Group-C Incoterms 2020, technically Group-C Shipment Contracts, are a special breed of Incoterms. They stand in between the E and F groups, where the responsibility for the seller is limited, and the D group, where the seller’s responsibility and obligations are extensive.
As a result, Group-C Incoterms are widely used by both exporters and importers.
For example, one common feature of the E and F groups is that delivery takes place for sure at origin, i.e. the transfer of risk shifts from the seller to the buyer before the goods are loaded on the ship, airplane, train, etc.
On the contrary, if the sale contract is regulated by a D-group Incoterm, we know for sure that the place of delivery will happen at destination, i.e. the seller will not be relieved from bearing the risk of loss or damage to the goods, nor of the other obligations (such as export clearance), until the goods are delivered to the buyer at destination.
The C-group Incoterms mix up these distinctive principles and make up a situation whereby risk and obligations shift from the seller to the buyer at two different physical places. For this reason, they are sometimes referred as C-group: Contradictory and Confusing group of Incoterms.
History of the C-group Incoterms
CFR Cost & Freight and CIF Cost, Insurance & Freight used to be the legal pillars of the export & import business.
They were among the original Incoterms published by the ICC (International Chamber of Commerce) in 1936, neither of which was designed for containerized cargo, since this was invented several years later in the 1950s.
At that time, the export and import trade was dominated by agricultural goods, what today we would call commodities; these, even then, were traded continuously on the commodity market. Basically, a coffee shipment from Santos in Brazil to Rotterdam in the Netherlands, roughly a 6-week journey, could change owner several times during transportation.
Then the question was: who is to be held responsible?
If you read our guide on how to use Incoterms, you might remember that an important principle of Incoterms is that they are always viewed from the side of the seller, i.e. when risks and obligations shift from the seller to the buyer.
Yet, since the merchandise changes hands many times while being transported, which seller is to be held responsible? The original seller? The third seller, with the goods being sold another couple of times afterwards?
To solve this problem, the ICC decided to split the responsibilities in two parts: delivery as per Incoterms, i.e. transfer of risk, shifts from the original seller to the buyer at the port of shipment; however, transportation and related obligations remain on the original seller up to the point of destination.
Delivery vs transportation
With this in mind it is easier to understand the somehow contradictory principle governing the the C-group Incoterms: delivery and transportation are two different things.
If you are familiar with the concept of delivery under Incoterms (we repeat this many time in our articles, but is always worthwhile reminding the concept), that difference is not that striking after all.
In fact, delivery is not necessarily physical delivery, but it is the moment where the risk is transferred from the seller to the buyer. Transportation, on the other side, means the physical delivery up to the place of destination.
Under the C-group Incoterms, delivery occurs at origin, such as the port of shipment, whereas transportation ends at destination. The seller is relieved from the risk of loss or damaged to the goods before these are loaded on the carrier, but remains responsible to pay for transportation up to the final destination.
The four C-group Incoterms 2020
With this hopefully newly-acquired, C-group-like mindset, reading the four Incoterms becomes more understandable:
CFR Cost & Freight (named port of destination)
CIF Cost, Insurance & Freight (named port of destination)
CPT Carriage Paid To (named place of destination)
CIP Carriage & Insurance Paid To (named place of destination)
For a detailed explanation of each Incoterm, you can refer to our linked articles.
Globartis Research
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