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 International Chamber of Commerce (ICC) the tenth Incoterms – Cost and Freight (CFR), at a named port of destination, means that “the seller delivers when the goods 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 contact 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 its obligation when it 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 its contracts of carriage to match this choice precisely. The word, “procure” references multiple sales down the chain i.e. string sales. The ICC “Guidance Note” reminds that CFR may not be appropriate where good are handed over to the carrier before they are on board the vessel. In addition, CFR require the seller of the goods to clear it for exports, where applicable. In next week’s issue we will define Cost and Freight (CFR) – The Seller’s Obligations.