Useful Information - Incoterms

Incoterms - CFR/CIF

Terms beginning 'C' are 'Contracts of Dispatch'. They differ from other INCOTERMS as they segregate the point at which risk and responsibility passes from the point at which costs pass.

Under all other terms, the point of transferring risk and the point at which responsibility for cost is also transferred are simultaneous. With the 'C' terms this is NOT the case.

CFR (Cost and Freight) has a long history and outside of INCOTERMS a definition with consensus is difficult.

As an INCOTERM risk passes from the seller to the buyer when the cargo crosses the ship's rail at the origin port. However, the responsibilities for the costs of transit only pass from the seller to the buyer at the destination port. CFR and CIF are Monomodal expressions used when the main carriage is by sea and both are suited to the use of Bills of Lading.

Because the ship's rail is seen as triggering these terms, it is often inappropriate to use either in a modern port and reference should be made to the notes on this subject under FOB.

Buyers are disadvantaged with contracts of dispatch. The buyer must take risks for a period of carriage during which the buyer has no means of controlling or limiting those risks. The carrier used; the costs incurred for carriage and the timing of the carriage are all under the seller's control. The buyer must consider this disparity before accepting a C termed contract. From the seller's perspective, the C terms represent exceptional risk-management opportunities and are actively pursued as a consequence.

CIF (Cost, Insurance and Freight) represents the condition of CFR with the addition of Insurance. This is the first of only two terms that place a compulsory responsibility for insurance on the seller. Under all other terms, the buyer considers insurance as an optional responsibility. (Refer CIP)

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