CFR (Cost And Freight)
From Supply Chain Management Encyclopedia
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- | '''Russian: [http://ru.scm.gsom.spbu.ru/ | + | '''Russian: [http://ru.scm.gsom.spbu.ru/CFR_Стоимость_и_фрахт_(...названный_порт_назначения) CFR Стоимость и фрахт (...названный порт назначения)]''' |
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+ | ==General Provisions== | ||
In accordance with rules of Incoterms® 2010,<ref>Incoterms® 2010: ICC rules for the use of domestic and international trade terms – ICC Publication No 715E</ref> the CFR (Cost And Freight) rule is to be used ''only for sea or inland waterway transport''. The CFR rule means that the seller ''delivers'' the goods on board the vessel or procures the goods already so delivered. The ''risk'' of loss of or 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. The seller fulfills its obligation to deliver when it hands the goods over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination. | In accordance with rules of Incoterms® 2010,<ref>Incoterms® 2010: ICC rules for the use of domestic and international trade terms – ICC Publication No 715E</ref> the CFR (Cost And Freight) rule is to be used ''only for sea or inland waterway transport''. The CFR rule means that the seller ''delivers'' the goods on board the vessel or procures the goods already so delivered. The ''risk'' of loss of or 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. The seller fulfills its obligation to deliver when it hands the goods over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination. | ||
- | This rule has ''two critical points'', because risk passes and costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk passes to the buyer. If the ''shipment port'' is of particular interest to the buyer, the parties are well advised to ''identify'' it as precisely as possible in the contract. The parties are well advised to ''identify'' as precisely as possible the ''point at the agreed port of destination'', as the costs to that point are for the account of the seller. The seller is advised to procure ''contracts of carriage'' that match this choice precisely. If the seller incurs costs under its contract of carriage related to ''unloading'' at the specified point at the port of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties. The seller is required either to ''deliver'' the goods on board the vessel or to ''procure'' goods already so delivered for shipment to the destination. In addition, the seller is required either to ''make'' a contract of carriage or to ''procure'' such a contract. The reference to "procure" here caters for multiple sales down a chain ("[[String Sales]]'), particularly common in the commodity trades. Besides commodities, the CFR term is commonly used the sale of oversize and overweight cargo that will not fit into an ocean container, and, also, the cargo that exceeds the weight limitations of ocean containers. | + | This rule has ''two critical points'', because risk passes and costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk passes to the buyer. If the ''shipment port'' is of particular interest to the buyer, the parties are well advised to ''identify'' it as precisely as possible in the contract. The parties are well advised to ''identify'' as precisely as possible the ''point at the agreed port of destination'', as the costs to that point are for the account of the seller. The seller is advised to procure ''contracts of carriage'' that match this choice precisely. If the seller incurs costs under its contract of carriage related to ''unloading'' at the specified point at the port of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties. The seller is required either to ''deliver'' the goods on board the vessel or to ''procure'' '''[1]''' goods already so delivered for shipment to the destination. In addition, the seller is required either to ''make'' a contract of carriage or to ''procure'' such a contract. The reference to "procure" here caters for multiple sales down a chain ("[[String Sales]]'), particularly common in the commodity trades. Besides commodities, the CFR term is commonly used the sale of oversize and overweight cargo that will not fit into an ocean container, and, also, the cargo that exceeds the weight limitations of ocean containers. |
The CFR rule may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such circumstances, the [[CPT (Carriage Paid To)]] rule should be used. The CFR rule requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities. With CFR, the named port of destination is domestic to the buyer. | The CFR rule may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such circumstances, the [[CPT (Carriage Paid To)]] rule should be used. The CFR rule requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities. With CFR, the named port of destination is domestic to the buyer. | ||
