In the world of international trade, CFR is more than just three letters. It’s an essential term, a compass guiding your goods across oceans. Let’s dive into what CFR means, when to use it, and what it entails for both buyers and sellers.
What is CFR Incoterms
Cost and Freight (CFR) – a trade lingo you should know. It’s the seller’s responsibility to ferry your goods over the waves to a specific port. CFR includes the Cost, Insurance, and Freight (CIF), which means the seller covers shipping costs and insurance if you wish.
When to use CFR Incoterms
Ahoy, maritime adventurers! CFR is tailor-made for shipping via waterways. But there’s a catch. Both buyer and seller should have direct access to the ship for loading. It’s ideal for businesses near ports or those with their transport. Think Chinese rivers for non-containerized goods, or consider CPT for containers.
The seller takes charge of transportation to the designated port and foots the bill. Export-cleared goods are delivered to the ship by the seller.
Buyers and Sellers’ Responsibilities with CFR Incoterms
The harbor beckons, but who’s responsible for what?
Seller’s Duties: The seller wears multiple hats – from maintenance to documentation, export customs to freight charges. They handle all the export paperwork, either themselves or through an agent.
Buyer’s Responsibilities: Once the goods hit the port, it’s the buyer’s turn. They take the reins for insurance and transportation costs. After the destination port, it’s all on them – import clearance, legal work, inspections, and even previously delivered goods.
Pros and Cons of CFR Incoterms
- The vendor sets the selling price, and transportation costs can be added later.
- Vendor is off the hook for damage or loss post-delivery – buyer’s job to get insurance.
- No fuss about arranging ship transport; the vendor handles it all.
- If the buyer isn’t vigilant, the advertised price might spike.
- Buyer might face damage during shipping, necessitating good insurance.
CFR Incoterms Risks
Here, the game changes. When the seller loads the goods, they better have all their ducks in a row. The buyer assumes all risks once the materials are on the designated transport at the export port. It’s a win for the seller but adds an extra burden on the buyer – insurance and final transportation.
CFR Incoterms Example
Picture this: a South African firm buying machinery components from a Finnish manufacturer. They opt for CFR 2020 because the equipment won’t fit in a container. It leaves Helsinki, Finland, and heads to Durban, South Africa. The deal hinges on when the equipment boards the ship in Helsinki. Risk shifts to the South African customer at that moment, though the Finnish vendor arranges and pays for shipping to Durban.
FAQs about CFR
- What does Cost and Freight (CFR) entail? CFR is a term for international commerce transactions. It involves the seller arranging sea shipment and providing necessary paperwork.
- Who controls the CFR? CFR isn’t under any entity’s control. It’s an independent organization dedicated to foreign policy.
- Are CFR and CIF the same? No, they’re not. CFR relates to shipping goods to a port, while CIF covers freight and insurance.
- How do you calculate the CFR price? The CFR price considers freight, insurance, customs, goods’ price, labor, duties, and more.
- Does CFR Include Duty when Shipping from China? Yes, customs duty is included in CFR, and the buyer is responsible for it.
When you’re knee-deep in international trade, CFR becomes your trusty companion. It’s a contract that shapes the journey of your goods. Whether you’re the buyer or seller, CFR has its pros and cons. So, choose wisely, and weigh your options before picking an Incoterm.
To explore more about Incoterms, reach out to us, and we’ll steer your shipment in the right direction.