Freight over FOB? No Worries, My Friend!

QUESTION

Dear Mr. Old Man,

Apologies for the delayed response, and thank you very much for your detailed explanation.

Based on your clarification, I understand that in the case we discussed, it would be appropriate to raise a discrepancy for the export documents.

I have a further question:

Is it possible for the freight amount under a CFR Incoterm to be higher than the FOB value of the goods?

From what I see, neither UCP nor ISBP explicitly state that this situation would be unacceptable, so it seems we may not be able to raise a discrepancy based on that alone.

In what kind of scenarios would this occur, and if such a case is observed in the documents, what precautions or considerations should we keep in mind?

Thanks and regards,

PSP

——-

ANSWER 

Dear PSP,

Thank you for your message, and no worries at all regarding the delay — I appreciate your thoughtful follow-up.

To your question: yes, it is entirely possible for the freight cost under a CFR Incoterm to be higher than the FOB value of the goods. While this may appear unusual at first glance, such a scenario can arise under certain commercial conditions and is not, by itself, grounds for raising a discrepancy.

You’re quite right — neither UCP 600 nor ISBP 821 explicitly prohibit this situation, nor do they treat it as non-compliant. Therefore, if the documents otherwise conform to the credit terms and the applicable rules, a high freight cost relative to FOB value does not constitute a discrepancy.

This tends to occur in specific scenarios, such as:

• Low-value, bulky cargo being transported over long distances — for example, second-hand trucks shipped from the USA to Cambodia, where shipping costs may exceed the residual value of the vehicles themselves.
• Remote or inland destinations with limited shipping options, where freight rates are naturally higher.
• Small or irregular shipments, where per-unit freight costs are disproportionately high due to lack of scale.

Although situations like this might raise questions from the buyer or customs and lead to closer checks, they are not considered incorrect or unacceptable under documentary credit rules.

Warm regards,

Mr. Old Man