What is CFR (Cost and Freight)?

Here is a detailed explanation of CFR (Cost and Freight):

1. Seller’s Responsibilities

Under CFR, the seller has several key obligations:

Pay for Freight to the Destination Port: The seller must arrange and pay for the transportation of the goods from the port of shipment to the port of destination specified in the contract.

Deliver and Load the Goods onto the Vessel: The seller is responsible for delivering the goods to the port of shipment and loading them onto the vessel. All costs and risks related to the goods up to the point when they are loaded onto the vessel are borne by the seller.

Customs Clearance for Export: The seller must handle the customs clearance for export, including paying export duties and providing the necessary export documentation.

Risk Until Goods Are Loaded: The seller assumes all risks of loss or damage to the goods until they have been loaded onto the vessel.

2. Buyer’s Responsibilities

After the goods are loaded onto the vessel, the buyer assumes the following responsibilities:

Risk After Loading: Once the goods have been loaded onto the vessel at the port of shipment, all risks of damage or loss transfer to the buyer. This means that if the goods are damaged during the sea voyage, the buyer is responsible, even though the seller has paid for the freight to the destination.

Insurance (Optional for the Buyer): Under CFR, the seller is not required to purchase insurance for the goods. If the buyer wants insurance for the goods during transport, they must arrange it themselves.

Customs Clearance for Import: The buyer is responsible for customs clearance at the port of destination, including payment of any import duties and taxes.

3. Delivery and Transfer of Risk

a. Delivery When Goods Are Loaded onto the Vessel

The delivery is considered completed when the goods have been loaded onto the vessel at the port of shipment. At this point, the seller’s responsibility for the goods ends, but they still pay for the transportation to the destination port.

b. Transfer of Risk

The risk of loss or damage transfers from the seller to the buyer as soon as the goods are loaded onto the vessel, even though the seller is still responsible for the freight costs to the destination port.

4. Comparison with Other Incoterms

CFR vs. CIF (Cost, Insurance, and Freight):

Both CFR and CIF require the seller to pay for transportation to the destination port. However, under CIF, the seller must also provide insurance for the goods, whereas under CFR, the seller is not required to purchase insurance.

CFR vs. FOB (Free On Board):

In FOB, the seller is only responsible for loading the goods onto the vessel, and the buyer pays for the transport costs from the port of shipment. Under CFR, the seller also pays the freight to the destination port.

CFR vs. EXW (Ex Works):

Under EXW, the buyer is responsible for all transportation and risks from the seller’s premises. In contrast, CFR requires the seller to arrange and pay for transport to the destination port, but the risk passes to the buyer once the goods are loaded onto the vessel.

5. Advantages of CFR

• Simplifies Shipping for the Buyer: CFR is suitable for buyers who do not want to handle the complexities of arranging international transport, as the seller takes care of shipping to the destination port.

• Cost Control for Sellers: The seller has control over the shipping process, which allows them to negotiate better freight rates and manage logistics, potentially reducing overall shipping costs.

6. Real-World Example of CFR

A coffee exporter in Brazil sells a shipment of coffee beans to a buyer in Germany under CFR terms. The seller arranges for the coffee to be loaded onto a vessel at the port of Santos and pays for the shipping costs to the port of Hamburg. However, as soon as the coffee is loaded onto the ship, the risk of damage or loss passes to the buyer in Germany, even though the seller continues to pay for the transportation to the destination.

7. Conclusion

CFR (Cost and Freight) is a widely used Incoterm in maritime transport. It strikes a balance between the seller and buyer’s responsibilities. The seller is responsible for paying the transportation costs to the destination port, but the buyer assumes the risk for the goods as soon as they are loaded onto the vessel. CFR is ideal for buyers who prefer not to handle international shipping logistics but must be aware that they bear the risks during transit and may need to arrange insurance on their own.