CNF Shipping Incoterms: The Complete FAQ Guide

CNF Shipping Incoterms
CNF Shipping Incoterms

CNF shipping Incoterms are a set of rules which describes the delivery of goods from the supplier to buyer.

CNF rules are used to describe the responsibilities of parties connected with customs clearance, freight shipping, and final delivery.

Read this FAQ if you want to learn more about all the nuances about the CNF Incoterms.

What are the Buyers’ responsibilities in CNF shipping terms?

Under the CNF agreement, buyer’s responsibilities arise from the time when goods arrive at the port of destination.

So, the buyer is responsible to pay any costs at the moment of arrival.

This might include the next charges:

  • customs clearance fee;
  • import duty;
  • port charges;
  • VAT (value-added tax);
  • fuel surcharge;
  • docking charge;
  • warehouse storage fee.

Please remember, that the risk of loss or damage to the products passes to the buyer after placing them on board at the port of shipment.

Sea port

What is the difference between FOB and CNF Incoterms?

FOB (Free on Board) rules state that the seller completes the delivery when the goods get to the ship at the nearest port.

After this, the buyer has to organize the transit to the destination country and pay all fees and costs connected with this process.

In the case of CNF Incoterms, the seller has to organize and pay for the delivery to the port of final destination.

CNF pricing scheme

What is the difference between EXW and CNF Incoterms?

Under EXW (Ex-works) Incoterms, the seller doesn’t have to load the goods on the buyer’s designated method of transport.

In such a case, the buyer has to transport products from the point, selected previously with the supplier.

What is the difference between CIF and CNF Incoterms?

CIF Incoterms are similar to CNF, with the main difference lies in the insurance obligations.

Under the rules of CNF, the buyer has to buy additional insurance if he wants such an option to be in charge.

The CIF Incoterms oblige the seller to buy insurance for the transported goods.

Note: all Incoterms with insurance responsibility state that the seller has to provide the minimum coverage.

If the buyer wants stronger insurance, he has to buy it himself or discuss this option with the seller.

What does it mean for CNF Shanghai, CNF Guangzhou, CNF Ningbo, etc?

You can often see such collocations, where the first word is a type of Incoterms, while the second is the name of some city.

For example, you see CNF Shanghai in your agreement with the supplier.

It means that the seller completes the delivery when the goods are placed in some ship at the port of Shanghai and then transferred to your country.

As a buyer, which costs and fees do I have to pay for the CNF Incoterms contract?

As it was said earlier in this FAQ, the buyer has to pay charges which arise at the port of destination.

When the products arrive, you as a buyer have to organize customs clearance and delivery to your office or warehouse.

You can see the full list of possible fees in the question “What are the Buyers’ responsibilities in CNF shipping terms?”.

Freight vessel in ocean

How do I calculate the CNF price in exports?

Unfortunately, there is no stable formula to calculate prices in export.

The prices might vary because of different sellers, shipping agencies, forwarders, and their quotes.

As a buyer, you have to keep in mind that initial CNF price would be smaller than the final price because of additional customs and delivery charges in your home country.

Can I add qualifications or variations to the CNF Incoterms rules?

Yes, it is possible to add extra words to any kind of Incoterms rule.

For example, you can add the “stowed” rule to the agreement, which will make the seller responsible not only for loading the cargo on board but also for stowing it correctly.

Also, you can add the rule of VAT payment and decide that the seller is responsible for paying not only the export costs and duties but VAT as well.

Note: as a buyer, you have to be 100% exact and correct with terms used in your agreement with the supplier.

Use only clear widespread definitions which are common in international trade.

Should I use CNF as a buyer? What benefits can I get?

Each type of Incoterms has clear advantages and disadvantages for the buyer.

CNF is often the cheapest and helpful Incoterms contract since the buyer is obliged to perform only import procedures.

How the CNF Incoterms impact the shipping costs?

Under the CNF rules, all the shipping costs to the destination country are on the seller.

What are the rules for CNF Incoterms insurance?

CNF Incoterms do not have any kind of rules for insurance.

You can add such clauses directly or use another set of rules, like CIF (cost, insurance, and freight).

Are the CNF Incoterms rules applicable to the eCommerce business?

Yes, a lot of eCommerce platforms use CNF Incoterms, as well as other international trading rules.

The most popular Incoterms for B2B trade are EXW, CPT, or CIF.

The B2C model widely uses CPT or CIF Incoterms.

Reminder: eCommerce platforms are websites which buy or sell products via the Internet or other electronic services.

