Incolearn – Learning more about Incoterms 2000

COST AND FREIGHT (CFR) PART II
– Seller's Obligations 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 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. 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. Professor Jan Ramsberg, the chairman of the ICC Working Party on Trade Terms, identified ten (10) obligations that the seller might need to fulfil in terms of Cost and Freight: (1) the provision of goods in conformity with the contract; (2) licences, authorisations, and formalities; (3) contracts of carriage and insurance; (4) delivery; (5) transfer of risks; (6) division of costs; (7) notice to the buyer; (8) proof of delivery, transport documents or equivalent electronic message; (9) checking, packaging, marking; and (10) other obligations. The provision of goods in conformity with the contract implies that the goods and the commercial invoice or its equivalent electronic message or any other documentation stipulated in the contract of sale must be provided. In respect of the licences, authorisations and formalities the seller must, at its own risk and expense, obtain any export licence or any other authorisation, and carry out all customs formalities necessary to export the goods. In respect of the contract of carriage the seller must contract on the usual terms and at his own expense, while he has no obligation in respect of the contract of insurance. As for the delivery of the goods, the seller must deliver the goods on board the vessel at the port of shipment on the date or within the agreed period. When dealing with the transfer of risks the seller bears all risks for loss or damage to the goods until they have passed the ship’s rail at the port of shipment. In relation to the division of costs the seller must pay all the costs relating to the goods up to their delivery, including the freight and all other costs including the loading of the goods on board, and where applicable, all costs of customs formalities necessary for export and for their transit through any country. The latter applies if it is stated that it is for the seller’s account under the contract of carriage. The seller must give sufficient notice to the buyer that the goods have been delivered in accordance with the contract of sale. In respect of the proof of delivery, transport documents or equivalent electronic message, the seller must at his own expense provide the buyer with the usual transport document at the agreed port of destination. Depending on the stipulations in the contract of sale the checking, packaging, marking costs are for the seller’s account. As for other obligations, the buyer may request the seller’s assistance with information in respect of the goods and the export requirements, and for procuring insurance. Next week’s column will focus on the buyer’s obligations under Cost and Freight (CFR).