CFR Incoterm

The CFR (Cost and Freight) Incoterm defines a seller’s and buyer’s responsibilities and risks. The seller is responsible for delivering the goods on board a ship at the port of shipment, including all the costs involved, such as transportation to the port of destination, export customs, and charges.

Meanwhile, the buyer shoulders the payment of goods, destination charges, customs handling at the destination, and all risks involved from the moment the goods are loaded onto the ship in the departure port until the final destination.

In other words, the seller is responsible for arranging delivery of the goods to a named port of destination, with all costs up until that point covered by them. The buyer takes responsibility from this point onward.

The CFR Incoterm is used in sea freight shipment only.

 

What is the Difference Between CIF, FOB, and CFR?

The CFR (Cost and Freight) Incoterm can be distinguished from other Incoterms like FOB (Free On Board) and CIF (Cost, Insurance, and Freight) in terms of the division of responsibilities and the transfer of risks and costs between the seller and buyer. 

Based on the CFR Incoterm, the seller is responsible for paying the transportation costs to the named port of destination and ensuring the goods are loaded on board the vessel. At this point, the risk shifts from the seller to the buyer. From there onward, the buyer becomes responsible for all expenses and risks, including unloading, obtaining cargo insurance, handling customs clearance, and transporting the goods after clearance to the final destination. 

The CIF (Cost, Insurance, and Freight) Incoterm is quite similar to CFR in many ways. However, it dictates that the seller should not only cover transportation to the destination port and all associated payments in the country of origin but also secure cargo insurance for the goods in transit. This is in contrast to CFR, in which the seller is not responsible for insurance. Instead, it falls under the buyer’s responsibility if needed.  

On the other hand, with the FOB (Free On Board) Incoterm, where risk is transferred when the goods are delivered onto the ship at the port of exit, the buyer assumes responsibility for all costs and risks, including transportation costs. 

In contrast, under FOB (Free On Board), the risk is passed on to the buyer once the cargo is loaded on the vessel at the port of shipment. From that point, the buyer is responsible for all costs and risks, including transportation costs, cargo insurance, and all other charges.

Ultimately, whether to use CFR, FOB, or CIF as the preferred Incoterm should be determined by the unique needs and agreements of the trading parties, with each Incoterm offering a distinct allocation of costs, risks, and responsibilities.

 

Frequently Asked Questions

 

What is the Key Delivery Point in CFR Terms? 

The key delivery point under the CFR (Cost and Freight) Incoterm is “on board” the vessel at the named port of shipment. This means that as soon as the goods are “on board” the vessel, the risk associated with the goods shifts from the seller to the buyer. From that moment forward, the buyer assumes responsibility for any possible loss or damage to the goods during transit, as well as for the expenses related to unloading the goods from the vessel, customs clearance, import duties, and any further transportation to the final destination.

This scenario is somewhat similar to the FOB Incoterm, where the key delivery point is when the goods are loaded onto the vessel. The key difference is that in CFR, the seller covers the freight transportation costs to the destination port, while in FOB, these costs are the buyer’s responsibility.

 

How is CFR Implemented in FCL Shipping?  

In FCL shipping, CFR (Cost and Freight) involves the seller arranging and paying for the transportation of goods to the destination port and ensuring the container is loaded onto the vessel. Under CFR, the seller covers the cost up to the destination port, but the risk transfers to the buyer once the container is loaded onto the ship at the port of shipment. The buyer, either independently or with the help of a freight forwarder, is responsible for securing cargo insurance, unloading, customs clearance, and any further transportation after the container reaches the destination port. This Incoterm is commonly used in FCL shipping to clearly define cost and risk responsibilities between the seller and the buyer.

 

Is Insurance Included in CFR Incoterms, or is it the Buyer’s Responsibility? 

