Cost and Freight (CFR) Explained: What Is Cost and Freight (CFR)?

Cost and Freight (CFR) is a widely used Incoterm in international trade, specifically for ocean freight shipments. 

It defines the responsibilities and risks between the seller and buyer in a commercial transaction. Under CFR cost and freight, the seller is obligated to deliver the goods to the designated port of destination and pay for the transportation costs up to that point. 

However, the buyer assumes responsibility for subsequent costs and risks, including import clearance, insurance, and transportation from the port of destination. 

cost and freight

What is Cost and Freight (CFR) in Shipping?

CFR Incoterm is a trade term that outlines the responsibilities and risks of each party in a shipping transaction. 

It’s specifically designed for ocean freight and indicates that the seller is responsible for delivering the goods to a named port of destination and paying for the transportation costs up to that point. 

The buyer, on the other hand, is responsible for all costs and risks from the port of destination onward, including import clearance, insurance, and onward transportation. 

CFR Incoterms: What is Each Party Responsible For?

When engaging in international trade, particularly under the CFR Incoterm, understanding essential shipping documents is crucial. To primary documents, the bill of lading and commercial invoice, play important roles in the transaction. 

Bill of Lading: BL is a vital document that serves as a contract of carriage between the shipper (seller) and the carrier. It acts as a receipt for the goods, acknowledging their receipt by the carrier for transportation. 

Commercial Invoice: is a detailed document that provides information about the goods being shipped and their value. It is essential for customs clearance, valuation purposes, and insurance coverage. It provides the necessary information for authorities to assess import duties and taxes.

What Are the Seller’s Obligations Under the CFR Incoterm? 

Under the Incoterm CFR, the seller is responsible for delivering the goods to the agreed-upon port of destination. 

This includes ensuring the goods are loaded onto the vessel and cleared for export, obtaining necessary permits and licenses. 

Additionally, the seller bears the financial burden of transportation costs up to the destination port. 

To facilitate a smooth transaction, the seller must provide essential shipping documents such as the bill of lading and commercial invoice.

What Are the Buyer’s Obligations Under the CFR Incoterm? 

Once the goods reach the destination port, the responsibility for the shipment shifts to the buyer. 

The buyer is accountable for arranging insurance coverage to protect the goods from potential risks during the remaining journey. 

Moreover, they must settle import duties, taxes, and other charges imposed by the destination country’s customs authorities. 

The buyer is also responsible for arranging the unloading of goods from the vessel and transporting them to their final destination.

When is CFR used?

CFR freight terms are commonly used in international trade when the seller has control over the transportation arrangements and wants to transfer the risk of loss or damage to the buyer at the port of destination. 

It’s particularly suitable for shipments where the buyer has the capability to arrange insurance and handle import procedures. 

Financial Dynamics of Cost and Freight Incoterm

Under CFR cost freight, the seller bears the financial responsibility for all costs associated with delivering the goods to the named port of destination. 

This includes transportation costs, export customs clearance fees, and any other expenses incurred before the goods are delivered to the port, the risk of loss or damage transfers to the buyer. 

The buyer is then responsible for any additional costs, including insurance premiums, import duties, and transportation from the port to their final destination. 

Transportation and Delivery Nuances

Cost and freight CFR requires the seller to deliver the goods to the named port of destination. 

This means that the seller is responsible for arranging transportation from their location to the port and loading the goods onto the vessel. 

However, the buyer is responsible for any transportation costs and arrangements from the port of destination to their final destination. 

Risks in CFR: When and How Risk Transfers

The risk of loss or damage to the goods transfers from the seller to the buyer when the goods are delivered on board the vessel at the port of shipment, where the seller is responsible for any losses or damage that occur before that point, while the buyer is responsible for any losses or damage that occur after the goods are delivered on board. 

While cost and freight Incoterrm requires the seller to pay for transportation costs to the destination port, the seller is not responsible for insuring the goods. 

Insurance is typically arranged by the buyer, although the seller may offer insurance options as a value-added service.