In this article, we’ll look at delivery terms CFR Incoterm 2020 that are frequently used in international commerce: CFR and CIF.
CFR: CFR is also known as C& F and CNF.
CFR stands for Cost + Freight/strong>.
There are three primary elements to the value of an invoice: (FOB value/cost + freight + insurance)
In the case of CFR, two elements are at play. Cost and freight.
In the case of CFR seller-made items, you need to pack these, then make sure that custom clearance is in place at the source, arrange freight, and load them onto the container.
The seller’s responsibility ends once the items are taken offboard. Then it becomes the buyer’s responsibility. Buyers are responsible for ensuring their items in the event of CFR.
Let’s look at CFR through an example.
Let’s suppose that a buyer has received a FOB quote for products he’s planning to purchase or import.
However, the buyer does not want to engage in freight operations and would prefer to purchase the products using freight (prepaid). But their business has an insurance policy for the group, so they want to cover the insurance.
This price is known as the CFR price since it covers freight and costs.
CIF
CIF = Cost + Freight + Insurance.
CIF is the same as CFR. The only difference, in this case, is that the responsibility for arranging insurance lies with the seller.
Therefore, in the case of a CIF seller, the seller must arrange for shipping and insurance; everything else is the same as with CFR.
The CIF Incoterm 2020 price includes cost, freight, and insurance.
After requesting a price (RFQ), the seller provides the quote for the goods with ocean freight included in the case of CFR or including insurance and ocean freight in the event of CIF.
The buyer evaluates the price against the quotations of other sellers or suppliers and determines the price to be reasonable when compared to other prices, accepts the offer, and issues a purchase order.
The seller also signs the contract of sale with an Incoterm CFR or CIF in accordance with the terms of the agreement.
The seller begins manufacturing the products and then shares the lead time and estimated shipping date with the buyer.
It’s not required that the manufacturer and the seller be identical every time. Sometimes the sellers can be traders who buy the products from another source and then export them. In this instance, the seller would purchase the product from the local market.
At the same time, the seller contacts freight forwarders for a quote on ocean freight charges and other fees.
They can also get in touch with CHA for cargo clearance.
CHA also called Customs Clearance Agent
Most of the time, when the seller is an established exporter, they already work with CHA, who manages all their shipments and charges per the annual rates of contracts.
Freight forwarders: Some regular exporters who are able to handle more volume have signed contracts with one or two forwarders at a fixed price for three or six months. The contract can be renewed or extended mutually based on the freight cost.
Certain exporters with lower volumes or those in seasonal business typically are in contact with several forwarders and can make a float freight request, which is often required, and pick the one that has the lowest ocean freight.
Freight forwarders approach shipping lines/airlines and arrange for the booking of containers/space as needed.
There’s a separate article on container booking and execution. Visit this link to read the article.
Insurance:
There are numerous insurance companies, both private and public, offering a range of insurance products, and transit insurance are among them.
Exporters should approach one of these organisations to obtain transit insurance. They purchase a policy according to the policy’s requirements.
Operations process under CFR Incoterm 2020:
When the cargo is packed and ready to be shipped, after the containers have been booked, exporters contact the CHA as well as their freight forwarder. Cargo is shipped to the closest CFS as well as ICD. CHA arranges all permits from customs and creates documents according to the specifications.
When cargo is brought into CFS and an ICD forwarder supplies empty containers to stuff, the cargo is handed over to a customs officer to be inspected; if everything is satisfactory, the customs officer issues clearance after all documentation is completed and a shipping invoice is issued.
After the customs clearance process is completed, containers are sent to the port or airport. After containers arrive at the port or airport, the last documentation process takes place. CHA contacts customs officials at the port or airport to make arrangements for the final clearance.
In certain cases, exporters have permission from factories for stuffing. In this scenario, empty containers are delivered to exporters’ premises, and stuffing is carried out at the premises; containers will be sealed in the presence of the central officer for excise. Following the completion of the documentation, the documents are covered in a seal. Sealed containers and documents are then sent to the port where processing occurs and clearance is completed.
After containers are brought inside the port or airport cargo console and the custom document process is completed, operational tasks on behalf of exporters, as well as CHA, are completed. The shipping liner or airline agency manages further processes such as loading containers into ships or flights. Additionally, they complete the necessary documentation, such as mate receipts, and sign any other documents related to the vessel (from the Captain of the vessel), EGM closing (at customs), etc.
Documents for shipment:
Post shipment documents are a crucial part of exports. Without these documents, the cargo will not be cleared by the importer in the destination country.
There’s a separate article about posting shipping documents and export documents. Click here to read the article.
After that, containers are handed over to the liner by the port exporter and/or the port exporter’s CHA, as well as the freight forwarder. They approach different offices to obtain different certificates or other documents.
The forwarder coordinates with the liner and receives a Bill of Lading (B/L) sent out.
An exporter (or CHA in the name of an exporter) reaches the Chamber of Commerce for a Certificate of Origin (non-preferential) or a preferential certificate of origin and a free trade agreement certificate. They must approach export inspection councils and other approved agencies.
If the cargo is a plant product, a phytosanitary certificate must be issued from Plant and Quarantine or any other similar department of the government (depending on where the export is made).
If a pre-shipment inspection is conducted, then the agency for inspection will issue an inspection certificate.
After all the required documents have been taken care of, the seller or exporter will forward the documents to the buyer or importer in accordance with the payment terms agreed upon.
There is an article about international payment methods and international payment terms. Go here to read the article.
In the case of CFR, the responsibility of an exporter/seller ends once containers are loaded into vessels and all post-shipment documents are handed over to the buyer/importer. However, in the case of CIF, the seller or exporter is held accountable until the cargo arrives at the port of destination.
When the container or cargo arrives at the port of origin, it is the responsibility of the buyer or importer to remove the cargo and bring it to their location.
All this is about FCA incoterm and we hope the above article would have helped you to understand what is FCA shipping and the operation mode. If you have any consultations required for air freight, ocean freight, customs clearance, and Logistics transportation then we have a very committed team of professionals to help you out. You can get in touch with us at Consolidation Shipping Line any time of the day or drop an email at inquiry@cslindia.net