In export-import activities, there are patent rules and guides on how everything goes on. Here, it is spilled inside Incoterms. One of the most commonly used term is CFR. In this article, we write about CFR, its updates, also advantages and disadvantages of using CFR.
Table of Contents
What is CFR?
CFR is an abbreviation for Cost and Freight and is one of the most common trade terms within Incoterms, along with FOB. If the seller and buyer have agreed to use this term, both parties should abide by it when trading.
CFR Updates in 2020
Just as FOB, the most commonly used terms, there are several updates in 2020, such as:
1. The Buyer Bears The Risk
In CFR contract, the buyer bears the entire risk of damage or loss of the goods.
2. Replacement Of Terms
Secondly, the term “alongside the vessel” has been changed to “on board”. This is to avoid misunderstanding in the contract due to the nature of the goods shipped depending on the situation and conditions.
3. Freight Prepaid In The Bill Of Lading
Third, when the CFR clause is used, the bill of lading contains the statement “freight prepaid”. This means that the seller must pay for the cost of transportation and management of all activities that take place as part of the export/import.
4. Dismantling Costs
In the CFR transaction, the seller and the buyer must agree on who is to bear the dismantling costs.
Advantages of Using CFR
Furthermore, there are some advantages of CFR for the parties involved. These are:
1. The Seller Can Decide The Transaction.
The first advantage of CFR is that the seller can set the selling price himself. In this process, the seller can also include the transportation cost in the selling price immediately.
2. RIsk of Damage to the Cargo
The second advantage is that the seller does not have to be liable for any damage or loss to the cargo after delivery of the goods.
3. The Buyer is Less Worry About The Transport By Ship.
The third advantage is that the buyer does not have to worry about organizing the ship transportation. The seller takes care of everything.
Disadvantages of CFR
However, there are also some disadvantages of using CFR as your contract term. Such as :
1. Can be Burdensome for The Buyer.
The disadvantage of CFR method is that the quoted price can be more expensive if the buyer is not careful. This is because the seller can enter the selling price at the beginning. And the sale value can be combined with the transportation cost.
2. The Seller Pays The Freight Costs
The second disadvantage is that the seller must also pay the freight charges. As mentioned above, the freight cost can be included in the sales value of the goods stated in the contract.
3. All Risks After Delivery Are Borne By The Buyer
The third disadvantage is that the buyer bears the risk of loss or damage to the goods during shipment.