Within Incoterms, which define the rules of international trade, the so-called group C is distinguished. Group C includes rules where the basic transport costs are paid by the seller. In addition, the seller arranges transport and carries out customs clearance, and the risk is transferred to the buyer when the goods are on board the vessel. In this article, we’ll take a closer look at Incoterms 2020 CFR.
Incoterms 2020 CFR – Allocation of costs
|The seller bears:||The buyer bears:|
|tax costs in the country where the goods were manufactured;||tax costs in the destination country;|
|port charges at the port of departure;||insurance costs during transport;|
|costs of transporting goods to the port;||transport costs from the home port to the main office;|
|costs of obtaining an export license;||the costs of obtaining the import license necessary for the transaction and the costs related to import clearance;|
|customs duties and taxes in the country of departure;||customs charges in transit countries and in the destination country;|
|costs of goods quality control, weighing, measuring and counting the goods, which is necessary before loading the goods onto the vessel;||charges resulting from a pre-shipment inspection of goods, unless this is required in the country from which the goods are shipped;|
|the costs of providing the transport document issued to the port of destination and its electronic copy;||the cost of notifying the seller of the required shipping date and port of destination;|
|transit costs that were on the seller’s account under the contract of carriage;||all charges related to transit, unless stated otherwise in the contract of carriage;|
|costs of security clearance for export, as well as safe and appropriately labeled packaging of the goods.||unloading costs (including lighterage and wharfage charges) unless stated otherwise in the contract of carriage.|
What are the seller’s obligations?
- Loading at the starting point of transport.
- Making a contract for carriage.
- Delivering the goods on board the vessel along with a commercial invoice in the place indicated by the buyer, as well as bearing the costs related to it.
- Controlling the quality of goods, weighing, measuring and counting the goods – necessary before loading the goods onto the ship.
- Safe packaging of goods necessary for transport to avoid unnecessary risk.
- Operating according to all transport-related security requirements for transport to the destination.
- Providing a transport document issued to the destination port of the goods and its copy in electronic form.
- Providing information to the buyer at his expense and risk needed to obtain insurance.
What are the buyer’s obligations?
- Taking up the delivery at the time and place specified in the contract.
- Transporting the goods from the named port of destination to the main office and unloading at the port.
- Informing the seller about the port of destination and date of delivery.
- The buyer obtains the import license necessary for the transaction and bears the costs of carrying out customs clearance.
- Carrying out pre-shipment controls of the goods (if it is required in the country from which the goods are shipped).
Delivery of goods
According to Incoterms 2020 CFR, the moment of delivery and transfer of risk is when the goods are on board the vessel. Also, the buyer can purchase already delivered goods.
Insurance of goods on the terms of Incoterms 2020 CFR
There is no obligation to make a contract of insurance. The buyer may, however, make it at his own cost and risk. In addition, the seller bears the risk (as well as loss or damage to the goods) only until the goods are on board the vessel. Besides, the buyer bears the additional risk of losing or damaging the goods if he has not notified the seller of the date of shipment and the destination port to which the goods should reach.
Incoterms 2020 CFR in transport
According to legal provisions, CFR applies only to sea and inland waterway transport. It is not used in other forms of transport.
The seller must provide the buyer with the transport document to the agreed port of destination at his own expense. This document must cover the contract goods, be dated within the period agreed for shipment, enable the buyer to claim goods from the carrier at the port of destination and (unless stated otherwise) enable the buyer to sell goods in transit by the transfer of the document to the next buyer or by notification to the carrier. The buyer must be provided with the full set of documents.
CFR and other Incoterms rules
The CFR rule, like the CIP, CPT and CIF rules, imposes basic costs on the seller. The obligations in this rule are also relatively similar to the obligations of the seller in the FOB rule. There is, however, a fundamental difference between them. In the case of the Incoterms CFR rule, the seller is responsible for transport. It means that the exporter finds the carrier, negotiates the appropriate contract and pays for the transport. In addition, it is recommended to use CPT rule if more than one mode of transport is used.