Incolearn – Learning more about Incoterms 2000

COST AND FREIGHT (CFR) PART III – The Buyer'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 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. 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 obligations that the buyer might need to fulfil in terms of Cost and Freight: (1) the payment of the price; (2) licences, authorisations, and formalities; (3) contracts of carriage and insurance; (4) taking delivery; (5) transfer of risks; (6) division of costs; (7) notice to the seller; (8) proof of delivery, transport documents or equivalent electronic message; (9) inspection of goods; and (10) other obligations. The payment of the price requires the buyer to pay the price stipulated in the contract of sale. In respect of the licences, authorisations and formalities, the buyer is required at his own risk and cost to obtain such documentation and authoristion, and where applicable carry out all customs formalities for the import of the goods and for their transit through any country. The buyer has no obligation in respect of the contracts of carriage and insurance. The buyer must take delivery of the goods when they have been delivered in accordance with the contract of sale, and receive them from the carrier at the named port of destination. As for the transfer of risks, the buyer bears all risks of loss of or damage to goods from the time that they pass the ship’s rail at the port of shipment. In relation to the division of costs the buyer is responsible for all costs relating to their delivery, all costs relating to the goods whilst in transit until their arrival at the port of destination, all unloading costs, and, where applicable, all duties, taxes and other charges as well as the costs for carrying out customs formalities. The buyer must, if entitled by the contract of sale, give sufficient notice to the seller of time for the shipping of the goods and the port of destination. As for the proof of delivery, transport documents or equivalent electronic message, the buyer must accept the transport document in conformity with the contract of sale. The buyer must pay all costs such as pre-shipment inspection in respect of the inspection of goods. As for other obligations, the buyer must pay all costs incurred to obtain the relevant documentation and also reimburse the seller for any costs incurred in rendering such assistance. Next week’s column will provide a summary of the Cost and Freight (CFR) term.