International Business

What Does Cost And Freight Mean

The commercial term CFR (Cost and Freight) means the seller delivers when the goods pass the ship’s rail in the port of shipment. The seller must pay the costs and freight necessary to bring the goods to the named port of destination, But the risk of loss of or damage to the goods; as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller to the buyer (incoterms 2017).

The price quoted under CFR (Cost and Freight) contract includes the cost of the goods and freight charges up to the named destination. That means, the contract term should indicate the port of discharge up to which the freight is included. For instance, for delivery at New York the contract terms should be CFR New York.

The seller has to prepare, pack, transport up-to the port and arrange to place the goods on board a vessel and obtain clean freight paid bill of lading. The obligation of arranging for the contract of carriage rests with the seller. He has to pay for checking operations and pay unloading charges to the extent they are included in the freight. He has to obtain export license and carry out all formalities necessary for the exportation of the goods. He may furnish the certificate of origin, consular invoice and any other document at the cost and request of the buyer.

The buyer has to arrange to receive the goods at the destination. He has to arrange for insurance of the goods during transportation. He has to pay unloading charges to the extent they are not included in freight. He has to reimburse the expenses incurred by the seller in providing documents like certificate of origin at his request.

Though under CFR (Cost and Freight) contracts, the seller pays charges up to the destination, the risk of loss of or damage to the goods passes to the buyer the moment the goods are placed on board the ship in the seller’s country. Thus, the seller bears the cost up to the destination, but the buyer acquires the interest in the goods from the time they are loaded on board a ship in the seller’s country.

Documents to be furnished under CFR (Cost and Freight) contracts are:

(a) Freight paid bill of lading

(b) Invoice, and

(c) Other documents as required by the importer.

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