What does CFR mean? Contracts for international trade may use the legal term “cost and freight” (CFR). In a contract that states that a sale is a cost and freight, the seller is required to make arrangements for the delivery of goods by sea to a port of destination and to give the buyer the necessary paperwork to obtain those goods from the carrier.
If a buyer and a seller agree to include CFR in their contract of sale, the seller is responsible for clearing the goods for export, paying ocean freight, and arranging and paying for their delivery to the port of shipment.
Read on to discover more about CFR Incoterm.
Table of Contents
Understanding Cost And Freight (CFR)
Contracts involving international transportation frequently include shortened trade terms that specify information like the date and location of delivery, the method of payment, the circumstances in which the risk of loss passes from the seller to the buyer, and who is in charge of paying the freight and insurance costs.
The seller is responsible for organizing and paying for the transportation of the cargo to a designated port if the buyer and seller agree to include cost and freight in their transaction. The goods must be delivered, approved for export, and loaded onto the transport ship by the seller. Once the seller loads the goods onto the vessel but before the main transportation begins, the risk of loss or damage passes to the buyer. According to this clause, the seller is not responsible for obtaining insurance to cover the cargo against loss or damage while being transported.
Cost and Freight is an Incoterm, or International Commercial Term. In order to facilitate foreign trade, the ICC publishes and regularly updates this set of globally recognized terms that help to create a standard for the terms of foreign trade contracts.4 By defining the responsibilities of buyers and sellers, including those related to transportation, export clearance, and the precise location at which risk passes from the seller to the buyer, Incoterms aim to avoid misunderstandings.
CFR Obligations
Seller’s Obligations
- Goods, commercial invoices and documentation
- Export packaging and marking
- Export licenses and customs formalities
- Pre-carriage and delivery
- Loading charges
- Delivery at the named port of destination
- Proof of delivery
- Cost of pre-shipment inspection
Buyer’s Obligations
- Payment for goods as specified in the sales contract
- Risk starting with onboard delivery
- Discharge and onward carriage
- Import formalities and duties
- Cost of pre-shipment inspection (for import clearance)
Similar Incoterms To Cost And Freight (CFR)
Three other Incoterms, which are closely related to CFR and are frequently used in trade contracts, are applicable to goods transported internationally by sea or inland waterways.
- Free alongside ship (FAS) refers to the condition in which the seller only needs to deliver the cargo to the port nearest the ship before the buyer assumes ownership of the items.
- With free on-board (FOB), the seller is responsible for loading the goods onto the ship.
- Similar to CFR, cost insurance and freight (CIF) require the seller to make arrangements for the delivery of goods by sea to a port of destination, but the seller also has the additional responsibility of insuring the goods up until they arrive at the port of destination. Prior to the goods arriving at the destination port, CFR exempts the seller from responsibility for insurance.
Difference Between CIF & CFR
Cost and freight (CFR) and cost insurance and freight (CIF) are related terms. Both of them deal with the maritime transportation of goods and assign the buyer and the seller different transit obligations. The difference is that CIF mandates marine insurance be added, at the seller’s expense. With CFR, the seller is not obligated to insure the goods until they arrive at the destination port.
The Bottom Line
An Incoterms rule that’s applicable only to cargo transported by sea or inland waterways, cost, and freight (Both the buyer and the seller are held to a significant amount of responsibility under CFR). These contracts, which are fairly typical in international trade, stipulate that the seller is in charge of all planning and expenses related to exporting goods by sea to the recipient’s designated port. But as soon as the goods are loaded onto the ship, the buyer is in charge of paying for marine insurance on them, as well as for trucking the goods to their destination, import duties, and other costs.
