CFR Incoterms 2010
CFR Incoterms 2010 means Cost and Freight.
As An Expert
CFR Incoterms 2010 discussion with renowned global trade expert Murdo Beaton and Abdul Mann, creator of the cloud-based export solution EdgeCTP.
Today we’ll be discussing CFR Incoterms including how and when to use it. So Murdo what is CFR Incoterms 2010 in?
The CFR Incoterms 2010 stands for Cost and Freight. This term is also a sea and inland waterway transport term. For this term the exporter is expected to bring the goods to a vessel appointed by the buyer and at a port appointed by the buyer, load the subject goods on board that vessel as in FOB. Then in addition to the FOB duties, engage with the carrier in the main contract of carriage from the port of loading to the port of destination in the destination market and secure the contract of carriage on behalf of the actual buyer.
So here we have an Incoterms 2010 term where the exporter is obliged to bring the goods and load them on board the vessel. When they are loaded on board the vessel, the exporter’s risk is finished. The physical risk of the goods is now transferred over to the buyer, but having achieved that position, the exporter is then obliged to enter into a contract of carriage with the carrier and secure the transport documents on behalf of the buyer, then send these documents to the buyer so that the buyer can actually claim the goods at the port of destination.
So this term breaks up the relationship between the transfer of risk and the division of costs. The transfer of risk takes place at the port of dispatch but the division of cost take place at the port of destination. So the risk and cost are affected at different points.
So very similar to CPT I would say.
Very similar to CPT as the term used for aviation transport and road transport, or a combination of those transport modes.
So you’re basically loading it onto a ship that the buyer has stipulated, at a time and place that the buyer has stipulated, and it leaves your destination market. Your responsibility is terminated as soon as your goods have touched down on the deck of that ship or vessel. However, your costs continue all the way through to the point at which it arrives in the destination market for offloading.
Absolutely correct. The importation at the destination market is not the exporter’s responsibility. That is entirely up to the buyer.
So import customs clearance is not part of the bargain.
One anomaly that exists in this term is that sometimes the carriage cost includes the unloading of the vessel at the port of destination. Now technically the Incoterm does say that for Incoterms 2010 the seller is not obliged to unload the cargo and be responsible for the cost of unloading the cargo at the port of destination but sometimes that figure is already included in the freight which would undoubtedly be passed onto the buyer anyway. So what some exporters do is they actually, when they enter into the contract of carriage, determine with the carrier whether the freight charge does include the discharging of the goods onto the quayside of the port of destination.
If that were to be the case then the exporter classifies the term as Incoterms 2010, quay, port of destination, which means included in your costs Mr Buyer is the discharging of the goods at the port of destination. So of the unloading agent at the port of destination Mr Buyer, chooses to charge you for the discharging of the vessel please reject that charge because we’ve already paid for it as part of the freight charge.
So a fairly good Incoterms 2010 to use, again because it’s adding value from the seller to the buyer in terms of it’s a little bit less stressful for the buyer to try to ascertain a vessel and do all the clearance as you would need to do.
Incoterms 2010 is a set of international rules that define the responsibilities of buyers and sellers in international trade. The rules cover things like who pays for shipping, insurance, and duties. In the case of CFR Incoterms, the seller is responsible for paying for the carriage of the goods to the named port of destination. However, the seller is not responsible for insuring the goods. This means that the buyer is responsible for insuring the goods from the port of shipment to the final destination.
It is important for buyers and sellers to be aware of the Incoterms 2010 rules when they are negotiating a contract for the sale of goods. By understanding the rules, both parties can be sure that they are clear on their responsibilities and that they are protected in case of any problems.
Indeed and this is a classic term to identify the reasons why both parties in the transaction, if they’re using these Incoterms 2010, must understand them. They really must understand them and they must understand the obligations of the respective parties because it is so easy for the buyer to conclude in their own mind “Oh the exporter is supplying this to me on a CFR Incoterms basis. He’s paying everything up to the port of destination.” So the buyer could be excused for thinking “Well if he paying everything up to the port of destination, surely he’s going to responsible for the physical risk.”
Now unfortunately under the Incoterms 2010 interpretation he is not. He is responsible for the cost to the port of destination but not for the physical risk. So here I think that the exporter ought to be probably concerned with developing a good relationship with the buyer and would probably say to the buyer, just in case they are unaware “I assume Mr Buyer that you will be attending to any insurance to cover the goods whist they are on board the ship.” This in turn of course leads to the question, when I said well the exporter is entering into the contract of carriage with the carrier, so the question there would be if the exporter is entering into the contract of carriage surely it is the exporter who owns these goods whilst they are on board the ship, transiting to the port of destination? So that the buyer really has no influence over these goods.
This is not the case because when the exporter secures the contract of carriage he is given certain carriage contract documents by the carrier. He will then endorse these documents immediately over to the buyer and the buyer is now the party who holds the contract of carriage with the carrier. This should be happening before the vessel actually departs from the point of shipment so in fact the buyer does have authority over the goods while they are onboard the ship in transit to the port of destination.
I hope you enjoyed this Incoterms 2010 audio blog. If you’d like more information on international trade go to www.edgectp.com. All material in this audio is copyrighted and all reproduction rights reserved by Morgan Goodwin Ltd, thank you.