Incoterm – Cost and Freight (CFR)
Under Cost and Freight (CFR), the seller fulfills their obligation when the cargo is loaded on the carrier and cleared for export. The seller is responsible for covering the transportation costs until the final destination port. However, the transfer of risk occurs when the goods are on board.
CFR applies to both ocean and inland waterway transportation. The contract must specify the precise discharge port, while the loading port is optional. The buyer is responsible for the costs associated with unloading and import clearance.
A common transportation record is a Bill of Lading, which indicates the embarkation date. This document permits the buyer to convey ownership of the goods during shipment. It is customary to employ the Bill of Lading as evidence for transactions involving letters of credit or payments from the buyer to the seller.
In situations involving carriers with multiple legs and transshipment points, it is customary for the handover to occur at the initial loading port.
Choosing Cost and Freight
- If the seller is experienced in the shipping process because they deal directly with carriers, simplifying documentation and letters of credit.
- If you have frequent shipments to book, it is suggested to use CFR because it provides you with negotiation power.
- If sellers are granted direct vessel access, plus the goods are bulk or non-containerized cargo.
- If the goods originated from higher-risk countries.
Understanding the Responsibilities
Seller’s Responsibilities: Under CFR, the seller’s primary responsibility is to manage the entirety of the export procedure until the goods have arrived at the destination port.
Packaging
The seller must prepare the goods according to different origin's export packaging standards.
Carriage Loading Charges
When the goods depart from the seller's site, the seller is responsible for expenses encompassing any charges related to placing the cargo onto the initial carrier for its journey to the export location.
Delivery Charges
The seller is responsible for transporting goods to the agreed export location, including the fees involved in the process.
Duties, Taxes, and Custom Clearances
The seller is responsible for the export procedure, including the documentation preparation, expenses, and other examination processes.
Transportation Charges
The seller is responsible for the inland expenses from the seller's premises to the carriage, including costs like loading onto the truck.
Carriage Charges
The seller is responsible for covering all freight costs, specifically from the port of origin to the destination.
Terminal Charges
The seller is responsible for expenses at the origin terminals, including fees for loading shipment to the vessel and transporting it within the harbor.
Buyer’s Responsibilities: Once the goods have arrived at the destination port, buyers then pay for comprehensive charges, which include:
Duties, Taxes, and Custom Clearances
The buyer is responsible for the import procedure, including the documentation preparation, expenses, and other examination processes.
Unloading Charges
The buyer must cover charges for unloading at the destination from the final carrier.
Terminal Charges
The buyer is responsible for expenses at the destination terminals, including fees for unloading shipment from the destination vessel and transporting it within the harbor.
Transportation Charges
The buyer is accountable for the transportation charges from the point of the destination port to the final stop.
Insurance
While not obligatory, the buyer may opt to secure insurance for the shipment to protect against potential damages.
Please note that even though the seller is responsible for the freight cost of sending the goods to the destination port, the risk will fall on the buyer’s side once the goods are loaded on the carrier.
Pros and Cons for Buyers
Cost Efficiency
Buyers are relieved of sea transport freight concerns, reducing expenses.
Streamlined Process
CFR simplify international maritime trade, making it more accessible.
Cost and Responsibility Clarity
Buyer has a clear idea on each parties' responsible cost and duties.
Shared Risks
This applies for both sellers and buyers, including costs and export responsibilities for sellers and goods' conditions during marine transit for buyers.
Transport-related Risk
Buyers are responsible for any damage or loss during marine transit, while sellers cover only freight and associated costs.
Limited Applicability
CFR exclusively pertains to maritime logistics, excluding other modes of transport like air or land.
Unloading Risks
Buyers are accountable for unloading expenses and associated risks at the destination port, potentially incurring extra costs.
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