CFR Basis Agreement
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.
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
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
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
- 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.
- 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.
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.|