What does CFR mean?
CFR, short for Cost and Freight, is an international shipping term defined by the Incoterms® rules. It means the seller arranges and pays for the transport of goods to the named port of destination.
Cost and Freight is only applicable to ocean or inland waterway transport and is typically used for bulk or non-containerised cargo.
What does the CFR Incoterm dictate?
The CFR Incoterm states that the seller is responsible for arranging and paying for the shipment of goods to the destination port. However, this risk transfers to the buyer once the goods are loaded onto the ship at the port of origin.
This means that although the seller handles export procedures and pays for the main carriage, the buyer takes on the risk of damage or loss during transit. Any costs beyond the destination port, such as unloading, import clearance, and onward delivery, are also the buyer’s responsibility.
It’s important to note that under CFR, the seller is not responsible for insuring the goods during transit.
Top Tip:
Always remember that cost and risk do not transfer at the same time in a CFR agreement. For this reason, buyers should consider arranging marine insurance to cover any potential loss or damage during transit.
Cost and freight obligations
Both parties in a CFR arrangement need to understand their obligations. Below, we break down the key obligations of both the buyer and the seller, as defined by the Incoterms® rules.
Obligations of the buyer
Under CFR rules, the buyer is responsible for:
-
Loss or damage during the journey
-
Unloading at the destination port
-
Import clearance, duties, and any further transport
Obligations of the seller
For the seller, CFR dictates that they must:
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Arrange and pay for the main carriage to the port of destination
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Handle export customs clearance, inspections, and licences
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Load the goods safely onboard the vessel
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Provide the buyer with shipping documentation (such as the bill of lading)
|
Responsibility Area |
Seller |
Buyer |
|
Main Transport |
Arranges and pays for transport to the named port of destination |
No responsibility for main carriage costs |
|
Export Customs & Licences |
Handles export documentation, clearance, inspections, and any required licences |
Not involved in export process |
|
Loading at Origin Port |
Loads goods onto the vessel at the port of departure |
No responsibility |
|
Risk During Transit |
Risk transfers to buyer once goods are onboard the vessel |
Assumes all risk from the moment goods are loaded onto the ship |
|
Insurance |
Not obligated to provide insurance |
Should arrange marine insurance if desired |
|
Import Duties & Clearance |
Not responsible |
Handles import clearance, duties, and related costs at destination |
|
Unloading & Onward Transport |
Not responsible |
Pays for unloading and any further inland transport after goods arrive at destination port |
|
Shipping Documentation |
Provides documents necessary for buyer to take delivery |
Uses documents to claim goods at the destination |
When should CFR shipping be used?
CFR is particularly suited to situations where goods are transported by a waterway, usually a sea or river. It is most commonly used for bulk cargo or non-containerised goods that are loaded directly onto the vessel at the port of shipment.
Typical use cases include commodities like grain, coal, oil, and other raw materials shipped in large volumes.
For example, a European steel supplier exporting raw materials to Asia by sea might use CFR to manage transport while transferring risk at the port of origin.
However, CFR is not suitable for containerised shipments that are delivered to a container terminal rather than directly onboard a vessel. Here, a different Incoterm like CPT (Carriage Paid To), may be more suitable.
View the SEKO Guide to Incoterms
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If you’d like to explore more about Incoterms and how they impact your shipping agreements, don’t miss our comprehensive guide. It covers the full range of Incoterms, offering practical insights and answers to common questions.