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|●●Buyer► | |●●Buyer► | ||
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+ | |colspan="5"| | ||
+ | !colspan="4"|Seller's Insurable Interest '''[6]''' | ||
+ | |colspan="5"| | ||
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|} | |} | ||
- | == | + | ==Summary on Buyer's and Seller's Resposibilities under CFR in Incoterms® 2010== |
- | + | ||
{| border="1" | {| border="1" | ||
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|- | |- | ||
| '''Carriage''' || | | '''Carriage''' || | ||
- | * Contract or procure a contract for the carriage of the goods from the point of delivery to the named port of destination. | + | * ''Contract'' or ''procure'' a contract for the carriage of the goods from the point of delivery to the named port of destination. |
|| | || | ||
- | * Buyer has ''no obligation'' '''[ | + | * Buyer has ''no obligation'' '''[2]''' to the seller. |
|- | |- | ||
| '''Insurance'''|| | | '''Insurance'''|| | ||
- | * ''No obligation'' '''[ | + | * ''No obligation'' '''[2]''' to provide insurance. |
* ''Provide'' information to ''enable'' the buyer to obtain insurance. | * ''Provide'' information to ''enable'' the buyer to obtain insurance. | ||
|| | || | ||
- | * Buyer has ''no obligation'' '''[ | + | * Buyer has ''no obligation'' '''[2]''' to the seller. |
|- | |- | ||
| '''Delivery - Taking Delivery'''|| | | '''Delivery - Taking Delivery'''|| | ||
- | * Deliver | + | * ''Deliver'' the goods on board the ship at the port of shipment ('''not destination''') |
- | ** or ''procure goods already so delivered | + | ** or ''procure'' '''[1]''' goods already so delivered within the agreed-upon time. |
|| | || | ||
- | * Take delivery of the goods at the named port of destination as provided in the contract. | + | * ''Take'' delivery of the goods at the named port of destination as provided in the contract. |
|- | |- | ||
| '''Risk Transfer'''|| | | '''Risk Transfer'''|| | ||
- | * Assume all risks of loss or damage to the goods until they have been delivered ''on board the ship at the port of shipment | + | * ''Assume'' all risks of loss or damage to the goods until they have been delivered ''on board the ship'' '''[3]''' at the port of shipment ('''not destination'''), within the agreed-upon time stipulated in the sales contract. |
|| | || | ||
- | * Assume all risk of loss or damage | + | * ''Assume'' all risk of loss or damage from the time the goods have been delivered ''on board the ship'' '''[3]''' at the port of shipment ('''not destination'''). |
|- | |- | ||
| '''Costs'''|| | | '''Costs'''|| | ||
- | * Pay ''all costs until the goods have been delivered | + | * ''Pay'' all costs until the goods have been delivered on board the ship at the port of shipment. |
- | * Pay ''all costs of loading and carriage to the named port of destination | + | * ''Pay'' all costs of ''loading'' and ''carriage'' to the named port of destination. |
- | * Pay | + | * ''Pay'' for costs of unloading '''if''' unloading is included in the contract for main carriage. |
- | * Pay ''all costs relating to export'', including | + | * ''Pay'' all costs relating to ''export'', including customs formalities, duties, and taxes, |
- | ** as well as | + | ** as well as costs required for ''transshipment'' through any country up to the named port of destination. |
|| | || | ||
- | * Pay ''any additional costs'' for the goods, other than main carriage, | + | * ''Pay'' any ''additional costs'' for the goods, other than main carriage, once they have been delivered on board the ship at the port of shipment. |
- | * Pay ''costs of unloading, [[lighterage]], and [[wharfage]]'' at the port of destination '''unless such costs were to be paid by seller under seller’s contract for carriage'''. | + | * ''Pay'' costs of ''unloading'', [[lighterage]], and [[wharfage]]'' at the port of destination '''unless such costs were to be paid by seller under seller’s contract for carriage'''. |
- | * Pay all costs relating to ''import formalities, duties, fees, and taxes''. | + | * ''Pay'' all costs relating to ''import formalities, duties, fees, and taxes''. |
- | * Pay costs of ''onward carriage''. | + | * ''Pay'' costs of ''onward carriage''. |
|- | |- | ||
| '''Notice to the Buyer - Notice to Seller'''|| | | '''Notice to the Buyer - Notice to Seller'''|| | ||
- | * Provide notice that ''enables the buyer to take timely possession of the goods | + | * ''Provide'' notice that ''enables'' the buyer to take timely possession of the goods at the named port of destination. |
|| | || | ||
