ICC Incoterms®, including the CFR Incoterm®, represent standardised international agreements on delivery terms established between buyer and seller. These rules determine worldwide regulations on transport, costs and possible damage during transport. The International Chamber of Commerce (ICC) updates Incoterms® once every ten years. The latest version, ICC Incoterms® 2020, came into force on 1 January 2020. For a complete overview of all Incoterms, consult the following link here.
What is CFR Incoterm®?
The Cost and Freight (CFR) Incoterm is an international trade agreement used for waterborne transport. In a CFR arrangement, the seller is responsible for delivering the goods to a named port, covering the cost of transport to the port and freight costs. The transfer of risk occurs when the goods pass the ship's rail.
Advantages CFR Incoterm®
- Clear division of costs: CFR offers a clear division of costs between the seller and buyer. The seller is responsible for the cost of transport to the named port and freight charges, making it clear to both parties their financial obligations.
- Simplified logistics for buyers: Once the goods are loaded on board the ship, the buyer takes control of the transport and logistics from the port. This allows buyers to choose carriers themselves according to and potentially negotiate better rates.
- Global applicability: CFR is suitable for both domestic and international transactions, making it a versatile Incoterm for different trade scenarios.
Disadvantages CFR Incoterm®
- Seller's limited responsibility: Sellers have limited responsibility after the goods are loaded on board the ship. If any problems such as damage or delays occur during sea transport, the buyer bears the responsibility and cost of resolution or consequences.
- Transfer of risk at ship's rail: The point of transfer of risk is when the goods pass the ship's rail. If damage or loss occurs before this point, the seller is responsible. However, the risk is transferred to the buyer relatively early in the transportation process.
- Likelihood of disputes: Disputes can arise from misunderstandings around the loading process or if problems arise during maritime transport. Clear communication and good agreements on loading procedures and responsibilities are crucial to mitigate these risks.
Summary Cost and Freight
In summary, CFR offers a clear division of costs and responsibilities at the port, simplifying logistics for both parties. Sellers benefit from reduced post-loading involvement, while buyers gain control over transportation and potential cost savings. Careful communication and good contracts are important to avoid disputes, especially regarding loading procedures and responsibilities.
Do you often have sea freight, either as seller or buyer? If you want to discuss which Incoterms® and transport solution best suits your situation, Then contact us.
