Incolearn – Learning more about Incoterms 2000

COST AND FREIGHT (CFR) PART V
– Summary and Conclusion 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”. Previously we introduced CFR and then considered the ten obligations that the seller and buyer might need to fulfil in terms of CFR, as stated by Professor Jan Ramsberg, chairman of the ICC Working Party on Trade Terms In accordance with the description of CFR, it can be used only for sea and inland waterway transport. If the parties do not intend to deliver the goods across the ship’s rail, the CPT term should be used. CFR is the first of the four C-terms also known as a main carriage paid term, the other being Insurance and Freight (CIF), Carriage Paid to (CPT), and Carriage and Insurance Paid to (CIP), requiring 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. In summary, 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 the unloading costs if for his account under the contract of carriage. The buyer’s primary duty is to accept the 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, transport document, and an export licence if necessary, and other 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 must arrange the carriage. Secondly, that the risk transfers from the seller to the buyer when the goods pass the ship’s rail. Thirdly, that the cost transfers at port of destination, with the buyer paying whatever costs are not for the seller’s account under the contract of carriage. Next week’s column will define the sixth Incoterm – Cost, Insurance and Freight (CIF).