- | * If, according to the sales contract, the buyer is entitled to specify a time for shipping or the point of receiving the shipment at the named port of destination, to give seller sufficient notice. | + | * If, according to the sales contract, the buyer is entitled to specify a time for shipping or the point of receiving the shipment at the named port of destination, to ''give'' seller sufficient notice. |
|- | |- | ||
| '''Delivery and Transport Documents - [[Proof of Delivery]]'''|| | | '''Delivery and Transport Documents - [[Proof of Delivery]]'''|| | ||
- | * Provide the buyer with a ''transport document'', dated within the period agreed, that allows the buyer to ''claim the goods'' at the named port of destination and (unless otherwise agreed) allows the buyer to ''sell the goods while in transit'' through the transfer of the document or by notification to the sea carrier. | + | * ''Provide'' the buyer with a ''transport document'', dated within the period agreed, that allows the buyer to ''claim the goods'' at the named port of destination and (unless otherwise agreed) allows the buyer to ''sell the goods while in transit'' through the transfer of the document or by notification to the sea carrier. |
- | * If a [[negotiable transport document]] is issued, a full set of originals '''[ | + | * If a [[negotiable transport document]] is issued, a full set of originals '''[4]''' ''must be given'' to the buyer. |
|| | || | ||
- | * Accept the seller’s delivery document if it is in conformity with the sales contract. | + | * ''Accept'' the seller’s delivery document '''[7]''' if it is in conformity with the [[sales contract]]. |
|- | |- | ||
| '''Checking, Packing, Marking - Inspection(s)'''|| | | '''Checking, Packing, Marking - Inspection(s)'''|| | ||
- | * Pay all costs associated with checking the quality and quantity of the goods to be in conformity with the sales contract. | + | * ''Pay'' all costs associated with checking the quality and quantity of the goods to be in conformity with the [[sales contract]]. |
- | * Provide pre-shipment inspections as required for export formalities. | + | * ''Provide'' pre-shipment inspections as required for export formalities. |
- | * Package the goods, unless the goods are conventionally sold unpackaged. | + | * ''Package'' the goods, unless the goods are conventionally sold unpackaged. |
- | * Package the goods as the seller deems appropriate for transport, unless the buyer has given specific requirements prior to the finalization of the sales contract. | + | * ''Package'' the goods as the seller deems appropriate for transport, unless the buyer has given ''specific requirements'' prior to the finalization of the sales contract. |
- | * Provide marking appropriate to the packaging. | + | * ''Provide'' marking appropriate to the packaging. |
|| | || | ||
- | * Pay for [[pre-shipment inspections]] unless such is required by the country of export. | + | * ''Pay'' for [[pre-shipment inspections]] unless such is required by the country of export. |
|- | |- | ||
| '''Other'''|| | | '''Other'''|| | ||
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|} | |} | ||
- | + | ==Examples [5]== | |
- | + | ||
- | == | + | |
- | + | ||
* CFR, Terminal 1, Port of Nakhodka, Nakhodka, Russia | * CFR, Terminal 1, Port of Nakhodka, Nakhodka, Russia | ||
- | |||
* CFR, AAA Terminal, Port of Busan, South Korea | * CFR, AAA Terminal, Port of Busan, South Korea | ||
- | == | + | ==Notes== |
- | + | # The seller’s option to "procure goods already so delivered", existing now in a number of Incoterms® 2010 rules, is concerned to the sale, and successive resale, of a single shipment of goods while en route from place of shipment to final destination (so named string sales). This is common in the commodity trade (futures trade), where oil, grain, and ore shipments are sold and resold before the vessel arrives in port. | |
- | + | # According to Incoterms rules, seller and buyer have reciprocal responsibilities only. The "no obligation" term often used in the rules of Incoterms means that one party has not obligation to the other party. In this case (Art. B.3.А - Incoterms® 2010) the buyer has obligation neither to arrange nor to pay the contract on carriage. The "no obligation" term has the same understanding for the both parties in the case of insurance. However, the "no obligation" term being applied to the second party does not mean that the task performance is out of the first party’s interests (Articles B.3.A and B.3.B in Incoterms® 2010). So, for the case of the CFR rule, despite the fact that the buyer has not responsibility to the seller for the contract on carriage, it is clear, that the buyer has an interest to have such a contract on carriage that will deliver the goods to the buyer’s place of destination safely and in the time stipulated. | |
