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COST AND FREIGHT (CFR)

In International Contracts, time and place of delivery are the two most important clauses which determine the price quoted by the seller. Cost means the cost of manufacturing goods and Freight is a simple term. Freight refers to the cost of delivering the goods from the point of origin to the point of destination. Different term agreements lay down the different set of responsibilities on the buyers and sellers.

International Chamber of Commerce has defined 11 Incoterms and Cost, and Freight is one of these.

Meaning of Cost and Freight

As the name indicates, a CFR type of arrangement makes the seller responsible for arranging for the transfer of goods to the point of destination. But an important point to note here is that the seller is not responsible for any loss or damage that happens during the transit. The seller has to provide the necessary documents to the buyer so that he can take the delivery of goods from the carrier.

In a nutshell, under CFR agreement, the seller has to deliver the goods to the destination point as mentioned by the buyer. It is only after the goods have reached the port, that the buyer assumes the risk and responsibility.

Difference between CFR and FOB:

FOB (Freight On Board) requires the seller to deliver the goods at the point of origin, thus making the buyer responsible for any risk or loss that happens thereafter.

CFR (Cost and Freight) throws more responsibility on the seller because until the goods are not transferred to the point of origin, the seller is wholly and solely responsible. Unloading charges are to be paid by the buyer.

CFR is meant to dictate the terms of contracts which happen through the sea transport.

The seller has to cover up the minimum cost of insurance.

Responsibilities of Buyer and Seller

Seller:

  1. He has to send across the goods as mentioned in the contract.
  2. Custom formalities and export license has to be obtained at his own expense.
  3. Cost of carriage to the named point of destination has to be borne by the seller.
  4. The risk and loss till the goods reach the point of destination rests on the seller.
  5. Cost of custom duties and taxes, boarding charges, unloading charges as mentioned in the contract unless the buyer pays for it are to be paid by the seller.
  6. Bill of lading, non-negotiable seaway bill, and other transport documents have to be furnished by the seller.
  7. The costs related to manufacturing, packaging, and quality check of the goods is the seller’s obligation.

Buyer:

  1. Buyer has to pay the price as quoted in the contract.
  2. Import license or any other authorization which the government of the country demands has to be procured at the buyer’s own expense.
  3. The buyer is not obliged for any carriage cost or cost of insurance.
  4. The risk gets transferred to the buyer once the goods get unloaded, and the buyer has to assume all the responsibility of loss thereafter.
  5. The buyer has to take the delivery of the goods at the point of destination.
  6. Warehouse charges and costs related to unloading and storage has to be paid by the buyer.
  7. Custom formalities and import duty have to be paid by the buyer.