In Category C, there are 4 incoterms, which are a major part of commonly used commercial terms.
The key point in Category C is that – The seller has to pay for the main carrier (ship/air cargo).
Cost and freight ( CFR ):
Being the first Incoterm of Category C, CFR is used in sea and inland waterways only.
It requires the seller to transport the goods by any waterway and place it at the port of destination as required by the buyer.
- The seller is expected to complete the export formalities and present the required documents to the buyer for her to unload and transport the goods.
- But the risk of goods transfers to the buyer when the goods are placed on to the vessel (ship/air cargo) in the origin port itself.
- So the important criteria is that the cost for the seller and the risk for the goods changes at different points in this Incoterm.
- No need for any insurance from the seller, if this Incoterm is used.
Cost, Insurance and Freight (CIF):
CIF is nearly similar to CFR, but it requires an ‘Insurance’ to take care of the goods until the port of destination. And this Incoterm also exclusively applies to Sea and Inland waterway.
- Here, the seller is required to take charge of the risk and cost till the port of destination.
- The risk is taken care via the Insurance.
- If the product requires any additional export paperwork, inspections or rerouting, the seller is responsible for the expenses.
- Exporters (sellers) who have direct access to ships will mostly use CIF.
- However, unloading and other charges at the destination port is taken care by the buyer.
Carriage paid to (CPT):
In CPT, one more step of the supply chain is taken care by the seller – the destination terminal charges. And it is used for all modes of transport.
- The risk of damage or loss to the goods is transferred to the buyer once the goods are delivered to the first carrier in the destination.
- Since seller has the obligation only to transfer the goods to the carrier but not take responsibility for its safe arrival, the seller might select a cheap mode of transport for the final leg. So the buyer has to be extra cautious while using this Incoterm.
- It is commonly used in containerised goods.
Carriage and Insurance paid (CIP):
It looks similar to CPT but it is not. The seller has the responsibility for safe delivery of goods at the agreed upon location and provide an insurance for the safety of the goods.
- The responsibility of the seller ends when the good is delivered to the carrier or to an appointed person.
- Under CIP, the seller is obligated to insure goods in transit at 110% of the contract value.
- For any additional insurance, only the buyer has to take care.
- It is usually used in commodity trading.
Responsibility matrix for the seller:
Bottomline: All the four Incoterms places more responsibility on the seller. She is expected to provide a seamless transit by paying for the main carriage and take insurance when necessary. Another thing we need to note in Category C is that, the risk and the charges does not transfer at the same point. Seller may have increased charges but not risk of the safe arrival of goods in the case of CFR (Waterway) & CPT (Any mode of transport).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about any specific circumstances.