Incoterm, Cost and Freight (2024)

FAQs

Incoterm, Cost and Freight? ›

Under CFR terms (short for “Cost and Freight”), the seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination. The risk passes from seller to buyer when the seller delivers the goods onboard the ship.

What is Cost and Freight. Definition: Cost refers to the cost of goods and freight refers to all other costs relating to all the means of transportation of the goods.

Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.

Cost and freight is a legal term specifying that sellers are required to transport goods by sea to a port of destination and provide the buyer with the documents necessary to pick up the goods at the destination.

A. Freight cost is often calculated as: (Base Rate + Fuel Surcharge + Other Surcharges) x (Weight or Volume) + Additional Services.

Under CFR terms (short for “Cost and Freight”), the seller is required to clear the goods for export, deliver them onboard the ship at the port of departure, and pay for transport of the goods to the named port of destination. The risk passes from seller to buyer when the seller delivers the goods onboard the ship.

Freight costs often depend on the weight, volume, and distance. There's a lot of emphasis on optimizing load and routes to keep costs down. In general, shipping pricing can be influenced by a wider range of factors, including the mode of transport, speed of delivery, and the nature of the goods being shipped.

It's one of the easiest for sellers, who only have to make the buyer's shipment available for pickup. That said, we also see the following Incoterms used with relative frequency: DDP (Delivered Duty Paid), FOB (Free on Board), CIF (Cost, Insurance, and Freight), and FAS (Free Alongside Ship).

Who pays the cost and freight? ›

With CFR, the seller must arrange and pay all costs to ship the product to a destination port, at which point the buyer becomes responsible.

What is the journal entry to record freight-in? Freight-in is capitalized onto the balance sheet since it's considered a production cost. Therefore, when freight-in is incurred, the company would debit inventory (freight-in) and credit cash (cash outflow to pay the expense).

Landed Cost Accounting in a Standard Cost Division

The Standard Cost Components are broken up into Material, Labor, Overhead, etc. With the Landed Cost program, Freight and Other Landed Costs will be included as additional cost components used to calculate the Standard Cost of an item.

Freight Rate, the cost of transporting goods, is reflective of a number of factors aside from normal transportation costs. The main determining factors of freight rate are: mode of transportation (truck, ship, train, air craft), weight, size, distance, points of pickup and delivery, and the actual goods being shipped.

Most shipping carriers use a pricing method known as dimensional weight to calculate the rates they offer. This is calculated by multiplying the length, height, and the width of the package. A standard divisor is then used for dividing the figure above.

Whether you are studying accounting, consulting with an inheritance tax specialist, or delving into your business financial statements, freight-in is part of the production process and will be capitalized into inventory and expensed through cost of goods sold when the product is sold.

Freight is the general term for goods transported from one place to another by any means: to send freight from New York to New Orleans. Cargo is the term generally used for goods carried by ship or plane: to send a cargo to Europe.

Cost, insurance, and freight (CIF) is an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer's order while the cargo is in transit. Cost, insurance, and freight only applies to goods transported via a waterway, sea, or ocean.