The most popular eCommerce platforms are:

  1. Amazon (both B2B and B2C).
  2. Alibaba (B2B).
  3. AliExpress (B2C).
  4. Shopify (depends on the store, both B2B and B2C).
  5. Magento (B2B and B2C).

Alibaba main page

Does CNF relate to all transportation modes?

No, CNF Incoterms can be used only in the case of maritime transportation.

What is the special paperwork for the CNF Incoterms? Who is obliged to perform it?

Seller is obliged to perform paperwork connected with:

  • export customs clearance;
  • pre-freight delivery;
  • shipping line services.

Buyer, on the other hand, has to be able to:

  • complete documents for import customs;
  • provide papers for the VAT and other taxes;
  • handle any other permits, quotas, special documentation relating to the shipment.

Are there some lacks when using the CNF Incoterms in international trade?

The most obvious flaw of CNF Incoterms lies in the absence of insurance.

Secondly, the transfer of risks connected with loss or damage to goods is also quite confusing: the seller selects the shipping line and organizes the delivery, but he passes his responsibilities when the products are placed on board.

The final lack of these Incoterms arises when the products arrive in your country: from this moment you have to deal with customs and final delivery.

You can prefer to put this work on the forwarding company, but it is connected with extra charges.

Who is responsible for customs clearance in the CNF Incoterms contract?

Export customs clearance is the seller’s obligation, while the buyer has to perform customs duties at the port of destination.

Port services

What does the shipping point mean in the CNF Incoterms?

Shipping point is a place where the seller transfer goods to the shipping company.

For example, it can be a delivery truck, post office, loading dock, etc.

In the case of CNF Incoterms, the shipping point is the port in the country of origin.

This is the place where the seller transfers goods to the shipping company, as well as his responsibilities for loss or damage to such goods.

Can I use CNF Incoterms for domestic transactions?

Even though Incoterms were introduced as rules for international trade, they can be used for domestic agreements as well.

However, please keep in mind that CNF Incoterms regulate only maritime freight.

What is the legal status of CNF Incoterms?

Incoterms is a document which is recommendatory in nature.

This is the reason why all international commercial terms have to be backed up with laws.

The parties can choose between three options:

To keep the law of the exporting country

By default, the seller will use laws of his own country when some issues with shipping arise.

Speaking of Chinese laws and regulations, they similarly protect both buyer and seller.

To keep the law of the importing country

If you don’t want to get confused by unclear regulations of a foreign country, you can decide to use domestic laws.

To keep the law of a third country

This option is also popular because it allows finding the consensus between parties.

If the seller doesn’t want to use your domestic laws, you can decide to pick laws of any country in this world.

Note: as a buyer, you have to find agreement about the laws before the shipping process begins.

Otherwise, it will be considered that you are using the seller’s domestic laws.

Maritime vessel

What is a step-by-step procedure of goods delivery in the case of CNF Incoterms?

Now, when we’ve figured out all the details about the CNF Incoterms, let’s imagine the real situation to have the full picture.

For example, you order some kind of goods from China and decide to use CNF rules with your supplier.

Step 1. The seller packs products, prepare export documentation and other legal papers needed at the port of origin.

Step 2. The supplier delivers your products to the port, using his vehicle capacity or some courier services.

Step 3. The seller has to clear the goods at customs. For this step, the vast majority of companies use the help of customs broker agents.

Step 4. The supplier puts the goods on board the ship. He also pays for the shipping to the destination country and all the above-mentioned services.

Step 5. When the freight gets to the port in your country, you have to start acting.

You must process the customs clearance, pay connected charges and port fees.

Step 6. Finally, you have to deliver goods from the port to the needed destination point.

What is CNF Incoterms connection with the transfer of title to the goods?

Please remember, that none of Incoterms determine transfer title to the products or ownership fact.

Also, they do not contain info about the payment for goods.

Who pays CNF Freight?

Under CNF, the seller nominates the carrier.

Hence, they are responsible for paying for all the costs associated with transporting the goods from their location to the destination port.

This includes inland trucking costs at the country of origin and ocean freight costs from origin to the destination port.

Once at the destination port, the buyer arranges transportation of the goods to their final destination.

Does the CNF Price include Duty?

No, CNF does not include duty. It only covers the cost of goods and freight charges from origin to the point of delivery.

The buyer’s responsibility is to pay for import duty and taxes andany other costs related to customs clearance.

Does CNF include Unloading?

No, it doesn’t.

With CNF shipping terms, the seller is responsible for transporting the goods from origin to the destination port.

The seller’s responsibility includes trucking goods from the factory or warehouse to the shipping port.

