Cost and Freight (CFR) is an Incoterm that outlines the seller’s responsibilities for delivering goods to a specific port, covering the costs of transportation to the port of destination. Under CFR terms, the seller’s obligations are fulfilled when the goods are on board the vessel, and from that point onward, the buyer assumes all responsibilities, costs, and risks associated with the shipment.
Key Aspects of CFR Incoterms
Let’s delve into the key aspects that define CFR Incoterms:
1. Delivery Point:
CFR terms stipulate that the seller must deliver the goods to a designated port, typically the port of destination. The exact port should be clearly identified in the sales contract. This is a pivotal point, as it marks where the seller’s responsibility for the goods concludes.
2. Transportation Responsibility:
Under CFR, the seller is responsible for arranging and paying for the main carriage (transportation) of the goods to the agreed-upon port of destination. This can encompass various modes of transport, including sea freight, and it is crucial that the seller selects an appropriate carrier.
3. Risk Transfer:
The critical juncture in a CFR transaction is when the goods are loaded onto the vessel. At this juncture, the risk of loss or damage to the goods shifts from the seller to the buyer. Thus, it is essential to specify when and where loading takes place.
4. Costs:
CFR terms require the seller to cover the costs associated with delivering the goods to the agreed-upon port of destination. However, the seller is not responsible for any subsequent costs, such as unloading, customs clearance at the destination port, or inland transportation once the goods have arrived.
5. Applicability:
CFR terms are versatile and are often employed in scenarios where the buyer is comfortable handling responsibilities and costs related to customs clearance, unloading, and further transportation upon arrival at the destination port.
Advantages and Considerations of CFR Incoterms
Understanding the advantages and considerations of using CFR Incoterms is vital for both buyers and sellers:
Advantages:
- Clear Responsibility: CFR provides a clear allocation of responsibilities. Sellers are responsible for ensuring that the goods are on board the vessel, while buyers take charge of unloading, customs clearance, and inland transportation.
- Cost Control: Buyers have significant control over shipping costs, including the choice of carriers and optimization of shipping schedules.
- Flexibility: CFR permits buyers to select carriers and shipping schedules that align with their needs and cost objectives.
Considerations:
- Risk Management: Buyers must bear the risk associated with transportation once the goods are on board the vessel. This necessitates arranging appropriate insurance coverage.
- Expertise Required: Buyers should possess the requisite knowledge and capabilities to manage international shipping logistics, customs procedures, and inland transportation.
- Communication: Transparent communication between the parties is critical to prevent misunderstandings about loading locations and the juncture at which responsibilities and risks are transferred.
CFR Incoterms, or “Cost and Freight,” offer a well-defined framework for international trade transactions involving goods delivered to a designated port with the seller covering the costs of transportation to that port. While it places greater responsibility on the buyer for unloading, customs clearance, and further transportation, it also provides flexibility and opportunities for cost management. Effective utilization of CFR hinges on clear communication and a comprehensive understanding of roles and responsibilities by both parties, ensuring a seamless and efficient international trade transaction.
Seller’s Responsibility Under CFR
- Delivery of goods
- Preparing invoices and documents
- Packaging and marking
- Transportation of the goods in the country of origin
- Customs handling fees in the country of origin
- Charges in the country of origin
- Proof of delivery
- Customs formalities and export licenses
Buyer’s Responsibility Under CFR
- Goods payment according to the sales contract
- Customs formalities and import licenses
- Charges in the destination country
- Transportation of the goods in the destination country
- Customs handling fees in the destination country
- Payment of taxes and duties
Cargo Insurance in CFR
Despite the fact that Incoterms regulations do not require cargo insurance under Cost & Freight incoterm, it is strongly advised that international ocean freight shipments have insurance. The shipments may be wholly covered by a single policy purchased by either the buyer or the seller, or by two separate policies issued by both the buyer and seller to cover their respective duties.
When negotiating your sales contract, make sure the insurance terms and conditions are fully stated and described.
