The CFR Incoterms is a worldwide trade term employed globally. It is one of the recently analysed publications by the ICC under Incoterms 2020. CFR is an abbreviated form of Cost and Freight terms, particularly used for ocean and sea freight shipments and, more accurately, employed for bulk and non-containerised consignment. For containerised consignment, one may utilise the CPT (Carriage Paid To) Incoterms.
Under Cost and Freight shipping terms, however, the seller is liable till the designated place of port. After that, the goods’ risk is shifted to the buyer once the goods are laden onboard, i.e., prior to shipment proceeding. The buyer is accountable for all payments after the consignment port, involving insurance of the goods. (1)
What are CFR Incoterms?
CFR Incoterms (Cost and Freight) rule is one of the eleven Incoterms described by the International Chamber of Commerce (ICC). Under Cost and Freight, the supplier furnishes their responsibility by shipping the goods onboard the container and paying the transportation charges to the destination port. The risk goes to the buyer once the items are laden onto the ship.
CFR Incoterms agreement is beneficial when the exporter complies with arranging and covering the main carriage charges up to the location port. (2)
What are Shipping Terms in CFR?
- The seller is accountable for the goods’ delivery to the designated port.
- The goods’ risk is exchanged at the initial port (i.e., the exporting or shipping country’s port).
- The buyer executes the carriage and insurance proceedings.
- The buyer carries all costs after the target port.
What are Seller’s Responsibilities?
Cost
Charges borne by the seller are:
- Maintenance costs for holding items in the warehouse.
- Inland costs for loading products and taking them to the destination port.
- Depot payments for terminal dealings and duty fees.
- Documentation costs for arranging all the essential documents.
- Export customs duties are used to carry out customs transactions.
- Freight charges are imposed for sending goods via the shipping procedure to the destination port.
Freight
The seller reimburses freight costs in CFR Incoterms. He stays responsible for the inland shipment from the storehouse or warehouse to the primary port. That means the shipping country’s port and afterwards for the carriage transaction from the initial port to the second port, which is the receiving country’s port.
Risk Transfer
Since the seller is responsible for the shipment of goods to the destination port, he is not liable for the goods’ risk after the primary port. The goods’ risk is then shifted to the buyer as soon as they are laden onboard by the seller.
As such, any additional charges imposed on the items because of ignorance or delays, for example, unforeseen taxes, shipping demurrage costs, etc, are to be carried by the importer.
Insurance
Generally, the seller has no responsibility for insurance. Though he is liable for the delivery, he is not obliged for insurance. Moreover, at the buyer’s risk, he may give his help to insurance or even execute the coverage process.
Customs Clearance
The seller will be accountable for export customs procedures. He has to administer all the required documents for export, such as commercial invoices, packing lists, bills of lading, etc. He will bear terminal charges and freight forwarding costs. Also, after the process, he will transfer those documents to the buyer to execute the freight dealings. (4)
What are Buyer’s Responsibilities?
Cost
Payments from the buyer’s end include the following:
- Insurance coverage: Since the complete coverage factor stays with him, he will carry the risk of goods. Import customs, such as payment for all taxes and duties at the destination port.
- Inland transit costs for shipment from the consigned port to the final destination.
Freight
The buyer has some activities to do in this procedure. He has to take off the goods at the harbour and load them for inland shipment till the final destination.
Risk Transfer
The risk of goods is shifted to the buyer as soon as the items are laden onboard by the seller at the initial port. Also, the coverage risk remains with the buyer as the primary phase of the trade procedure. If the buyer does not succeed in guiding the seller in the context of the delivery port, the loss or damage will be the buyer’s liability.
Insurance
As discussed, the buyer will pay for insurance in CFR Incoterms. He will be accountable for the items just from the location of origin. He could take the seller’s help in the assessment process, but if the trade does not go as per the plan, the seller will not be accountable for covering any loss or damage.
Customs Clearance
Cost and Freight involve import customs charges, which the buyer carries. Once the seller delivers the goods at the assigned port, the goods’ unloading remains with the buyer. He will be responsible for all the import charges and taxes at the dock. Similarly, he will bear all the regional charges and depot costs.
When to Use CFR Incoterms?
The best uses for CFR Incoterms are in ocean freight and inland waterways. It is normally employed for massive consignments and non-containerised cargo when the seller has straight access to the container and the products are put directly onboard apart from a container terminal. If the goods must be shipped to a container terminal, Cost and Freight will not be usable.
Final Words
CFR Incoterms is not the simplest of the Incoterms rules to know. However, just like the others, whether or not it is the correct one to use will rely on the exact relationship between seller and buyer, in addition to the nature of the items themselves. If you are an exporter looking to sell your goods cross-border, you can do it effectively with Amazon Global Selling. It is an e-commerce export program that enables you to take your local business to an international audience flawlessly and takes care of all the procedures coming along the way.