They also load the goods onto the shipping vessel and facilitate shipping to the destination port.

Once the shipment leaves the shipping dock, the seller ceases to be responsible for it.

Final delivery rests with the buyer.

As the buyer, you will have to organize unloading from the shipping vessel, import clearance, and trucking to the final destination.

Can you use CNF for Air Freight?

No, you cannot use CNF for Airfreight.

This incoterm only relates to shipments you’re transporting by sea or inland waterways.

If you’d like to ship goods via airfreight, you may need to consider other incoterms.

Does CNF work with Letters of Credit?

Letter of credit illustration

Letter of credit illustration

Yes, it does; although, it comes with a fair amount of risk to the seller.

If a seller agrees to payment by letter of credit, they will have to wait until the buyer acknowledges receipt of goods to get paid.

Or provide evidence showing that goods have been dispatched and all carriage fees are paid for.

Technically, letters of credit are separate transactions from the sales contract.

In other words, banks are very less concerned with such agreements even if they’re referenced in the LC.

Likewise, banks are not bound by the trade contract when it comes to LCs.

This can create a big problem for sellers that invest a lot of their resources in negotiating contracts.

Especially those who specify payments be made via LC.

Letters of credit don’t protect nor benefit the seller as they are drawn after the trade contract.

Also, sellers don’t negotiate the critical terms of the LCs.

Since most LCs presented to banks tend to be discrepant, this can delay payment or potentially eliminate the LC payment.

You (the seller) should focus on preparing and submitting the relevant documents to the advising bank.

The paperwork should comply with the terms of the contract.

For the buyer, agreeing to pay via LC protects you against fraud and possible scams.

This is because the seller can only be paid once they fulfill all their delivery obligations under the CNF terms.

Which other Incoterms can you use as an Alternative to CNF?

CIF, FOB, and FAS are the most common alternatives of CNF in foreign trade contracts.

FAS (free alongside ship) means that the seller is only responsible for delivering the goods to the port next to the shipping vessel.

It also requires the seller to load the goods onto the ship. After this, risk and responsibly shifts to the buyer.

Like FAS, FOB (free on board) also requires the seller to deliver the goods to the origin port and load them for shipping.

For buyers, this incoterm is cheaper and offers full control over the delivery process.

CIF, on the other hand, is no different from CNF.

Both terms are used during sea shipping and require the seller to facilitate the transportation of goods up to the destination port.

However, CIF obligates the sellers to take up liability of goods up to the point of delivery while CNF doesn’t.

If you’d like the seller to assume the risk of transporting the goods to the destination, CIF is an excellent option over CNF.

How can you get Goods Insurance when Shipping CNF?

As you know, CNF shipping does not include freight insurance.

Therefore, as the buyer, you’re responsible for insuring the goods from the point of shipping to the destination.

This ensures that your goods reach the destination in good form and that you claim compensation in case of loss or damage.

If you buy goods on CNF terms, you can talk to your forwarding or sourcing agent to organize insurance for you.

These agents are professionals with immense experience and connections in the industry.

They can help you get a policy with reasonable coverage and affordable premiums.

Alternatively, you can consult an experienced insurance broker to help you acquire insurance coverage for your goods.

Just ensure that the broker you’re contracting is reliable and trustworthy.

If you trust yourself, you can personally approach a reputable insurance company and handle the formalities yourself.

No matter the approach you choose to take, ensure that it gets you reasonable cargo insurance cover at good rates.

Are there Hidden Costs with CNF Price?

Well yes.

CNF price only includes the product price and cost of shipping the goods from the supplier’s facility to your destination port.

It excludes any other costs that occur at the point of delivery and beyond.

Meaning, you will have to bear sole financial responsibility for other costs involved at your destination port.

Additional fees associated with CNF shipping include port fees, import duty and taxes, docking fees, warehousing charges, fuel surcharges, etc.

So when considering buying on CNF terms, remember that the price is only just the tip of the iceberg.

It does not mark up the final landed cost of your product from origin to destination.

Can you use CNF for Alibaba Purchases?

Yes, although FOB and CIF are the more default prices on the Alibaba platform.

Sellers and buyers alike can agree to transact on CNF terms where the buyer arranges their insurance.

Both parties need to negotiate the terms and understand them clearly before agreeing to the contract.

Is there any Point where FOB equals CNF in Shipping?

No.

CNF and FOB have very distinct outlines on who is responsible for costs and risks during international shipping.

In FOB, the seller only delivers the goods at the shipping port and loads the goods onto the ship.