In CFR (Cost and Freight) Incoterms, insurance is usually the buyer’s responsibility. Under CFR terms, the seller’s primary obligation is to arrange and pay for the transportation of the goods to the named port of destination and ensure that the goods are loaded onto the vessel. However, CFR does not obligate the seller to provide insurance coverage for the cargo during transit. 

According to CFR, if the buyer wants insurance coverage for the goods in transit, he must arrange and pay for it himself. This allows the buyer to protect his interests in case of loss or damage to the goods during the ocean voyage.

It should be noted that there is another Incoterm that is very similar to CFR (Cost and Freight) known as CIF (Cost, Insurance, and Freight), which involves the seller paying not only for transportation expenses but also for cargo insurance.

 

What Are the Main Obligations of the Seller Under CFR Incoterms? 

Under CFR (Cost and Freight) Incoterms, the seller has several main obligations and responsibilities, which include:

  • Paying for Freight Transportation: The seller is responsible for paying the costs of shipping the cargo to the port of destination.
  • Transportation to the Port: The seller is responsible for the transportation of the goods to the agreed-upon port of exit. This includes covering the costs and risks of inland transportation from the seller’s premises to the port.
  • Delivery at Port: The seller must ensure that the goods are delivered to the specific location at the named port where the vessel is ready to receive them. The goods should be made available for loading onto the vessel.
  • Loading Costs: The seller must bear the costs of loading the goods onto the vessel at the port of origin. This includes any charges associated with terminal handling, storage, and securing of the goods for sea transport.
  • Export Customs Clearance: The seller is responsible for completing export customs formalities, including obtaining any necessary export licenses or permits.
  • Delivery Documentation: The seller must provide the buyer with any necessary documents, such as the commercial invoice, packing list, and shipping documents (typically the bill of lading), which are required for the buyer to take possession of the goods and claim them at the destination port.
  • Notice to the Buyer: The seller should notify the buyer as soon as the goods are loaded onto the vessel at the designated port of exit.
  • Transfer of Risk: The seller bears the risk of loss or damage to the goods until they are loaded onto the vessel at the named port. After that point, the risk transfers from the seller to the buyer.

 

What Are the Best Practices for Businesses Importing Goods Under the CFR Incoterm?

When importing goods under the CFR (Cost and Freight) Incoterm, it is important to follow certain best practices to ensure smooth and cost-effective operations. Most of these obligations can be handled efficiently with the help of a digital freight forwarder.

Key Practices Include:

  • Understand the Responsibilities of Both Parties: Understand the buyer’s and seller’s responsibilities under the CFR Incoterm. This knowledge is crucial when managing expectations and ensuring compliance.
  • Use a Freight Forwarder: Consider hiring a freight forwarder who will help you streamline the rest of the process once the risk has been transferred to you by the seller. With their expertise, they can optimize your shipping process, handle customs clearance, arrange the final drayage, and help minimize additional fees such as demurrage and detention.
  • Ensure Contractual Clarity: Draft clear contracts defining the Incoterm, port of origin, port of destination, payment terms, delivery schedules, and other critical terms to prevent misunderstandings.
  • Arrange Adequate Insurance: Since CFR doesn’t cover insurance, consider arranging cargo insurance to protect against transit-related risks.
  • Verify Shipping Arrangements: Double-check the shipping details, including the shipping vessel and its route, to make sure they align with your expectations.
  • Ensure Document Accuracy: To avoid delays and ensure efficient customs clearance, make sure all documentation is accurate and provided on time.
  • Stay Regulatory Compliant: Keep updated with international trade regulations. While a freight forwarder can assist you with shipping, you should still be aware of any changes that may impact your business.
  • Optimize Logistical Handling: Work on streamlining the logistics at the destination port to minimize additional costs and ensure timely cargo availability. As previously mentioned, this can be accomplished with the help of a trusted freight forwarder.
  • Consider Alternative Incoterms: Based on your specific needs and risk assessment, consider whether other Incoterms might be more suitable for your importing operation, for instance, FOB (Free On Board) and CIF (Cost, Insurance, and Freight).

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