This time, let’s look at INCOTERMS C Group, which is CFR, CIF, CPT, CIP. Our company works as a freight forwarder in Thailand.
CFR and CIF are often used by the customer, due to the volume of exports from Thailand. Let’s take a closer look.
Firstly, let me explain about “INCOTERMS”. “INCOTERMS” is a terms and condition of cost and risk responsibilities for trading, between buyers and sellers.
Remember, they are international trading terms, which clarify sellers’ and buyers’ cost and risk responsibilities from location to location.
The following illustration explains CFR and CIF cost and risk responsibilities. Sellers are responsible for the cost until the cargo arrives at the importing port.
In terms of risk responsibilities, sellers are responsible until the cargo is loaded onto a vessel at the exporting port, once cargo is loaded onto a vessel, it becomes the buyers’ responsibility.
Remember, on CFR and CIF, the location of changing the cost and risk responsibilities are not the same.
Now, let’s take a look at the terms CFR and CIF. CFR is a short form of “Cost and Freight”. Therefore, sometimes it is written as “C&F”（C and F）, but the correct short form is “CFR”.
CIF is a short form of “Cost, Insurance and Freight”.The difference between CFR and CIF is insurance, “I” stands for “Insurance”, which makes it easy to remember.
With CIF, it is the responsibility of the exporter to arrange insurance. CFR does not include any insurance,
therefore the importer will either waive insurance or they will arrange insurance.
From an exporter’s point of view, if they are exporting high volume cargoes and have a business with a freight forwarder, who has strength and experience in exporting to certain countries, they have additional advantages when using CRF or CIF.
Under these conditions, the exporter is responsible for cost until the cargo arrives at the importing port. The more volume exporter’s have, the cheaper the freight will become.
From an importer’s point of view, if you are importing cargo from the country for the first time, or if the freight forwarder is not familiar with the importing countries practices,you may wish to choose CFR or CIF trading conditions, where the exporter’s take increased responsibility.
Now, let’s take a look from an experienced freight forwarder’s point of view.
For example, we are Thai freight forwarder and export high volumes of mangoes, durians and industrial products on a monthly basis.
As shown in our company introduction video, we deal with high volumes of cargo and also benefit from good working relationships with shipping lines. They offer us competitive ocean freight.
This enables us to offer better deals to Japanese companies in Thailand, who export to Asia, Southeast Asia, the Middle East and Europe.
However, we can only offer a general rate to Africa and South America, due to less supply.
Trading requires sellers who export and buyers who import to establish an agreement. Arrangements for transportation cost and smooth transit are important part of the agreement.
When establishing conditions, it is important to consider freight forwarder’s experience and knowledge of logistics.
Let’s return to “INCOTERMS”. Under group C, in addition to CFR and CIF, there are also CPT and CIP terms.
The location of the risk responsibility changes once the cargo is on the deck of vessel when using CFR and CIF.
Alternatively, the location of risk responsibility changes at exporting CY and CFS when using CPT and CIP. This means CPT and CIP are the conditions used when exporting using container vessels.
In terms of cost responsibility, under group C, exporters take responsibility up until the vessel arrives at the importing port.
The following explains the difference between CPT and CIP; CPT is short form of “Carriage Paid To”.
CIP is short form of “Carriage and Insurance Paid To”.
As in the case of CFR and CIF, “I” in CIP stands for insurance, which in turn means CPT does not include insurance. In this instance, all you need to remember is that “I” will always stand for insurance.
Finally, let’s check your understanding. This time, we explained the INCOTERMS’, “C Group”.
Also, we explained the advantages of these terms on cost and risk responsibility of importers and exporters, when considering cargo volume.
CFR and CIF are the business terms that are often used on trading practices, it is important to understand the difference.