CNF requires that the seller oversees the transportation of the goods up to a destined port.

The buyer assumes a large part of the risk and financial obligations in FOB.

In CNF, it is the seller that bears most of the responsibilities.

The only thing that can compare FOB to CNF is that both incoterms are designated for ocean shipments.

Moreover, both terms exclude insurance coverage for the goods.

Who chooses the Freight Forwarder in CNF Shipping?

Since the seller is responsible for 90% of the freight process, they naturally choose the freight forwarding agent to use.

As the buyer, you can also hire a freight forwarder to help you receive and clear goods at the destination port.

The agent can also organize the goods’ transportation from the origin port to your door or warehouse at the destination country.

A good freight forwarding agent will also help you with the customs clearance process.

 When choosing these agents, choose those with a good reputation and experience in the industry.

Can you Pick up a CNF Shipment at the Destination Port Yourself?

Yes, you can pick a CNF shipment yourself once it reaches the delivery point.

It is even better if you can confidently navigate through the customs clearance process by yourself.

Otherwise, delegate the consignee’s role to your shipping agent or customs broker so they can also work on clearing the goods for import.

When should you Use CNF?

For buyers, you should use CNF when you’re relatively new to foreign trade.

It saves you the hassle of dealing with all the processes and formalities of international shipping.

CNF terms are also ideal when importing small volumes.

However, it ismore costly in reality as you may end up paying more in terms of terminal handling charges at the delivery port.

When you have a trusted shipping agent or customs broker at the delivery point, you may consider CNF.

The agent/broker can help you handle the customs clearance formalities and ensure safe delivery from the port to your final destination.

As a seller, a CNF price can significantly increase your profit.

It would help if you considered it for overseas transactions where the buyer is not familiar with the import process.

When you have trusted connections, i.e., freight forwarders and carriers, quoting a CNF price can also be convenient.

Are CNF Terms Legally Binding?

Not really.

CNF shipping incoterm serves as a commercial agreement between buyer and seller in international shipping.

In case of a dispute during the engagement process, the contract can be referenced to establish who is responsible and gain a resolution.

Therefore, both the seller and buyer should review the contract carefully before agreeing to the terms.

However, CNF does not replace any legal systems that exist in various countries and trading blocs.

It only codifies the concept of risk, allocation of costs and liability, and the delivery point.

Is CNF suitable for FCL shipping?

Yes.

Typically, CNF is designated for ocean shipments.

The shipment size does not matter, nor does the type of container you’re shipping the goods in.

CNF can be used for FCL (full container load) shipments and LCL (less than container load) shipments.

With LCL shipments, the seller will handle the consolidation process to ensure the goods reach you at the agreed time and in good form.

What is the equivalent of CNF shipping for Airfreight?

Airfreight

Air freight

As earlier mentioned, you cannot use CNF for air freight.

If you’d like to use CNF for air shipments, we advise that you substitute CNF for CIP.

With CIP (carriage insurance paid), the seller assumes all freight costs and risks of the shipment up to the destination port.

In this case, the seller must also obtain insurance (up to the goods’ value) to the delivery port.

If not CIP, you can consider other incoterms with totally different terms.

See our guide on incoterms 2010 to understand the various incoterms available.

Should you use CNF for Large Shipments?

We do not recommend using CNF terms when importing a large volume of goods.

With CNF terms, it can be a bit challenging to track the shipment and prepare for their delivery on time.

You also do not have control over the shipment while in transit.

Note that with international shipping, the more the goods, the more the problems that can occur.

And with limited control over the transport process, obtaining accurate information about the cargo can be difficult.

If issues emerge while your CNF shipment is in transit, you cannot address them directly.

You have to go through the supplier first to get the right information.

This can affect communication flow and, as a result, impact your overall importation costs and delivery schedules.

Is there a variance in CNF terms under incoterms 2010 and incoterms 2020?

No.

With CNF incoterms 2020, the only different thing is the layout of the text. Otherwise, everything remains the same as CNF incoterms 2010.

The International chamber of commerce first published the incoterms 2020 in January 2020.

And with no significant changes made to the CNF terms, you’re not obliged to adhere to the new terms.

Whether buyer or seller, you’re free to incorporate the incoterms 2010 or any earlier version into your trade contracts.

What are the Common CNF Myths and Misconceptions?

Contrary to popular beliefs, CNF and generally other incoterms do not:

  • Dictate the payment terms such as payment duration and percentages
  • Settle breach of contract
  • Determine carriage contracts
  • Work for intangible goods and services
  • Transfer legal ownership of goods
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