insurance is taken out in favour of the buyer, so in the event of damage or loss the buyer receives the payment instead of looking for the seller.
In Incoterms 2020 the insurance requirements under CIP were tightened: by default a broad-coverage policy is required, not a minimum one. Under CIF, which applies only to sea carriage, the basic insurance remained minimal. If the parties want a different scope of cover, they set it out directly in the contract.
| What | FCA | CPT | CIP |
|---|---|---|---|
| Main carriage | buyer | seller | seller |
| Cargo insurance | on the buyer | not obligatory | broad-coverage policy obligatory |
| Where risk passes | on handing to the carrier | on handing to the first carrier | on handing to the first carrier |
| Export formalities | seller | seller | seller |
| Import formalities | buyer | buyer | buyer |
| Modes of transport | any | any | any |
The difference between CPT and CIP is visible only at the moment of a problem. While the cargo moves normally, the bases look identical. When the batch is damaged, under CPT the buyer deals with the insurer itself, while under CIP the policy has already been taken out by the seller.
How to choose the delivery terms FCA, CPT, CIP
Calculate not the price but the distribution of work. If the buyer has a carrier and wants to control the route, take FCA. If the seller can organise delivery more cheaply because it ships regularly and knows carriers — CPT. If the buyer does not want to deal with insurance, or the batch is expensive and complex — CIP.
Two more criteria: who handles the import formalities and who pays for the last mile. Under all three bases the import is closed by the buyer. The last mile under FCA is on the buyer; under CPT and CIP the seller delivers to the named place but does not unload.
The basis and the mode of transport are set in the order before matching and enter the trade without renegotiation. That means the choice must be made before the order is published: it will not be possible to change FCA to CIP after matching.
Frequently asked questions
FCA decoded
Free Carrier. The seller hands the cargo to the buyer's carrier at the named place and completes the export formalities. After that the risks and costs are on the buyer.
What CPT delivery terms mean
Carriage Paid To: the seller pays for carriage to the named place, but the risk passes when the cargo is handed to the first carrier. Import formalities and unloading are on the buyer.
How CPT differs from CIP
Only in insurance. Under CPT the seller is not obliged to insure the cargo; under CIP it is obliged to buy a broad-coverage policy in favour of the buyer. The point at which risk passes is the same for both bases.
Where risk passes under FCA
At the moment the seller has handed the cargo to the carrier at the agreed place. If the place is the seller's premises, the risk passes after loading into the transport provided.
FCA or EXW: what to choose
FCA is more advantageous for the buyer: the seller handles the export formalities itself, and the buyer does not work with the customs of a foreign country. EXW leaves both the removal from the warehouse and the export to the buyer.
Is CIP obligatory for steel products
No, the basis is chosen by the parties. CIP makes sense when the batch is expensive or the route is complex, and the buyer does not want to arrange the insurance itself.
Who pays for unloading under CPT and CIP
The buyer. The seller delivers the cargo to the named place and hands it over unloaded, unless the contract states otherwise.
What to do next
- Incoterms 2020 — all eleven terms and the logic of choosing them.
- DDP: the seller is responsible up to the buyer's warehouse — a basis where the seller closes the import too.
- FOB: where the seller's responsibility ends — a sea basis for comparison.
- CIF: price with delivery and insurance — the sea analogue of CIP.
- How the exchange works — how the delivery basis is fixed in an order.