Incolearn – Learning more about Incoterms 2000

COST AND FREIGHT (CFR) PART 1 – Introducing Cost and Freight The International Chamber of Commerce (ICC) defines the fifth Incoterm, Cost and Freight (CFR), at a named port of destination, as “the seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination, but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer”. This term requires the seller to clear the goods for export. Cost and Freight is the first of four C-terms also known as the main carriage paid terms, the other being Insurance and Freight (CIF), Carriage Paid To (CPT), and Carriage and Insurance Paid To (CIP). It is important to remember that this term can be used only for sea or inland waterway transport. Should the parties not intend to deliver the goods across the ship’s rail then the CPT term should be used. According to Professor Jan Ramsberg, the chairman of the ICC Working Party on Trade Terms, the seller’s primary duty is to contract for carriage, to deliver the goods on board, to provide a clean transport document i.e. bill of lading or sea waybill, to arrange export clearance, and to pay unloading costs for his account under the contract of carriage. The buyer’s primary duty is to accept delivery of the goods upon shipment, to receive the goods from the carrier, and to pay costs that are not for the seller’s account under the contract of carriage. The documents required in terms of the contract of sale should be the commercial invoice, the transport document, and export licence if necessary. The other documents that could be considered for stipulation in the contract of sale could be any documents needed for the transit of the goods through any country or for import clearance. The three critical points of CFR are firstly, that the seller has to arrange the carriage, and secondly, that the risk transfers from the seller to the buyer when the goods pass the ship’s rail. Thirdly, the cost transfers at port of destination, with the buyer having to pay such costs, as it is not for the seller’s account under the contract of carriage. Next week’s column will focus on the seller’s obligation under Cost and Freight (CFR). INCOLEARN is prepared by Riaan de Lange of South African Tariff & Trade Solutions CC (SATTS), a lecturer in Economics at the University of Pretoria.