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What is CFR? Cost and Freight Incoterms 2020 explanation

What is CFR incoterms 2020

What is CFR? – CFR incoterms 2020 (Cost and Freight) is the latest version of CFR ICC’s Incoterms. Cost and Freight is belong to group C (Main Carriage Paid), the seller concludes a transport contract with the forwarder and takes the costs. In this case, the seller is responsible for conducting export clearance. The risk is transferred at the time of posting the goods to the buyer. All matters arising after loading costs related to transporting and other events are the buyer’s responsibility. Group C includes the following Incoterms rules: CFR, CIF, CPT, and CIP.

What is CFR – Cost and Freight?

Cost and Freight means that the seller delivers the goods to the buyer

  • On board the vessel
  • Or procures the goods already so delivered.

The risk of loss of or damage to the goods transfers when the goods are on board the vessel, such that the seller is taken to have performed its obligation to deliver the goods whether or not the goods actually arrive at their destination is sound condition, in the stated quantity or, indeed, at all. In CFR, the seller owes no obligation to the buyer to purchase insurance cover: the buyer would be well-advised therefore to purchase some cover for itself.

The Incoterms 2020 CFR rule is to be used only for sea or inland waterway transport. Where more than one mode of transport is to be used, which will commonly be the case where goods are handed over to a carrier at a container terminal, the appropriate rule to use is CPT rather than CFR.

In CFR, two ports are important: the port where the goods are delivered on board the vessel and the port agreed as the destination of the goods. Risk transfers from seller to buyer when the goods are delivered to the buyer by placing them on board the vessel at the shipment port or by procuring the goods already so delivered. However, the seller must contract for the carriage of the goods from delivery to the agreed destination.

Thus, for example, goods are placed on board a vessel in Shanghai (which is a port) for carriage to Southampton (also a port). Delivery here happens when the goods are on board in Shanghai, with risk transferring to the buyer at that time; and the seller must make a contract of carriage from Shanghai to Southampton.

While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk transfers to the buyer. If the shipment port is of particular interest to the buyer, as it may be, for example, where the buyer wishes to ascertain that the freight element of the price is reasonable, the parties are well advised to identify it as precisely as possible in the contract.

The parties are well advised to identify as precisely as possible the point at the named port of destination, as the costs to that point are for the account of the seller. The seller must make a contract or contracts of carriage that cover the transit of the goods from delivery to the named port or to the agreed point within that port where such a point has been agreed in the contract of sale.

It is possible that carriage is effected through several carriers for different legs of the sea transport, for example, first by a carrier operating a feeder vessel from Hong Kong to Shanghai, and then onto an ocean vessel from Shanghai to Southampton.

The question which arises here is whether risk transfers from seller to buyer at Hong Kong or at Shanghai: where does delivery take place? The parties may well have agreed this in the sale contract itself. Where, however, there is no such agreement, the default position is that risk transfers when the goods have been delivered to the first carrier, i.e. Hong Kong, thus increasing the period during which the buyer incurs the risk of loss or damage. Should the parties wish the risk to transfer at a later stage (here, Shanghai) they need to specify this in their contract of sale.

If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs separately from the buyer unless otherwise agreed between the parties.

CFR requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.

CFR – Cost and Freight’s Cost and obligation

Blue: Cost/ Yellow: Risk/ Orange: Insurance

INCOTERMS 2020 CFR

Using Incoterms 2020 CFR the seller bears costs

  • Tax costs in the country where the goods were manufactured;
  • Port charges at the port of departure;
  • Costs of transporting goods to the port;
  • Costs of obtaining an export license;
  • Customs duties and taxes in the country of departure;
  • Costs of goods quality control, weighing, measuring and counting the goods, which is necessary before loading the goods onto the vessel;
  • Costs of providing the transport documents issued to the port of destination and its electronic copy;
  • Transit costs that were on the seller’s account under the contract of carriage;
  • Costs of security clearance for export, as well as safe and appropriately labeled packaging of the goods.

Main obligations of the seller

  • Seller is responsible of loading at the starting point of transport.
  • He has to make a contract for carriage.
  • Seller delivers the goods on board the vessel along with a commercial invoice in the place indicated by the buyer, as well as bears the costs related to it.
  • Seller controls the quality of goods, weighs, measures and counts the goods – necessary before loading the goods onto the ship.
  • He is responsible of safe packaging of goods necessary for transport to avoid unnecessary risk.
  • Seller operates according to all transport-related security requirements for transport to the destination.
  • He provides a transport document issued to the destination port of the goods and its copy in electronic form.
  • He provides information to the buyer at his expense and risk needed to obtain insurance.

The buyer bears the cost

  • Tax costs in the destination country;
  • Insurance costs during transport;
  • Transport costs from the home port to the main office;
  • The costs of obtaining the import license necessary for the transaction and the costs related to import clearance;
  • Customs charges in transit countries and in the destination country;
  • Charges resulting from a pre-shipment inspection of goods, unless this is required in the country from which the goods are shipped;
  • The cost of notifying the seller of the required shipping date and port of destination;
  • All charges related to transit, unless stated otherwise in the contract of carriage;
  • Unloading costs, unless stated otherwise in the contract of carriage.

Main obligations of the buyer

  • The buyer takes up the delivery at the time and place specified in the contract.
  • He transports the goods from the named port of destination to the main office and unloading at the port.
  • The buyer informs the seller about the port of destination and date of delivery.
  • The buyer obtains the import license necessary for the transaction and bears the costs of carrying out customs clearance.
  • He has to carry out pre-shipment controls of the goods (if it is required in the country from which the goods are shipped).

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Source: Shiphub

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