What is CFR and FOB Basis Sales Agreement?

CFR Basis Agreement

Definition

The word CFR stands for Cost and Freight which is used in international trade. When sales agreement is made on a CFR basis, the seller will be responsible to arrange for the goods carrying by sea to the port destination and provides necessary documents to the buyer. Under CFR contract, the seller will not be responsible for marine insurance against the probable risk of loss or damage to the cargo during transit. The buyer is solely responsible for procuring marine insurance to minimizes the losses on the sea.

The term CFR, C&F or CNF are same trading terms.

When Sales Contract made under CFR th risk passes from seller to buyer when the seller delivers the goods onboard the ship. The buyer is responsible for paying all additional transport costs from the port of destination, including import clearance and duties.

CFR usually use for ocean or inland waterway transport.

How CFR Works

Under this term, the seller is responsible to arrange for the carriage of goods by sea to the port of destination and provide necessary documents to the buyer to clear the item from the ship. Contract made under CFR basis, the seller is not responsible for buying marine insurance for the loss of damage of product during transportation.

Seller’s Obligation

The responsibility and obligations of seller/exporter under CFR agreement are as follows:

i) Export Packaging and Marking

ii) Export Licenses and customs formalities

iii) Pre-Carriage & delivery

iv) Loading charges

v) Delivery at named port of destination

vi) Proof of delivery

vii) Cost of Preshipment Inspection

Buyer’s Obligations

i) Payment for goods as specified in sales contract

ii) Risk starting with onboard delivery

iii) Discharge and onward carriage

iv) Cost of preshipment inspection for import inspection

FOB Basis Agreement

Definition

FOB Stands for Free on Board. Under this agreement the seller is responsible for the goods until is it is loaded on the vessel. The seller is not responsible for the arrangement of transportation from the port of loading to port of discharge, and the exporter is not paid the freight under FOB terms. Like CFR basis risks is borne by the importer and he will pay marine insurance premium. In this case, the importer is books the container with his own vessel or the vessels recommended by the importer.

Hence, under FOB basis the costs associated with shipping of goods from the seller’s store to buyer’s store including the cost of port, loading cost, marine freight costs, unloading costs, insurance costs, and the cost of transporting the goods from the arrival port to the final discharge will borne by the buyer or importer.

Title and Control of Goods

FOB Origin:

• The title and control of the goods passed to the buyer when the carrier signs the bill-of-lading.
• The buyer is also responsible for the risk of transportation and minimizes the transportation risk by purchasing marine insurance cover for the goods in transit.
• The buyer is entitled to claim for the losses and damage goods in transit.

FOB Destination:

• The title and control of the goods retained to the seller until goods reached to buyer’s deck and the buyer is received the goods.
• Selection of carrier is the responsibility of the seller and the seller will bear the risk of transportation.
• The seller is eligible for filing claims for the loss or damages the goods on transport.

Payment Terms

Point of Origin:

FOB Origin	The buyer is responsible for the payment of freight charges (unless otherwise stated in the FOB Clause)
FOB Origin-Freight Collect	The buyer pays and bears the freight charges
FOB Origin – Freight Prepaid	Seller pays and bears freight charges
FOB Origin – Freight Prepaid & Add	Seller pays but invoices buyer for the freight charges

Point of Destination:

FOB Destination	The seller is responsible for the freight charges (unless otherwise stated in the FOB Clause)
FOB Destination, Freight Collect	Buyer pays and bears the freight charges
FOB Destination, Freight Prepaid	Seller pays and bears the freight charges
FOB Destination, Freight Collect & Allowed	Buyer pays freight charges and deduct the amount from the seller’s invoice
FOB Destination, Freight Prepaid & Add	Seller pays the freight and include the freight amount with the invoice to the buyer.

https://www.accountingtools.com/articles/2017/5/10/fob-shipping-point