Common Misinterpretation of C-Terms

C-terms or ‘Main carriage paid by the seller’ are terms frequently used by traders in trade. There are two groups of C-terms, one is intended to be used when the goods are carried by sea; CFR and CIF, the other group can be used for any mode of transport, including sea and multimodal transport; CPT and CIP.

Unlike F-Terms, the place mentioned after the abbreviations under C-terms is an indication of a place at destination instead of place of origin or shipment. For instance, “CIF Port Klang” or “CFR Busan” is an indication that Port Klang and Busan are respectively the ports of discharge at destination. It is not to be read as ports of shipment or port of loading. This is the opposite of F-terms where “FOB Port Klang” or “FOB Busan” indicates that Port Klang and Busan are respectively the ports of shipment or port of loading.

There are two “critical points” that traders need to understand when applying C-terms in a trade, one is the point of shipment and the other one is the point of destination. C-terms are normally used in the event where contracting and arranging for the main carriage in the country of the seller is not possible for the buyer where it would be much faster and convenient if it is left to the seller to arrange. Therefore, to ensure the goods reached the buyer, the seller has two main obligations to be discharged under C-terms:

1. to make a delivery which is to take place in his country either by placing the goods on board the vessel nominated by him at the port of shipment or by handing over to a carrier nominated by him at any place on land and;

2. to undertake to arrange and pay for the main carriage with the addition of insurance under CIF and CIP up to a named point determined by the buyer in the country of the buyer.

It is for the second reason why the ‘destination’ point is required to be determined by the buyer and to be indicated after the abbreviations. The buyer must first determine a named place for the goods to be discharged in his country. The seller than, contracts and pays for the main carriage on behalf of the buyer in his country up to that named point determined by the buyer.

Secondly, the insurable interest to the goods while in transit under C-terms lies on the buyer. The risks are transferred from the seller to the buyer at the point of delivery in the country of the seller. Therefore, buyer is the party who is responsible to procure for insurance in his country to cover the risks from point of delivery up to point of discharge under CFR and CPT. However, under CIF and CIP, the seller is to procure for the insurance for the benefit of the buyer.

So, under C-terms, seller is responsible to contract and pay for the main carriage similar to those in D-terms and buyer has to bear the risks similar to those in E-term and F-terms.

Other duties and responsibilities of buyer and seller are explained in the LC guidelines & checklists.

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