- | + | # The previous CFR risk transfer formula, - ''Risk transfer from the seller to the buyer when the goods pass the ship's rail'', - '''is cancelled''' because for the modern ship the rail is something image and so poorly identified for any disputes and arbitrations. | |
+ | # '''Original document, original of document''', or, simply, '''original''' means in the context of international trade are presented by a signed (executed) and, usually, stamped official document which may be reproduced as facsimiles. An original document can exist as two or more 'copies,' each one of them marked 'original' and having equal legal force. <ref> http://www.businessdictionary.com/definition/original.html </ref>. One overview of the current status of electronic public procurement in Europe <ref> Preliminary Study on the electronic provision of certificates and attestations usually required in public procurement procedure / European Commission Internal Market and Services DG, Brussels, 2008 – p.33. | http://ec.europa.eu/internal_market/publicprocurement/docs/eprocurement/ecertificates-study_en.pdf </ref> states that the use of original certificates is rare, and electronic certificates are equally uncommon. All correspondents indicate that original certificates are rarely required, and that copies are usually sufficient. It follows that, in an electronic context, unsigned scans would also be permissible. Indeed, in EU, 9 out of 32 countries (28%) explicitly indicate that unsigned scans or unsigned PDF files would also be permissible in most procurements. When electronic certificates are used, unsigned copies or unsigned originals are usually permitted, which substantially reduces cross border interoperability difficulties. The recognition of e-documents in an international business (logistics) is based on the same pillars as e-commerce does. Namely, in the European Union, as is the case for the e-Commerce Directive <ref> E-Commerce Directive | http://ec.europa.eu/internal_market/e-commerce/directive_en.htm </ref>, the Model Law <ref> UNCITRAL Model Law on Electronic Commerce Guide to Enactment 1996 with additional article 5 as adopted in 1998 | http://www.uncitral.org/pdf/english/texts/electcom/05-89450_Ebook.pdf </ref> also embraces the concept of functional equivalence. I.e., traditional paper-based concepts such as "writing"(Article 6), "signature" (Article 7) and "original" (Article 8) are redefined in a way that allows electronic versions of these concepts to have the same legal value, provided that these can serve the same basic purposes and offer the same guarantees as in their traditional form. Therefore, EDI option is acceptable to produce e-documents in international/domestic transactions (sales contracts). | ||
+ | # The examples given hereto are to illustrate purposes concerning the syntax of Incoterms® 2010 rules and could conform with any real data occasionally only. | ||
+ | # While the seller may not be legally responsible for the goods once they are on the board of the ship in the port of shipment, he may have "[[insurable interest]]" during the voyage. Prudence may dictate purchase of additional insurance coverage <ref> CFR : Cost and Freight / http://www.agilitylogistics.com.au/CFR.aspx? </ref>. | ||
+ | #'''Delivery document''' term used as the heading to article A8 (Incoterms® 2010) means a document used to prove that delivery has occurred. For many of the rules of Incoterms® 2010, the ''delivery document is a transport document or corresponding electronic record''. Nevertheless <ref> Financial terminology | http://financialterminology.info/2011/06/incoterms-2010-international-edition-b/ </ref>, with EXW, FCA, FAS and FOB rules, the delivery document may simply be a receipt. A delivery document may also have other functions, for example as part of the mechanism for payment declaration: refers to comply with customs regulations and have met some of the requirements, including the notes, [[Enron]], information or physical inspection of the obligation. Such requirements are particularly common in construction contracts with large contractors, government entities, and major corporations. | ||
- | == | + | ==References== |
<references /> | <references /> | ||
[[Category:International Logistics]] | [[Category:International Logistics]] |
Latest revision as of 12:43, 3 July 2014
Russian: CFR Стоимость и фрахт (...названный порт назначения)
Contents |
General Provisions
In accordance with rules of Incoterms® 2010,[1] the CFR (Cost And Freight) rule is to be used only for sea or inland waterway transport. The CFR rule means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or 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. The seller fulfills its obligation to deliver when it hands the goods over to the carrier in the manner specified in the chosen rule and not when the goods reach the place of destination.
