Learning more about Incoterms®2010

Cost and Freight
or CFR (named
port of destination)
Incoterms®2010 is the
tenth of eleven Incoterms
(it is always plural) for
the class “Rules for Sea
and Inland Waterway
Transport”. According to
the International Chamber
of Commerce (ICC),
in “the second class of
Incoterms®2010 rules, the
point of delivery and the
place to which the goods
are carried to the buyer
are both ports, hence
the label ‘sea and inland
waterway’ rules”.
The other
Incoterms®2010 that
belong to the second
class of Incoterms®2010
are Free Alongside
Ship (FAS), Free on
Board (FOB), and Cost
Insurance and Freight
(CIF). According to the
ICC, CFR, at a named
port of destination,
means that “the seller
delivers when the goods
are on board the vessel
or procures the goods
already so delivered. The
risk of loss or of damage
to the goods passes when
the goods are on board
the vessel. The seller
must contract for and
pay the costs and freight
necessary to bring the
goods to the named port
of destination”.
According to the ICC’s
“Guidance Note”, in
instances where CFR,
Carriage Paid to (CPT),
Carriage and Insurance
Paid to (CIP), or Cost
Insurance and Freight
(CIF) are used, the seller
fulfils his obligation when
he hands over the goods
to the carrier, as specified
in the contract of sale.
The Rule has two
critical points, since the
risk passes and the costs
are transferred at different
places. The ICC advises
that contracting parties
should precisely identify
the point at the agreed
port of destination, the
reason being that the costs
to that point are for the
seller’s account. The ICC
further advises the seller
to procure his contracts
of carriage to match this
choice precisely. The
word, “procure” refers to
multiple sales down the
chain ie, string sales.
The ICC “Guidance
Note” cautions that CFR
may not be appropriate
where goods are handed
over to the carrier before
they are on board the
vessel. In addition, CFR
requires the seller of the
goods to clear them for
export, where applicable.
In the next issue we
will define the eleventh
and last Incoterms – Cost
Insurance and Freight
(CIF).