Key Takeaways
- Seller pays freight to destination port.
- Risk transfers at loading onto vessel.
- Buyer handles unloading, import, and insurance.
- Applies only to sea and inland waterway transport.
What is Cost and Freight (CFR)?
Cost and Freight (CFR) is an Incoterm defined by the International Chamber of Commerce specifically for sea and inland waterway transport, where the seller covers the cost of freight to deliver goods to a named destination port while the risk transfers to the buyer once the goods are loaded onto the vessel at the origin port. This term is widely used in international trade, especially for bulk shipments, and requires clear allocation of export and freight costs between parties.
Understanding CFR is essential for managing your capital allocation and logistics in global transactions, as it influences who pays for freight and when risk passes.
Key Characteristics
CFR defines clear responsibilities and cost distribution between the seller and buyer in international shipping:
- Seller's Cost Coverage: The seller pays for export clearance, loading, and freight to the destination port, but not unloading or import duties.
- Risk Transfer Point: Risk passes from seller to buyer once goods are loaded on the vessel at the origin port.
- Insurance: Unlike related terms, CFR does not require the seller to provide insurance; buyers often arrange coverage themselves.
- Transport Mode: CFR applies exclusively to sea or inland waterway transport and is unsuitable for multimodal shipments.
- Documentation: Seller must provide documents like the bill of lading to prove delivery and facilitate buyer import procedures.
How It Works
Under CFR, the seller is responsible for preparing and packaging goods, clearing them for export, and contracting the main carriage to the destination port. This includes paying for freight costs and ensuring goods are loaded onboard the vessel at the origin port.
Once loading is complete, all risk transfers to the buyer, who must handle unloading, import customs clearance, and any onward transport costs. Because buyers take on risk early, it’s advisable to consider your finance options and insurance coverage carefully to protect your shipment during transit.
Examples and Use Cases
CFR is commonly used in industries where bulk or heavy goods are shipped via ocean freight. Here are some practical examples:
- Energy Sector: Companies like CVX may use CFR terms when shipping large-scale equipment internationally.
- Manufacturing: Exporters selling raw materials overseas often prefer CFR to maintain control over freight costs up to the destination port.
- Cost Management: Businesses analyzing cost structures in global trade apply CFR to allocate expenses clearly between sellers and buyers.
Important Considerations
When negotiating CFR terms, it’s critical to specify the exact destination port to avoid disputes over delivery obligations. Since the buyer assumes risk once goods are onboard, arranging adequate insurance is highly recommended to mitigate potential losses.
Additionally, understanding the distinction between CFR and similar Incoterms like CIF or FOB will help you better tailor contracts to your risk tolerance and operational capabilities, ensuring smoother international transactions.
Final Words
Cost and Freight (CFR) shifts transit risk to you once goods are loaded, while the seller covers freight costs to the destination port. To protect your shipment, assess insurance options carefully and clarify responsibilities with your supplier before finalizing terms.
Frequently Asked Questions
Cost and Freight (CFR) is an Incoterm where the seller pays for all costs to transport goods to a named destination port by sea or inland waterway, but the risk transfers to the buyer once the goods are loaded onto the vessel at the origin port.
Under CFR, the seller covers all costs up to the destination port, including export clearance, loading, and ocean freight. The buyer is responsible for unloading, import clearance, and any costs after the goods arrive at the destination port.
The risk transfers from the seller to the buyer as soon as the goods are loaded onto the ship at the origin port, meaning the buyer assumes responsibility for any loss or damage during the sea voyage.
No, unlike CIF, CFR does not require the seller to provide insurance. Buyers usually arrange their own insurance since they bear the risk from the point the goods are loaded onto the vessel.
CFR is exclusively used for shipments by sea or inland waterways, often for bulk or non-containerized cargo, and is not suitable for multimodal transport involving other forms of transportation.
While both CFR and CIF require the seller to pay freight costs to the destination port, CIF also mandates that the seller provides minimum insurance coverage. CFR leaves insurance responsibility to the buyer.
The buyer must handle unloading the goods at the destination port, pay import duties, clear customs, and manage any further transportation from the port to their location.
CFR is typically used for ocean or inland waterway shipments of bulk or non-containerized cargo and is less common for containerized cargo, where other Incoterms like CPT might be more appropriate.