This rule has two critical points, because risk passes and costs are transferred at different places. While the contract will always specify a destination port, it might not specify the port of shipment, which is where risk passes to the buyer. If the shipment port is of particular interest to the buyer, the parties are well advised to identify it as precisely as possible in the contract. The parties are well advised to identify as precisely as possible the point at the agreed port of destination, as the costs to that point are for the account of the seller. The seller is advised to procure contracts of carriage that match this choice precisely. If the seller incurs costs under its contract of carriage related to unloading at the specified point at the port of destination, the seller is not entitled to recover such costs from the buyer unless otherwise agreed between the parties. The seller is required either to deliver the goods on board the vessel or to procure [1] goods already so delivered for shipment to the destination. In addition, the seller is required either to make a contract of carriage or to procure such a contract. The reference to "procure" here caters for multiple sales down a chain ("String Sales'), particularly common in the commodity trades. Besides commodities, the CFR term is commonly used the sale of oversize and overweight cargo that will not fit into an ocean container, and, also, the cargo that exceeds the weight limitations of ocean containers.
The CFR rule may not be appropriate where goods are handed over to the carrier before they are on board the vessel, for example goods in containers, which are typically delivered at a terminal. In such circumstances, the CPT (Carriage Paid To) rule should be used. The CFR rule requires the seller to clear the goods for export, where applicable. However, the seller has no obligation to clear the goods for import, pay any import duty or carry out any import customs formalities. With CFR, the named port of destination is domestic to the buyer.
Summary on Buyer's and Seller's Resposibilities under CFR in Incoterms® 2010
Seller's Responsibilities (in brief) | Buyer's Responsibilities (in brief) | |
Goods - Payment |
|
|
Licenses, Security, and Customs Formalities |
|
|
Carriage |
|
|
Insurance |
|
|
Delivery - Taking Delivery |
|
|
Risk Transfer |
|
|
Costs |
|
|
Notice to the Buyer - Notice to Seller |
|
|
Delivery and Transport Documents - Proof of Delivery |
|
|
Checking, Packing, Marking - Inspection(s) |
|
|
Other |
|
|
Examples [5]
- CFR, Terminal 1, Port of Nakhodka, Nakhodka, Russia
- CFR, AAA Terminal, Port of Busan, South Korea
Notes
- The seller’s option to "procure goods already so delivered", existing now in a number of Incoterms® 2010 rules, is concerned to the sale, and successive resale, of a single shipment of goods while en route from place of shipment to final destination (so named string sales). This is common in the commodity trade (futures trade), where oil, grain, and ore shipments are sold and resold before the vessel arrives in port.
