What is CFR (Cost and Freight)?

Cost and freight (CFR) is an Incoterm used to describe an arrangement where the seller is responsible for clearing the goods for export, delivery onboard the vessel at the port of origin, and paying for the main carriage to the port of destination. The seller must pay the costs and freight in order to transport the goods to the port of destination in question. The risk of the loss of or damage to the goods, as well as any additional costs as a result of events after the goods are delivered onboard the vessel, transfers from the seller to the buyer when the goods pass the ship’s railing in the shipping port.

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Key takeaways:

This term can only be used for transport by sea and inland shipping traffic.

CFR obliges the seller to clear the goods.

the seller is not responsible to purchase insurance under these Incoterms. If the buyer requires that the seller purchase insurance for the goods.

CIF is a more appropriate contract.

In practice it should be used for situations where the seller has direct access to the vessel for loading, e.g. bulk cargos or non-containerised goods.

If the freight is containerized and to be delivered to a terminal only, use CPT instead.

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Seller's obligations under the CFR Incoterm:

Goods, commercial invoice and documentation

Export packaging and marking

Export licenses and customs formalities

Pre-carriage and delivery

Loading charges

Delivery at named port of destination

Proof of delivery

Cost of pre-shipment inspection

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Buyer's obligations under the CFR Incoterm:

Payment for goods as specified in sales contract

Risk starting with onboard delivery

Discharge and onward carriage

Import formalities and duties

Cost of pre-shipment inspection (for import clearance)

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The difference between CFR (Cost and freight) and FOB (Free on Board):

The main difference between using cost and freight (CFR) and free on board (FOB) shipping lies in who must pay for various shipping or freight costs—the buyer or the seller. The terms refer to the point at which transfer of responsibility for goods shipped occurs, from the seller/shipper to the buyer/receiver.

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The difference between CFR (Cost and freight) and CIF (Cost, insurance, and freight):

Cost and freight (CFR) is a trade term that requires the seller to transport goods by sea to a required port. Cost, insurance, and freight (CIF) is what a seller pays to cover the cost of shipping, as well as the insurance to protect against the potential damage of loss to a buyer's order.

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Notes:

The seller is not responsible to purchase insurance under these Incoterms. If the buyer requires that the seller purchase insurance for the goods.

For goods transported internationally by sea or inland waterways, there are three other Incoterms that are closely related to cost and freight and that are frequently used in trade contracts. Free alongside ship (FAS) means the seller only has to deliver the cargo to the port next to the vessel, and responsibility for the goods shifts to the buyer at that point. Free on board (FOB) requires the seller to also load the goods onto the ship. Like cost and freight, the terms of cost insurance and freight (CIF) require that the seller arranges for the carriage of goods by sea to a port of destination, but the seller has the additional obligation of insuring the goods until they reach the destination port. In cost and freight, the seller is not responsible for insuring the goods until they reach the destination port.