CFR (Cost And Freight)
From Supply Chain Management Encyclopedia
Russian: CFR Стоимость и фрахт (...названный порт назначения)
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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 |
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Licenses, Security, and Customs Formalities |
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Carriage |
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Insurance |
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Delivery - Taking Delivery |
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Risk Transfer |
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Costs |
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Notice to the Buyer - Notice to Seller |
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Delivery and Transport Documents - Proof of Delivery |
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Checking, Packing, Marking - Inspection(s) |
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Other |
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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/