- According to Incoterms rules, seller and buyer have reciprocal responsibilities only. The "no obligation" term often used in the rules of Incoterms means that one party has not obligation to the other party. In this case (Art. B.3.А - Incoterms® 2010) the buyer has obligation neither to arrange nor to pay the contract on carriage. The "no obligation" term has the same understanding for the both parties in the case of insurance. However, the "no obligation" term being applied to the second party does not mean that the task performance is out of the first party’s interests (Articles B.3.A and B.3.B in Incoterms® 2010). So, for the case of the CFR rule, despite the fact that the buyer has not responsibility to the seller for the contract on carriage, it is clear, that the buyer has an interest to have such a contract on carriage that will deliver the goods to the buyer’s place of destination safely and in the time stipulated.
- The previous CFR risk transfer formula, - Risk transfer from the seller to the buyer when the goods pass the ship's rail, - is cancelled because for the modern ship the rail is something image and so poorly identified for any disputes and arbitrations.
- Original document, original of document, or, simply, original means in the context of international trade are presented by a signed (executed) and, usually, stamped official document which may be reproduced as facsimiles. An original document can exist as two or more 'copies,' each one of them marked 'original' and having equal legal force. [2]. One overview of the current status of electronic public procurement in Europe [3] states that the use of original certificates is rare, and electronic certificates are equally uncommon. All correspondents indicate that original certificates are rarely required, and that copies are usually sufficient. It follows that, in an electronic context, unsigned scans would also be permissible. Indeed, in EU, 9 out of 32 countries (28%) explicitly indicate that unsigned scans or unsigned PDF files would also be permissible in most procurements. When electronic certificates are used, unsigned copies or unsigned originals are usually permitted, which substantially reduces cross border interoperability difficulties. The recognition of e-documents in an international business (logistics) is based on the same pillars as e-commerce does. Namely, in the European Union, as is the case for the e-Commerce Directive [4], the Model Law [5] also embraces the concept of functional equivalence. I.e., traditional paper-based concepts such as "writing"(Article 6), "signature" (Article 7) and "original" (Article 8) are redefined in a way that allows electronic versions of these concepts to have the same legal value, provided that these can serve the same basic purposes and offer the same guarantees as in their traditional form. Therefore, EDI option is acceptable to produce e-documents in international/domestic transactions (sales contracts).
- The examples given hereto are to illustrate purposes concerning the syntax of Incoterms® 2010 rules and could conform with any real data occasionally only.
- While the seller may not be legally responsible for the goods once they are on the board of the ship in the port of shipment, he may have "insurable interest" during the voyage. Prudence may dictate purchase of additional insurance coverage [6].
- Delivery document term used as the heading to article A8 (Incoterms® 2010) means a document used to prove that delivery has occurred. For many of the rules of Incoterms® 2010, the delivery document is a transport document or corresponding electronic record. Nevertheless [7], with EXW, FCA, FAS and FOB rules, the delivery document may simply be a receipt. A delivery document may also have other functions, for example as part of the mechanism for payment declaration: refers to comply with customs regulations and have met some of the requirements, including the notes, Enron, information or physical inspection of the obligation. Such requirements are particularly common in construction contracts with large contractors, government entities, and major corporations.
References
- ↑ Incoterms® 2010: ICC rules for the use of domestic and international trade terms – ICC Publication No 715E
- ↑ http://www.businessdictionary.com/definition/original.html
- ↑ Preliminary Study on the electronic provision of certificates and attestations usually required in public procurement procedure / European Commission Internal Market and Services DG, Brussels, 2008 – p.33. | http://ec.europa.eu/internal_market/publicprocurement/docs/eprocurement/ecertificates-study_en.pdf
- ↑ E-Commerce Directive | http://ec.europa.eu/internal_market/e-commerce/directive_en.htm
- ↑ UNCITRAL Model Law on Electronic Commerce Guide to Enactment 1996 with additional article 5 as adopted in 1998 | http://www.uncitral.org/pdf/english/texts/electcom/05-89450_Ebook.pdf
- ↑ CFR : Cost and Freight / http://www.agilitylogistics.com.au/CFR.aspx?
- ↑ Financial terminology | http://financialterminology.info/2011/06/incoterms-2010-international-edition-b/